20 Sep 2022

New Cabinet Resolution clarifying the legal framework of Mainland Single Shareholder Companies and the potential future tax impact

Authored by: Ahmad Sergieh, Theunis Claassen and Marwan

In Brief:

  1. Cabinet Resolution No. 77 of 2022 on Limited Liability Companies (“Cabinet Resolution”) came into effect on 16 August 2022 the provisions of which are applicable to limited liability companies incorporated in mainland UAE whose entire share capital is owned by a sole shareholder (“Sole Shareholder LLC”).
  1. The provisions of the Cabinet Resolution are applicable to the Sole Shareholder who is the sole incorporator of the Sole Shareholder LLC or acquired its entire share capital.
  1. The Cabinet Resolution introduces new regulations relating to the management and operation of Sole Shareholder LLCs including incorporation related procedures.
  1. In addition to the effect on LLCs, it appears that the Cabinet Resolution may also be anticipating the future application of the tax law. In particular, it could have a significant impact on a company’s ability to comply with transfer pricing (and associated related party) requirements as well as impacting personal income tax (PIT) matters for the sole shareholder in jurisdictions where PIT is applicable. 

The Cabinet Resolution addresses, among others, the following key matters relating to a Sole Shareholder LLC:

  1. certain requirements relating to the name;
  1. relevant information required to be included in the memorandum and articles of association (“MoA”);
  1. the procedure of incorporation;
  1. relevant documents required to be maintained at the Sole Shareholder LLC’s head office;
  1. certain key management provisions;
  1. certain key board meeting provisions;
  1. requirements relating to the accounts;
  1. the appointment, powers and duties of the auditor;
  1. sale of shares;
  1. general assembly meetings;
  1. distribution of profits; and
  1. related party transactions.

We set out below our overview and analysis of the matters referred to above.


A Sole Shareholder LLC must have a name which is derived from either its objectives or from the name of its Sole Shareholder followed by the suffix of LLC (single owned company).


In addition to the existing requirements under the UAE Companies Law, the Cabinet Resolution provides that the memorandum of association must include the following information:

  1. full name of the shareholder as well as nationality, date of birth and place of residency;
  1. name, address and trade name (if any) of the Sole Shareholder LLC and the objectives for which it was established;
  1. details relating to the headquarters of the Sole Shareholder LLC and its branches, if any;
  1. details relating to the share capital of the company;
  1. the duration term of the Sole Shareholder LLC;
  1. the manner by which the company is to be managed including details of the duly authorised signatory(ies) acting on behalf of the Sole Shareholder LLC;
  1. financial year; and
  1. profit distribution.


The Cabinet Resolution provides that the following documents, among others, should be kept at the Sole Shareholder LLC’s head office:

  1. a copy of the MoA of the Sole Shareholder LLC including its amendments (if any); and
  1. a statement setting out information relating to the cash amounts, the nature and value of the assets owned by the Sole Shareholder (including information about the dates of acquisition).

Item (ii) appears to relate to requirements for information on the personal financial matters of the Sole Shareholder to be documented and retained by the head office.  This is unusual from a corporate law perspective as the personal financial affairs of the shareholder are separated from the LLC by virtue of the company’s separate legal personality.

Such information gathered in respect of an individual may have broad ranging tax consequences for citizens and/or residents of other tax jurisdictions where personal income tax or other corporate look through arrangements are applicable.  It may also be aimed at gathering income and asset information for exchange of information purposes between tax authorities.   


Similarly to the UAE Companies Law, a Sole Shareholder LLC shall be managed by one or more directors in accordance with the MoA. If more than one director is appointed, the Sole Shareholder may constitute a board and determine its number as well as nominate a chairman and a vice-chairman.

The duration term for the director’s office as well as his powers and authorities shall be determined in the MoA or the relevant resolution approving the director’s nomination and appointment.

The board shall convene in the manner prescribed in the Sole Shareholder LLC MoA. Board decisions are passed by a majority of the votes present or represented at the meeting, with a casting vote granted in favour of the chairman, unless otherwise provided in the Sole Shareholder LLC MoA.

The Cabinet Resolution also provides that the board, prior to calling the general assembly meeting, shall itself convene at least thirty (30) days prior to the date scheduled for the general assembly meeting. The board must then notify the Sole Shareholder in writing setting out the relevant details with respect to the decision passed at such board meeting together with a proposed date of the general assembly to be convened together with a detailed agenda.


A Sole Shareholder LLC shall appoint one or more auditors by way of a decision passed by the general assembly. The auditor shall be registered with the Ministry of Economy and licensed to practice the profession by the competent authority.

The auditor shall be appointed for a period of one (1) year (which may be renewable) during which the auditors shall supervise the accounts of the company in respect of the relevant financial year. The auditor shall exercise his statutory duties and obligations until the next annual general assembly meeting.

The auditor shall have access at all times to all information, records and the documents of the Company.

The auditor shall submit to the general assembly a report containing the data and information provided for in a Decree Law. The auditor must attend and read his report at the General Assembly meeting, such report should be neutral and unbiased. The auditor is liable for the accuracy of all information included in his report.


The provisions relating to limited liability companies under the UAE Companies Law shall apply to Sole Shareholder LLCs.

If the ownership of the shares is transferred by operation of law following the demise of the Sole Shareholder, the company shall continue on a temporary basis until completion of such transfer, provided that the heirs of the Sole Shareholder nominate a single heir to manage the company for a maximum period of six (6) months from the date of passing of the Sole Shareholder.

The status of Sole Shareholder LLC shall cease upon the termination of the relevant inheritance procedures and the registration of shares in the name of the heirs.


Upon the financial statements and the profits and losses accounts having been prepared, the manager or the board (as the case may be) must obtain the approval of the Sole Shareholder within a maximum period of four (4) months following the end of the company’s financial year.

In the event that the Sole Shareholder has not approved the financial statements within the four month period, the manager or the board (as the case may be) shall submit a letter to the relevant competent authority requesting that the Sole Shareholder approves such financial statements. The Cabinet Resolution provides that the competent authority shall then oblige the Sole Shareholder to provide his decision as to whether he approves the financial statements or not, such decision must be rendered within a period of ten (10) days from notifying the Sole Shareholder.


The company shall distribute and pay the dividends due to the Sole Shareholder in accordance with the provisions of the MoA so that such process does not exceed thirty (30) days from the date of approving the dividend distribution.


The Sole Shareholder LLC shall not enter into a transaction with related parties except in the following cases:

  1. the approval of the manager or the board (as the case may be) in the event that the transaction does not exceed five per cent (5%) of the company's share capital; and
  1. the approval of the general assembly is obtained in the event that the transaction exceeds five percent (5%) of the company's share capital, provided that the related parties are not excluded from the vote approving the entry by the Sole Shareholder LLC into such transaction.

The Cabinet Resolution also confirms that Article 104 of the Companies Law applies to the Sole Shareholder LLC, provided that such provision is consistent with nature of the Sole Shareholder LLC to the extent that the relevant provisions are consistent with the nature of a Sole Shareholder LLC and that such matters have not been specifically addressed in the Cabinet Resolution.

Please note that Article 104 of the Companies Law provides, in principle, that all provisions relating to public joint stock companies are applicable to LLCs.


Although the Cabinet Resolution does not have any direct impact on the application of the UAE’s Corporate Income Tax (CIT) rules (as announced), it will be interesting to observe how the Sole Shareholder regulations may interact with the CIT rules after they are introduced. 

In particular, based on available public information, the intention is to align the UAE’s Transfer Pricing (TP) rules with the Organisation for Economic Cooperation and Development (OECD) TP Guidelines.  The Cabinet Resolution uses specific language that may be further defined in the UAE’s CIT and TP regulations, for example, terms such as ‘management’, ‘distribution of profits’ and ‘related party transactions’. Moreover, the UAE’s intention to extend the related party definition to include persons connected through kinship (up to the fourth degree) means that the restrictions on related party transactions under the Cabinet Resolution could prove challenging for some entities.  

There could also be further impact if the UAE elects to extend its tax net in the future by way of additional laws and regulations.

For more information, please contact Ahmad Sergieh, Partner, Head of Corporate, Dubai or Theunis Claassen, Head of Tax.


This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.