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Consultation Paper No. 2 Companies Law

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This draft law is published for consultation purposes only. The regulatory authority reserves the right to amend this draft at its sole discretion. The enactment of this draft law is conditional upon the official publication of a federal decree, the amendment of Dubai Decree No. 3 of 2002, and the issuance of the law by the Chairman of the DIFC.

January 2003

COMPANIES LAW OF THE DUBAI FINANCIAL CENTRE

Primary Purposes

1. To protect the shareholders and creditors of DIFC companies.
2. To establish a simple, workable legal framework governing the formation of limited liability companies and the ongoing rights, duties, liabilities and formalities to be observed by such companies, their Members and officers.
3. To establish the protected Cell company as a legal entity in the DIFC and to establish rules governing the treatment of cellular and Non-Cellular Assets.

Summary

Part 1: General

Establishes the title, authority, application, enactment, commencement and, in conjunction with Schedule 1, interpretation of the contract law.

Part 2: Company Formation and Registration

Provides for the formation of a company by application to the Registrar of Companies ("the Registrar"), registration of the company's articles and issue by the Registrar of a Certificate of incorporation and a company number; establishes rules relating to amendment of articles and change of company name.

Part 3: Corporate Capacity and Transactions

Invests a company with the capacity, rights and privileges of a natural person; establishes that a company may, by signalling its intention to be bound, adopt a contract entered into prior to the company's incorporation.

Part 4: Membership and Share Capital

Defines 'member' in relation to a company; establishes default provisions on the transferability of and rights attaching to Shares (subject to variation by the company's articles) ; requires Shares to be fully paid up on allotment; permits the creation of different Classes of Shares and the alteration of share capital; restricts the ability of a Subsidiary company to be a Member of its holding company; prohibits the issue of Bearer Shares.

Part 5: Directors

Requires a company to have at least 2 directors; establishes rules as to the fitness of directors; establishes rules relating to the election, term, removal and duties of directors; prohibits loans made to Directors without the consent of Members holding 90% of the nominal value of voting shares; prohibits the provision by the company of certain indemnities to officers and former officers; provides for the appointment of alternate directors; empowers the Registrar to disqualify persons from taking part in the management of a company; provides for the personal liability of a disqualified individual managing a company in contravention of a disqualification order; requires a company to have a secretary; provides for the keeping of a register of Directors and secretaries.

Part 6: Meetings

Requires a company to hold a general meeting at least annually, defines 'meeting', provides rules relating to members' requisition of meetings, notice of meetings, voting at meetings, resolutions in writing, use of proxies, members' right to demand a poll, minutes to be taken at meetings and the examination of minute books.

Part 7: Accounts and Audit

Requires accounts to be drawn up at least every 18 months and accounting records to be retained for 10 years, requires examination of accounts by auditors; creates offences for non compliance; empowers the Registrar to make further regulations as to accounts; establishes the powers and duties of auditors.

Part 8: Distributions

Restricts the making of dividends and distributions to disposable profits; establishes the liabilty of a Member who receives an unlawful distribution in the knowledge that it has been unlawfully made to repay the company.

Part 9: Register of Members and Certificates

Requires the keeping of a register of Members, provides rules relating to the transfer and registration of Shares, inspection and rectification of the register and issuance of share Certificates.

Part 10, 11 and 12: Class Rights, Redemption and Purchase of Shares, Reduction of Capital

Establish rules relating to the variation of the rights of different Classes of shareholder including the right of shareholders to object to variation; establish the power of a company subject to its articles, to issue redeemable Shares and to purchase its own shares; establish the requirements for a company to reduce its share capital.

Part 13 and 14: Administration and Investigations

Require a company to maintain a registered office in the DIFC and to carry on business activity in the DIFC without the consent of the Registrar; establish requirements relating to the stationery of a company and its annual return; provide for the appointment of inspectors by the Registrar and establish their powers and duties.

Part 15: Unfair Prejudice

Provides an action for unfair prejudice at the instigation either of Members or of the Registrar; establishes the powers of the Court on a well-founded application for unfair prejudice.

Part 16: Registrar

Provides for the appointment of the Registrar; empowers the Registrar to require Fees, prescribe forms and strike companies off the register.

Part 17: Takeovers

Establishes rules relating to Takeover offers including the right of an Offeror to buy out minority shareholders where he has contracted to acquire at least 90% of the Shares subject to Takeover and the right of minority shareholders to be bought out by the Offeror.

Part 18: Protected Cell Companies

Provides for the creation of protected Cell companies and the conversion of existing companies into protected Cell companies; defines cellular and Non-Cellular Assets and the position of creditors in relation to these assets; provides rules in relation to the issue of Cell Shares, payment of Cell dividends and reduction of share capital; requires a protected Cell company to inform persons with whom it transacts that it is a protected Cell company and imposes an offence for failure to inform; regulates the transfer of protected Cell assets.

Part 19: Miscellaneous and Final Provisions

Provides rules relating to the form of a company's records and a company's duty to keep records safe and to produce and allow the inspection of records where an. offence is suspected; establishes the power of the Court to provide relief from liability for negligence default or breach of duty in certain cases or to declare the dissolution of a company void, or to require rectification of breach; provides, in conjunction with Schedule 2 rules relating to the punishment of offences.

Submission of Comments

Please note, that although each draft is in near final form, it is still 'work in progress' and may therefore undergo finther amendments prior to enactment. However, it is anticipated that any amendments would be technical in nature rather than substantive and therefore the Regulatory Authority believes it is a sensible time to engage in consultation.

Any persons wishing to submit comments should, where applicable, provide details of the organizations they represent. In addition, persons suggesting alternative approaches are encouraged to submit the proposed text of possible amendments that would be necessary to incorporate their suggestions.

Please note that the names of the commentators and the content of their submissions may be published on the Regulatory Authority website and in other documents to be published by the Regulatory Authority. If you wish your name to be withheld from publication by the Regulatory Authority, please indicate this when you make your submission.

Any comments should be addressed to Ms. Roberta Calarese, Legislative Counsel, Regulatory Authority, P.O. Box 74777, Dubai, u.a.e. All comments should be provided in writing no later than 28 February 2003.