- The Company Rulebook – issued on 7 February 2023 pursuant to (and as part of) the Virtual Assets and Related Activities Regulations 2023 of the Dubai Virtual Assets Regulatory Authority (VARA’) – regulates the corporate governance of virtual asset (VA) activities.
- The UAE Central Bank’s Corporate Governance Regulations and Standards for Insurance Companies, issued on 29 September 2022 through Circular 24/2022, aim to standardise corporate governance practices for insurance companies in the United Arab Emirates.
- UAE Cabinet Decision 77/2022 covers provisions relating to the governance and management of limited liability companies, covering board member elections, terminations and related-party transactions.
- UAE Ministerial Resolution 2/2018 establishes a corporate social responsibility (CSR) regime in order to promote CSR.
- UAE Federal Decree Law 32/ 2021 on Commercial Companies (‘UAE CCL’) governs companies in general.
- The UAE Central Bank’s Corporate Governance Regulations and Standards for Banks, issued on 18 July 2029 through Circular 83/2019, aim to standardise corporate governance practices for UAE banks.
- Securities and Commodities Authority (SCA) Decision 3/2020 concerning the Joint Stock Companies Governance Guide (‘SCA CG Guide’) applies to listed companies.
Compliance with corporate governance rules is mandatory for banks, financial institutions and insurance companies. Public joint stock companies (PJSCs) and private joint stock companies (PrJSCs) are also subject to stringent corporate governance mandatory rules, although PrJSCs face less stringent requirements than PJSCs as they are subject to fewer disclosure requirements.
VA companies must also establish and maintain policies and procedures to ensure that all members of the board, senior management and staff are suitably qualified in their relevant post. The criteria for such internal assessment include, among others:
- academic credentials;
- professional qualifications;
- professional experience;
- awards and honours received; and
- membership of professional and service organisations.
The SCA supervises PJSCs; while the UAE Central Bank oversees banks, insurance companies and financial institutions. The Dubai VARA supervises companies conducting VA activities. Other types of companies fall under the jurisdiction of:
- the Department of Economy and Tourism; and
- the Ministry of Economy.
The UAE CSR Fund is a federal authority that sets out the framework for CSR in the United Arab Emirates while managing and directing contributions from the business sector towards national priority initiatives. It has metrics in place to rank and reward active businesses for CSR on a national level. It also assists relevant authorities in enhancing and regulating socially responsible practices among corporations and business entities.
Financial regulatory authorities such as the Financial Services Regulatory Authority within the Abu Dhabi Global Market and the Dubai Financial Services Authority within the Dubai International Financial Centre have their own governing rules and regulations, including corporate governance regulations and guides.
- Public joint stock companies;
- Banks;
- Insurance companies;
- Financial institutions;
- Virtual assets companies;
- Private joint stock companies; and
- Limited liability companies.
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UAE Federal Decree Law 32/ 2021 on Commercial Companies (‘UAE CCL’) sets out the following requirements in relation to legal and ownership structures, among others:
- A limited liability company (LLC) should be owned by between two and 50 shareholders, whether individuals or corporate entities.
- A single-owner LLC should be owned by only one shareholder, whether an individual or corporate entity.
- Private joint stock companies (PrJSCs) should not be owned by fewer than two shareholders, whether individuals or corporate entities.
- As an exception, a PrJSC can be owned by one shareholder only, in which case its name should be followed by the wording ‘Sole Proprietorship – Private Joint Stock Company’.
- A public joint stock company should not be owned by fewer than five shareholders, whether individuals or corporate entities.
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Limited liability companies (LLCs) maybe managed by one or more managers as determined by the shareholders in the memorandum of association (MOA). If there is more than one manager, the shareholders may appoint a board of managers, which will have the powers and functions set out in the MOA.
Public joint stock companies (PJSCs) and private joint stock companies (PrJSCs) should be managed by a board of directors. The statute or articles of association (AOA) of PJSCs and PrJSCs should determine:
- the method of formation of the board of directors;
- the number of members, which must be between three and 11; and
- the term of membership, which must not exceed three calendar years, commencing from the date of election or appointment.
A board committee is not mandatory for LLCs; however, a supervisory board is mandatory if there are more than 15 shareholders. The supervisory board must consist of at least three shareholders for three years, starting from the date of the appointment decision.
The supervisory board may:
- examine the books and documents of the LLC; and
- request the board of managers at any time to provide a report on their management.
The board must supervise:
- the balance sheet;
- the annual report; and
- the distribution of profits.
An internal Sharia control committee and a Sharia controller must be appointed if an LLC, PrJSC or PJSC conducts its activities in accordance with Sharia law.
Securities and Commodities Authority Decision 3/2020 concerning the Joint Stock Companies Governance Guide (‘SCA CG Guide’) requires PJSCs to adopt a dual governance structure consisting of two internal committees composed of board members:
- the control committee; and
- the executive committee.
These committees are responsible for monitoring the PJSC’s governance and ensuring compliance with the SCA CG Guide.
The control committee is responsible for supervising:
- the executive committee; and
- the appointment and dismissal of members of the executive committee.
The board of a PJSC is required to establish the following permanent committees:
- a nomination and remuneration committee, tasked with:
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- developing policies;
- ensuring the independence of independent members; and
- ensuring ongoing compliance with the membership conditions; and
- an audit committee, tasked with:
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- reviewing the PJSC’s financial and accounting policies and procedures;
- monitoring and reviewing the integrity of the PJSC financial statements and reports (annual, semi-annual and quarterly), and its normal operation during the year.
- It will concentrate in particular on any changes to accounting policies and practices.
Pursuant to the Virtual Assets and Related Activities Regulations 2023 of the Dubai Virtual Assets Regulatory Authority, the board of a virtual assets services provider that provides exchange services must establish:
- a nomination and remuneration committee;
- an audit committee; and
- additional committees to perform certain delegated functions on behalf of the board.
The board may delegate specific authority – but not its responsibilities – to its committees, provided that it continuously monitors and oversees the work conducted by all committees.
PJSCs must appoint independent board members. There is no specific definition of ‘independence’ under UAE law. However, pursuant to the SCA CG Guide, a board member will have independent status where he or she has no relationship with the PJSC or any of its senior executive management personnel, its auditors, its parent, subsidiary, sister or allied companies or consultants, or contractors that may lead to a material or moral or personal benefit that may affect his or her decisions, either currently or in the two years preceding his or her nomination to the board.
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The general assembly elects the board members by secret cumulative vote. For PJSCs and PrJSCs, the chairman and the majority of the board must be UAE nationals.
The board members must at all times:
- meet the standards prescribed below; and
- possess the necessary expertise, knowledge, competencies, skills and independence to efficiently and effectively perform their functions.
The board must prepare a code of professional conduct to promote good behaviour.
All board members and senior officials of the executive management must have the following:
- Leadership and competency skills: Board members should have the appropriate leadership skills, industry knowledge, technical skills and effective communication skills necessary to carry out their roles and responsibilities effectively.
- Integrity: Board members should always:
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- act in good faith, ethically and in the best interests of the company; and
- make all possible efforts to promote an ethical culture within the company.
- Accountability: Board members should be responsible for their actions and decisions (as board members and board committee members) in relation to the company.
- Transparency: Board members should conduct their duties transparently.
- Personal records: Board members should not have been convicted of:
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- a felony or misdemeanour involving a violation of honour or honesty; or
- a crime involving money laundering or terrorist financing.
The general assembly may dismiss any or all of the board members, even if the company’s statute or AOA provides otherwise. In such case, the general assembly must elect new board members to replace those dismissed.
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The board is accountable to the shareholders and must safeguard:
- the shareholders’ rights;
- justice;
- equality; and
- the rights of other stakeholders.
With the exception of those decisions reserved expressly for the shareholders in the memorandum of association (MOA) or articles of association (AOA), the board has full authority to perform all activities necessary to provide control and effective strategic guidance in relation to the company and its management.
The board is responsible for achieving its goals by creating sustainable value for the shareholders, taking into account stakeholders’ rights.
The board is responsible for the company’s works and operations, even if it delegates certain authorities to committees and executive management.
The MOA/AOA should specify the board’s duties and responsibilities. Among other things, the board will:
- undertake the necessary procedures to ensure compliance with applicable laws, regulations, and resolutions, as well as the requirements of the supervisory authorities;
- adopt strategic approaches to achieve main objectives of the company, and supervise their implementation;
- undertake the necessary procedures to ensure the efficient internal auditing of workflow in the company;
- establish written procedures to manage and address conflicts of interest for board members, senior executive management and shareholders;
- establish procedures to manage and address:
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- misuse of company assets and facilities; or
- misconduct resulting from related-party transactions;
- ensure the soundness of administrative, financial, and accounting systems, including systems relating to the preparation of financial reports;
- ensure the use of appropriate regulatory systems for risk management by outlining potential risk and discussing it with transparency;
- establish a code of conduct for board members, staff, auditors and persons to whom some of the company’s operations are assigned;
- establish procedures to apply the governance rules of the company, review such procedures and assess compliance on annual basis;
- establish a mechanism for receiving shareholders’ complaints and proposals, including proposals to add particular issues to the general assembly agenda in a manner that ensures such proposals are studied and the right decisions on them are made;
- adopt criteria for granting incentives, bonuses and privileges to board members and senior executive management in a manner that serves the company’s interests and realises its objectives;
- establish a disclosure and transparency policy and ensure its implementation in accordance with the requirements of the supervisory authorities and applicable laws;
- set a clear policy for distribution of profits in a manner that serves the interests of both the shareholders and the company, and present such policy to shareholders in the general assembly meeting and include it in the board report;
- ensure the protection of shareholders’ interests and company assets;
- determine the company’s risk appetite, including specific targets, maximum limits and indicators of risk appetite;
- ensure the accuracy and validity of disclosed data, statements and information according to the applicable policies and regulations; and
- establish specialised board committees according to resolutions that determine the duration of these committees and their powers, functions and responsibilities.
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The risk management committee and the internal auditing committee undertake the internal auditing, risk management and compliance functions.
The board must ensure – through the audit and risk committees, in consultation with the senior executive management – that appropriate systems and procedures are in place for effective risk management and internal auditing. The board must, in particular:
- adopt risk management procedures and ensure compliance with these procedures; and
- analyse, evaluate and approve the effectiveness of internal risk management procedures and internal controls on a regular basis.
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The legal duties of board members are to:
- maintain the interests of the company, take the care of a careful professional person and carry out all procedures that are consistent with the company’s objectives;
- at all times:
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- act in good faith, honestly and sincerely;
- avoid all potential or actual conflicts of interest; and
- carry out their duties in the interests of the company and in accordance with the articles of association, applicable laws and regulations;
- understand the corporate governance policies and ethical rules of the company, and help to ensure the company’s compliance with those policies at all times;
- understand the provisions relating to insider trading and misuse of confidential information issued by the Securities and Commodities Authority;
- allocate sufficient time for the job, including time to:
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- attend meetings of the board and its committees;
- prepare for meetings; and
- keep up to date with the company’s operations;
- contribute their knowledge, skills, experience, abilities and professional resources to the fullest possible extent, to ensure that the board enhances its potential and makes full use of its members; and
- assume individual responsibility for any issues, topics or matters relating to the company in general which are allocated thereto.
Board members and the executive management will be liable to the company, the shareholders and third parties for all acts of negligence, error, fraud, abuse of power or concluded deals or transactions involving conflicts of interest or violating:
- UAE Federal Decree Law 32/ 2021 on Commercial Companies;
- any other applicable law; or
- the company’s statute, MOA or AOA.
Any provision to the contrary will be deemed null and void.
The executive management will be represented by:
- the general manager, the executive manager or the chief executive officer of the company and their deputies, each at the level of senior executive positions; and
- officials of the executive management who have been personally appointed to their positions by the board of directors.
Pursuant to UAE Federal Decree Law 32/2021 on Commercial Companies (‘UAE CCL’), a shareholder that invests in a company, whether in cash or in kind, is entitled to the following rights:
- the right to share in the profits and losses of the company pro rata to its contribution to the company’s capital. If a shareholder’s share is limited to work, the memorandum of association/articles of association should specify his or her share in the profits and losses;
- the right to exercise its pre-emptive right if another shareholder wishes to sell its shares to a non-shareholder;
- the right to attend and vote on specific matters in general assembly meetings. Each shareholder will have a number of votes equal to the number of the membership interests it owns or represents;
- the right to nominate, appoint and remove directors;
- the right to call for special board meetings; and
- the right to decide on the dissolution of a limited liability company (LLC) by shareholders holding one-quarter of the capital, if the losses of the LLC reach three-quarters of its capital.
In general terms, the board of directors calls for annual general assembly meetings. However, the shareholders of an LLC are competent to consider and issue decisions with respect to:
- the distribution of profits and losses;
- the board of directors’ report on the activities and financial position of the company;
- the appointment and removal of auditors;
- the balance sheet; and
- the appointment and remuneration of the board of directors.
The shareholders have the right to call an extraordinary/special general assembly meetings if the losses of an LLC reach three-quarters of its capital.
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Shareholders are not responsible for the company’s legal obligations or debts as the company is a separate legal entity. As such, a shareholder’s liability is limited to the unpaid amount of its shares.
The general rule stipulated in the UAE CCL is that a shareholder is responsible only to the extent of its shares in the capital of the company. The exception to this general rule is that a shareholder will be held personally liable if it exploits the principle of the independent liability of the company in order to conceal fraudulent acts or misappropriation of the funds of the company with the aim of causing harm to the other shareholders or third-party creditors or avoiding debts. In such case:
- the protection afforded under the law to shareholders of an LLC will not apply; and
- the shareholder will be held liable in a personal capacity for such dispositions in a way that such liability will extend to the shareholder’s personal assets.
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Pursuant to UAE Federal Decree Law 32/ 021 on Commercial Companies (‘UAE CCL’) and Securities and Commodities Authority (SCA) Decision 3/2020 concerning the Joint Stock Companies Governance Guide CG Guide (‘SCA CC Guide’), the remuneration of the board chairman and members of a public joint stock company will consist of a percentage of the net profit, which may not exceed 10% of the net profits for such fiscal year after deducting all consumption and reserves.
Executive compensation is:
- determined by the polices suggested by the nomination and remuneration committee;
- reviewed by the board; and
- approved by the general assembly.
However, any fines that are or may be imposed on the company by the SCA or the relevant competent authority due to violations by the board of the UAE CCL, the SCA CG Guide or the company’s memorandum of association or articles of association in a given fiscal year must be deducted from the board’s remuneration. The general assembly may decide not to deduct all or some of such fines if it deems that such fines were not the result of default or error of the board.
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Executive board performance is monitored and managed by a risk management committee through the internal audit function. It assesses the performance of the board and senior management with regard to the implementation of internal auditing systems, including occasions on which the board has been informed of internal auditing issues (eg, risk management) and how these were handled.
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Pursuant to Securities and Commodities Authority (SCA) Decision 3/2020 concerning the Joint Stock Companies Governance Guide, the board must establish the policies and procedures relating to disclosure in accordance with the disclosure requirements stipulated by the SCA and the Dubai Financial Market/Abu Dhabi Exchange, taking the following into the consideration:
- Such policies should include appropriate disclosure methods that enable shareholders and other stakeholders to:
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- access financial and non-financial information related to the company performance and information regarding equity ownership; and
- obtain a comprehensive view of the company’s position (including but not limited to any information, event, decision or fact that may directly or indirectly affect the price or trading movement or volume of the security or may have an effect on the investor's decision).
- The information required to be disclosed should be made available to shareholders and investors without discrimination clearly, correctly and sincerely, and in an orderly and accurate manner, to enable shareholders and other stakeholders to exercise their rights to the fullest extent.
- The company website should include:
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- all information required to be disclosed; and
- any other details and information that can be published through other disclosure methods.
- Setting the rules on reporting the information required to be disclosed and method of classifying thereof in terms of nature and times of disclosure. Reviewing the disclosure polices periodically and their compliance with best practices and the capital markets legislation.
The board must ensure that the details of all members and members of the executive management are disclosed, taking into account the following requirements:
- A record of the board members’ and executive department members’ disclosure should be maintained and updated regularly in light of the disclosures required under the applicable instruments of the SCA and the capital markets legislation.
- This record should also be made available to the shareholders.
The board of directors of a listed company or a company which applies to be listed must ensure the completeness and accuracy of all information submitted to the SCA and the Dubai Financial Market/Abu Dhabi Exchange. The awareness of the SCA or the Dubai Financial Market/Abu Dhabi Exchange of such information, or their recognition of such information in their publications, does not constitute a declaration by them as to:
- the accuracy of the contents thereof; or
- the validity of any action taken by any person on the basis of such information.
An integrated report – including all information, whether financial or non-financial – relating to listed securities on the Dubai Financial Market/Abu Dhabi Exchange should be included in the records of a listed company. If any securities transaction is not registered in accordance with the provisions of the SCA’s decision No. 3 of 2000 regarding the regulation of disclosure and transparency, together with regulations and resolutions issued in implementation thereof, the transaction will be considered void.
The integrated disclosure for each company may be different and focuses on the company business model.
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All limited liability companies and public joint stock companies must have one or more auditors, which are nominated by the board of directors and presented to the general assembly for approval. The general assembly will appoint the auditors for one renewable year.
The company may dismiss the auditors by decision of the general assembly. The chairman of the board of directors must notify the Securities and Commodities Authority (SCA) of the decision dismissing the auditor and the reasons therefor within seven days of the date of the dismissal decision.
The auditors must not, while conducting an audit/review of the company accounts, provide:
- any additional technical, administrative or consultation services or works in connection with their assumed duties that may affect their decisions and independence; or
- any services or works that the Department of Economy and Tourism, the Ministry of Economy or the SCA decides that auditors should not perform while conducting an audit/review of the company accounts.
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Corporate governance in the United Arab Emirates is evolving to promote transparency, accountability and responsible business practices. These regulations and initiatives aim to enhance the business environment, aligning with international standards and fostering ethical conduct in the UAE corporate sector.
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