Quite often, the first step a foreign investor would take in setting up a structure in UAE is finding a local partner who will own the majority interest of the company. Among the specific requirements fulfilled by an international entrepreneur when opening a company in UAE, drafting and notarizing memorandum and articles of association is an important matter. Our Dubai lawyers can offer complete information on the steps required in setting up a business in UAE and can help foreign investors understand the legal aspects involved in a company formation.
Meaning of the articles of association of a UAE company
The articles of association are a document that presents the regulations for a company’s operations, defining the company’s purpose. It will also lay out how tasks will be accomplished within the structure, including the appointment of the directors’ process and how financial records will be managed. The Articles of association of a UAE company often identify the way in which an organization will pay dividends, issue stock shares, audit financial records and power of voting right. This document is actually a set of rules which can be considered a user’s manual for the company because they highlight the methodology for accomplishing the tasks that must be completed on a daily basis. If interested in drafting articles of association and any other requirements for setting up a business in UAE, feel free to contact our Dubai law firm.
The difference between memorandum of association and articles of association of a UAE company
It is good to know that all the companies in the UAE must have their own articles of association and memorandum of association, as stipulated by the applicable legislation. The memorandum of association (MOA) is the root document of the company, containing all the basic details about the company. The Articles of association (AOA) is also a major document which contains all the rules and regulations of the company. In any contradiction between the memorandum and articles, no matter the clause, the memorandum of association will prevail over the articles of association. The memorandum of association contains the information about the objects and powers of the company whereas the articles of association contain information about the company rules. From another point of view, the memorandum of association is subsidiary to the company act, while the articles of association are subsidiary to both company act and memorandum of association. Moreover, the MOA must contain the six clauses whereas the AOA is framed as per the company’s discretion.
Obligatory to be registered with the registrar of companies, the memorandum of association is opposed to the articles of association, which is not required to be filed with the registrar, thus the organization may file it voluntarily.
The board of managers mentioned by AOA
When deciding for the board of managers in a company, the Articles of Association mention a few requirements in this sense, aiming the qualities and the experience of a candidate or future company director. Among these, the following are of high importance:
- • the biography of a person needs to provide information about the practical experience as a former director;
- • a list of companies where the candidate holds shares (if it is the case) must be offered when being selected for the board of managers;
- • a declaration of agreement with the Commercial Company Laws’ provisions and the decision of taking the due diligence will be necessary;
- • the board of directors can appoint the managing director and decide on the specific duties in the company.
It is good to know that the board of managers of a company in the UAE can hold the general meetings at the main office of the firm or any other place as long as it is approved by all managers. According to the Articles of Association, the managers of the company must meet at least 4 times in one year.
The power of auditors according to AOA
A company in the UAE can have one or more auditors who are normally appointed by the general assembly, once the board of directors decides in this matter. An important mention which needs to be considered is that the appointed auditors must be authorized and must own the CPA or the Certified Public Accountant recognized in the UAE. The internal auditors of companies in Dubai will have to perform their activities in direct compliance with the Commercial Companies Law, plus other local regulations. It is good to know, that according to the Articles of Association, an auditor cannot be a business partner, a director, or have an executive position in the firm. As for the powers of auditors in Dubai, they can perform internal audits, review and analyze the financial situation in the firm and can evaluate the balance sheet. They have complete access to the company’s records, financial reports and any other related documents necessary for their activities. We remind that all auditors must respect the international standards on auditing plus the local applicable legislation in this important field and must perform the activities in complete accuracy.
Our Dubai lawyers specialized in company formation can provide in-depth support for foreign investors looking to start a business in Dubai.
How is the company liquidation made according to AOA?
The Articles of Association also provide information about the ways in which a company can be closed. The termination procedure of a company in Dubai is made only if the owners of the firm decide in this direction. In most of the cases, a company can be closed if the investments made do not return or if the losses are bigger compared to the profits in the firm (more than 50%). There are cases in which a company is created for a specific period of time, as mentioned by the Articles of Association. A special resolution provided to the court law in Dubai will determine the dissolution of the firm with the help of an order issued by the authorities. The next step involves the board of managers who must decide on the procedure of liquidation and on the liquidator in charge of the dissolution of the company in Dubai. It is good to know that there are cases in which the managers of the company can be appointed as liquidators until a qualified liquidator is chosen. We invite you to talk to our team of lawyers in Dubai and find out more about the company liquidation in Dubai.
Final provisions mentioned by the Articles of Association
The voluntary contributions, the governance rules, the contradiction, and the publication are the final provisions comprised by the Articles of Association, the most important documents of a company. The governance rules refer to the corporate discipline standards and to the executive resolutions to the Company Law in UAE. As for the voluntary contributions, these refer to a special resolution that mentions the donations or charitable acts for the community as long as they do not exceed 2% of the net profits registered in the firm for at least 2 fiscal years. The rules in this sense are clear and are part of the Articles of Association, in respect with the international directives regarding the formation of a company and the general rules. We remind that our team of lawyers in Dubai are at the disposal of foreign investors looking to open a company in Dubai and understand the requirements and the legislation in this sense.
For more details on the matter of articles of association for your company in UAE, ask for the help and assistance of our Dubai attorneys.