It is pertinent for any company established in the United Arab Emirates (UAE), that intends to shut down the business permanently, to dissolve the company as per the procedures provided by the laws governing establishment and dissolution of the companies. Further, every company incorporated in the UAE must register with the relevant government bodies for obtaining a license to run their business. Hence, to avoid unwanted fines and penalties upon the expired license, the company that intends to close the business shall notify the relevant authorities of the same and the reasons to do so, before the dissolution procedure begins. The method involved in the dissolution of the company depends and varies on the type of companies.
However, winding up a company is not a simple process. It involves various steps like settling the utility bills, obtaining clearances from relevant governmental departments, cancelling employment visas, paying off the debts, etc. Thus, this article shall discuss the provisions regulating the dissolution of a Limited Liability Company (LLC) and the steps involved in obtaining an LLC company’s official closure as a legal entity.
Federal Law Number 2 of 2015 on Commercial Companies (the Companies Law), is the governing legislation in UAE for all the aspects related to the companies established in UAE.
The provisions of the Companies Law provides the law regulating the formation of a company, types of company, obligations, requirements to set up companies, liquidation and termination of the companies, and other such vital aspects of companies intending to operate in UAE.
Article 295 of the Companies Law lays down the common grounds when a company can opt to dissolve as follows:
However, as per article 300 of the Companies Law, the following circumstances stated below may not be a reason for the dissolution of an LLC company, unless the MOA of the company provides otherwise:
Further, the share belonging to the partner will be passed on to his heirs.
The procedure for winding up of the LLC company can be initiated by the company’s board of directors, in cases, where the company has reached to the point of losses which is half of its issued capital (fifty Percent). The board of directors may summon for a general meeting with the partners to obtain the consent for the company’s dissolution. Further, where the losses have reached three-quarters of the capital (seventy-Five Percent), then the partners owning one-quarter of the capital (twenty-five percent) can order for the company’s closure. Whatever the case may be, a company can proceed with the company’s dissolution only after it has been agreed in the general assembly; which means a resolution should be passed by the shareholders (partners) of the company as to the dissolution of the company.
The partners shall pass a resolution agreeing for the winding up of the company. Further, the resolution shall also contain the procedure to be adopted for liquidation and even the liquidator‘s name. The partners shall not be entitled to a share of the company’s capital in the event of dissolution of the company until the debts are paid. In cases, where the MOA or AOA of the company has no provisions on the method of liquidation or the partners have not agreed on the liquidation method, then the provisions on liquidation as mentioned in the Companies Law shall be applicable.
The managers authorized to represent the company are required to notify the significant authorities and the registrar of the reasons for which dissolution is initiated. Thereafter, as per article 305 of the Companies Law, either the managers of the company or the chairman or the liquidator, as the case may be, shall mark dissolution in the commercial register with the competent authority. The dissolution shall be published in two widely used local newspapers, in which one of them shall be published in the Arabic language. The company’s dissolution only becomes effective post the date of such registration of dissolution of the company.
As per the provisions mentioned in the Companies Law, the appointment of liquidators by the partners is necessary in the event of dissolution of an LLC company. In cases where the partners have not agreed on the method of liquidation or the MOA of the company is silent on the process of liquidation to be adopted, then the provisions of this law on liquidation shall be applicable. When the company’s dissolution is initiated, it may lead to the ceasing of authority to run the business vested in the company’s manager or the board of directors. However, they may assume the role of liquidators and manage the company until a liquidator is appointed officially.
Further, the company’s management shall remain effective during the period of dissolution of the company, to the extent as deemed necessary by the liquidators for the process of carrying out the dissolution process. The appointed liquidator shall not be an active auditor of the company or a person who has done auditing of the company’s accounts for at least a period of five (5) years. In cases where the Competent Court has passed the dissolution, such Competent Court shall determine the liquidation method and appoint a liquidator. However, the liquidator shall not be liable to be removed, even if such liquidator is appointed by the partners, who have gone bankrupt, expired, or imposed with a judgement of interdiction. The provisions of this law also provide for the appointment of multiple liquidators. However, the multiple liquidators’ actions will be effective only if there is unanimous agreement among them. Further, the liquidator must enter the decision as to his appointment, the partners’ agreement as to the liquidation process to be adopted or any judgement issued regarding the dissolution of the company in the commercial register. The liquidator’s appointment and the method of liquidation adopted shall become effective against any third parties, from the date when such information has been entered into the commercial register.