Federal Law No. 2 of 2015: A Guide to Commercial Companies Law in the UAE

  • 28 August
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The Federal Law No. 2 of 2015, also known as the Commercial Companies Law, is a crucial law that sets the rules for starting and running businesses in the United Arab Emirates (UAE). This law was created to make it easier for businesses to grow, attract more foreign money, and follow international standards.

To better understand this law and how it applies to debt collection in Dubai, let us walk through a summary of the law as well as its provisions.

Understanding the Debt Recovery Environment in Dubai

This unique business environment opens up several avenues across the business but also poses several issues to businesses. A large number of expatriates and different industries may involve complexities in the process of debt collection. It will be a good idea for those businesses facing tough times in collecting due debts to hire a Dubai debt collector. However, it is important that you appreciate the laws in place regarding debt recovery so that you ensure you are working within those to safeguard your business interests.

From Federal Law No. 2 of 2015

The Federal Law No. 2 of 2015 was created to replace an older law from 1984. It is introduced for two basic reasons that are to modernize the UAE corporate structure and simply the work done by local and international investors. It will contribute towards making the management system of these companies more robust and improving both shareholders as well stakeholders rights.

Types of Incorporated Companies

Companies are classified into various types according to Federal Law No. 2 of 2015, including:

  • 1. Limited Liability Companies: This is the common form of business entity found in UAE. One feature of LLC is that the minimum number of its shareholders may be two whereas the maximum number may be fifty; and even in this case, their liability is limited only up to the amount of share capital subscribed by them.
  • 2. Public Joint Stock Companies: These can offer shares to the public and are regulated to a large extent.
  • 3. Private Joint Stock Companies: These are similar to the PJSC but in general, share participation in a Private Joint Stock Company cannot be floated. PJSC have to be incorporated with shareholders of a minimum of three and registered capital of a minimum of two million AEDs.
  • 4. Sole Proprietorships: It is a type of a business undertakings where the total control and management of the business is under one individual. This is the most basic structure of business and the members of the business are personally liable for the business.
  • 5. Branches of Foreign Companies: Any branch of a foreign company may register to open a branch in the UAE under laid down regulations and requirements.
Formation and Registration

The process of establishing a commercial company in the UAE includes several steps:

  • Selecting a Company Name
  • Preparing the Memorandum of Association (MOA) and Articles of Association (AOA)
  • Government Approvals
  • Registering with the Department of Economic Development (DED)
Provisions of Federal Law No. 2 of 2015
Corporate governance and compliance

One of the critical aspects of Federal Law No. 2 of 2015 is the emphasis on corporate governance. Companies are required to adhere to strict compliance measures, including:

  • Board Structure: Every company must maintain a board of directors having a duty to oversee management and enforce compliance with the law.
  • Shareholders' rights: The law reinforces shareholder rights, including the right to participate in shareholders' and holders of other securities' meetings, the right to vote in critical decisions, and access to financial information.
Capital Requirements

It sets the minimum capital for different kinds of businesses, thereby ensuring that each company has enough resources with which to operate. This is to extend protection to all forms of creditors, including debt collection in Dubai.

Financial Reporting and Auditing

To ensure transparency, companies in the UAE are required to prepare annual financial statements and undergo regular audits by licensed auditors. This means that everyone can see how the company is doing financially. This open approach helps build trust between businesses and their investors.

Impact on Debt Collection Practices

While equally important to businesses, Federal Law No. 2 of 2015 is critical in debt collection practice. It helps in sustaining financial stability and business continuity in Dubai and the UAE. Here are how the law and debt collection practice interface:

1. Control of Debt Collection Agencies in Dubai

UAE debt collection agencies operate within a controlled framework that is driven by Federal Law No. 2 of 2015. The document clarifies companies' obligations when it comes to settling debts and dealing with debt collectors. This regulation will ensure that all debt collection companies operate within Dubai diligently, accordingly, and in a professional manner.

2. Legal Recourse for Unpaid

The law outlines the legal framework through which debt collection matters are handled. Businesses can be able to file lawsuits if the debtor fails to pay what is due to them. Involving debt collectors in Dubai is also pertinent for the recovery of money owed by defaulters

3. Debt Collection Agency in UAE

The law also has an impact on debt collection agencies operating throughout the whole of the UAE in that it sets the standards by which they can operate and transact their businesses. They are expected to work within the law when pushing for these debts and ensure that their operations are legal and humane to the debtor.

Challenges and Considerations of Business

Though Federal Law No. 2 of 2015 forms a sound base, the businesses encounter numerous challenges in debt collection processes:

1. Compliance with Legal Procedures

This, therefore, requires companies to take necessary actions towards ensuring that their debt collection processes are compliant with the legal requirements as presented by statutory law. This would include proper record-keeping and channelizing an appropriate, legally prescribed mode of recovery.

2. Preventive Measures

In order to avert problems with debt collection, companies need to take preventative measures by strictly checking credit and having clear payment terms set for customers

3. Professional Debt Collectors

Businesses may thus turn to professional debt collectors in Dubai who are knowledgeable about the legal environment. They make navigating the difficult process of locating debtors and collecting debts easier while also staying within Federal Law No. 2 of 2015.

Conclusion and Call to Action

Federal Law No. 2 of 2015 has overhauled the business environment in UAE to a large extent. It expressly introduced rules to be observed in the formation, governance, and dissolution of companies. It also impacts the practice of debt recovery in Dubai and the UAE.

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