New Companies Law on Foreign Ownership

Up until now, the freezones of Dubai have operated perfectly well as a sort of offshore haven operating within the UAE. But if the UAE is going to look for sustainable growth for the whole economy, it needs to lift some barriers on foreign ownership. Currently if you are setting up a company in Dubai, you need a local partner who take 51% of the company. The perception of this is risky, as you believe that you are losing more than half your company, and are never in control. More often than not, it does work well, and the local partner will be active in opening doors for the company, as it is in his own interest. It may work that that the local partner (who has to be a UAE National) may be a sleeping partner and just take a small amount every year for doing nothing but put his name to the company. Some are more active, and are looking in royalties or profit share. It's a difficult situation.

Over the last few years, there has been much discussion about changing this structure. Indeed, there have been many who now find it too expensive to set up in the "free zones" some of which which neither have the space or capability to deal with such companies, even though these continue to open up all the time all over the UAE. Some have been holding out for the new law believing it will offer 100% ownership of companies.

The reason why this has taken so long to come to fruition is that many believe that opening up too quickly will be for those with local businesses. However, by the end of the year, according to the Economy Minister, Sultan Al Mansouri, a new companies law will be in place. Will it offer 100%? Yes and no. It is likely that 100% ownership will be offered in sectors that benefit growth of the UAE and local economy. Where this is not the case, it will probably increase somewhat to a ceiling level of 70-75% or in other cases remain at the 49% law.

The Companies Law 1984 needs to be updated for a changing modern business climate, and we will find that it will tackle more than just foreign ownership.There will be coverage of corporate governance as well as public offerings - allowing firms to retain control of their company and float less than 55% of their equity of the stock exchanges.

The change in foreign ownership will be a big step in realising Dubai and the Abu Dhabi's plans for the future. It will be interesting to view how far that goes.