At the start of a New Year, April may seem far way but as a Director of a UAE company, or those in corporate governance roles, early preparation for the Company’s annual general meeting (AGM) is key.
As failure to comply with this legal duty under the UAE Companies Law could result in penalties of up to AED 100,000 or other legal sanctions being imposed upon the Manager, Helen Barrett, Partner at CBD Corporate Services, shares her insight into the legal requirements for the planning and preparation of a Company’s AGM and why it’s critical to take action now.
A Director (also referred to as a Manager) of a limited liability company (Company) has certain legal duties and responsibilities imposed upon him when managing a Company. These include, but are not limited to, duties and liabilities contained in Federal Law No. (2) of 2005 on commercial companies (UAE Companies Law).
One principal duty is the requirement for a Manager to prepare, manage and oversee the Company’s annual audit within three (3) months of its financial year end. As most Companies adopt a January to December financial year, the AGM must be held by the end of April. The Manager’s Report should include an overview of the affairs and financial position of the Company, and the Manager’s recommendations for the distribution of profits (if any) and must be. presented at the AGM, which must be convened no later than four (4) months after the Company’s financial year end. As the Manager’s Report is based upon the Auditor’s Annual Report, it is important to engage your Auditor as soon as possible after the Company’s financial year.
Before the AGM:
• An invitation, or AGM notice, must be sent to all the Company’s shareholders by registered letter, or any other method of service provided for in the Company’s memorandum of association (MOA);
• The shareholders must be given at least 15 days’ notice of the meeting, or such longer period as shall be provided for in the MOA;
• The shareholders may agree to shorter notice if they all agree to do so;
• The following Agenda items must be included in the AGM notice:
o Review of the Manager’s Report
o Review of the Auditor’s Report;
o The balance sheet and the account of profits and losses;
o The profits to be distributed;
o The appointment of the Manager for a further financial year and his remuneration; and
o The appointment and remuneration of the Company’s Auditors for a further financial year.
At the AGM:
• The meeting may only commence once shareholders representing 75% of the shares are in attendance;
• A shareholder may attend in person or by proxy provided the proxy is not the Manager;
• Each shareholder has the number of votes equal to the number of shares held by it;
• Minutes of decisions made at the meeting must be recorded in a special register maintained by the Manager (which must be made available to the shareholders upon their request);
• The shareholders may not discuss any items which are not contained in the Agenda, unless they are serious enough to require immediate shareholder decision.
As AGM’s are effectively convened only to address the agenda items, they are not inherently long meetings. It is therefore surprising that many Managers in this jurisdiction do not place much importance on fulfilling this important legal requirement. Whether you are the owner or Manager of a Company it is crucial to practice good governance across your business. Failure to uphold best practices and, in particular, satisfy your legal duties under the Companies Law with regard to the financial wellbeing of your Company will undoubtedly have an adverse effect on its value on sale.
This information bulletin is for general guidance only. For further information in relation to a Manager’s legal duties and obligations under the Companies Law, detailed professional legal advice should be obtained.