There has been an increasing focus on good corporate governance practice and shareholders’ rights in businesses operating in emerging markets. A shareholder’s right to access relevant company information is a particularly important aid in monitoring a company’s affairs and enabling informed decision making. The types and scope of access rights depend on the chosen corporate form, and this area of law remains to be developed in detail under applicable UAE law.
- Shareholders’ access rights are one of the elements that should be considered when choosing an appropriate corporate form in certain circumstances.
- Shareholders’ access rights must be used reasonably and without prejudice to the company’s interests.
The UAE Federal Law No. 8 of 1984 Concerning Commercial Companies (Companies Law) offers several types of corporate form for persons who wish to carry on business in the UAE’s mainland (as opposed to free zones). The characteristics of such types of corporate form provide investors with a range of options in terms of, amongst other things, a shareholder’s liability for the company’s liabilities, as well as issues relating to share capital and management structure. These represent some of the main elements based on which the appropriate corporate form is chosen.
Moreover, an additional consideration when choosing the appropriate corporate form is whether or not the selected corporate form would provide a shareholder with the right to have access to the company’s accounts, books and records (Access Rights) and the scope within which such Access Rights may be exercised. This aspect should be thoroughly considered particularly in cases where not all of the shareholders are participating, whether directly or indirectly, in the management and control of the company. We set out below an overview of the salient features of Access Rights provided by each of the different types of corporate forms regulated under the Companies Law.
Limited Liability Companies
In a limited liability company, Access Rights relate to access to the shareholders’ register which sets out: (a) names, addresses, nationalities and professions of the shareholders; (b) the number and value of the shares owned by each shareholder; and (c) the transactions that have taken place in relation to the company’s shares and the dates of such transactions. In addition, shareholders are entitled to have access to the register in which the minutes of the shareholders’ general meetings are recorded. They also have the right to receive copies of the balance sheet, the profit and loss account and the annual report.
Should the number of shareholders in a company exceed seven, a board consisting of at least three shareholders must be constituted to supervise the managers’ performance (LLC Board). The LLC Board is entitled to examine the company’s documents, books, treasury, merchandise, securities and all other documents evidencing the company’s rights. The LLC Board is also entitled to request the manager(s) to submit a report on the management of the company and also has the right to examine the accounts, the annual report and the distribution of dividends.
A non-manager shareholder in a limited liability company that does not have a LLC Board is entitled to have the right to access the company’s affairs, examine its books and documents and advise its manager.
Public Joint Stock Companies
Subject to obtaining permission from the company’s board of directors or the general assembly (as the company’s articles of association may determine), the Access Rights of a shareholder in a public joint stock company relate to access to the company’s books and documents. In addition, a court may order the company to provide certain data to the shareholders, without prejudice to the company’s interests.
Private Joint Stock Companies
Pursuant to a general reference in the Companies Law, the provisions that apply to public joint stock companies (see above) with respect to Access Rights also apply to private joint stock companies.
It should be noted that all partners are entitled to participate in the management of a partnership and, accordingly, managing partners would have Access Rights by virtue of their managerial positions. Non-manager partners in general partnerships are entitled to have access to the partnership’s affairs, examine its books and documents and advise its manager.
A limited partnership consists of general partners (with unlimited liability for the company’s liabilities) and limited partners (with liability limited).
The Access Rights of general partners are the same as those conferred upon partners in general partnerships (see above).
With respect to limited partners, they are entitled to receive a copy of the balance sheet and profit and loss account and verify the accuracy of such documents by having access to the company’s books and documents, provided, however, that this does not cause damage to the company. It should be noted that, although limited partners are not entitled to participate in management functions involving third parties, they may participate in the internal management affairs within the limits set out in the company’s memorandum of association. This may provide limited partners with more access to the company’s internal affairs.
Partnerships Limited by Shares
A partnership limited by shares consists of general partners (with unlimited liability for the company’s liabilities) and limited shareholders (with liability limited).
General partners receive the same rights conferred upon partners in general partnerships (see above).
In respect of limited shareholders, a board consisting of at least three members must be constituted to supervise the managers’ performance. This board is entitled to examine the company’s documents, books and treasury. Also, this board is entitled to request the manager(s) to submit a report on the management of the company.
In addition, although limited shareholders are not entitled to participate in management functions involving third parties, they may participate in the internal management affairs within the limits set out in the company’s memorandum of association. This may provide limited partners with more access to the company’s internal affairs.
A joint participation is a contractual joint venture between two or more persons that is neither registered in the commercial register nor publicly disclosed.
Without prejudice to the interests of a joint participant, the Access Rights of a partner in a joint participation relate to access to the joint participant’s books and documents.
- as Access Rights can become very important for shareholders, these rights should be taken into consideration if possible when choosing the appropriate corporate form; and
- from a policy perspective, the following would be useful additions to relevant new legislation:
- being more specific as to what constitutes “the company’s documents” and “company’s affairs” under certain provisions of the Companies Law regulating the Access Rights, as these broad terms create a potential risk of disclosing sensitive information without due regard to the company’s and other shareholders’ interests;
- limiting the power of the board of directors in joint stock companies to determine which documents the shareholders may have access to by specifying those documents (e.g. the minutes of meetings of the board of directors), in case the board of directors abuses this power; this could particularly affect private joint stock companies since they are not subject to additional disclosure obligations similar to those imposed on public joint stock companies; and
- specifically setting out mechanisms pursuant to which a shareholder may be able to enforce its Access Rights.
Author: Muhammad Nassef Ali
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