LATEST DEVELOPMENTS IN THE UAE COMMERCIAL AGENCY REGULATIONS
Written by legal counsel – Alona Sadovets
LATEST DEVELOPMENTS IN THE UAE COMMERCIAL AGENCY REGULATIONS
In the early months of 2023, the UAE business community was presented with the updated Regulation of Commercial Agencies, outlined in Federal Law No. 3/2022 (New Commercial Agency Code). The new law introduced several novel conditions and legal statuses for commercial agencies in the UAE, sparking a lively discussion on how they should later work on practice. One of the most debated changes was the list of business forms authorized to engage in commercial agency activities.
Specifically, Article 2 of the New Commercial Agency Code stipulated that commercial agency activities in the State shall be carried out by nationals, including individuals or companies that are fully owned by a:
a- National natural person.
b- Public legal person.
c- Private legal person that is owned by public legal persons.
d- Private legal person that is fully owned by national natural persons.
Part 2 of Article 2, however, further introduced a conceptually new form to exercise of agency activities, such as “international companies owning the products” adding that:
Subject to Clause (1) of this Article, the Council of Ministers, based on the Minister’s recommendation, may allow any international company, even if it is not owned by nationals, to engage in Commercial Agency activities for its products that are owned by such company, under the conditions and within the limits as prescribed by the Council of Ministers in this regard, provided that the company meets the following requirements:
a- The Commercial Agency shall not have a commercial Agent inside the State.
b- The Commercial Agency shall be new and shall not be previously registered in the State.
The employment of Commercial Agency by international corporations that operate through a global network of different entities has been the subject of numerous discussions. However, to date, there has been no further legislative clarification on this matter.
Interestingly, Part 3, of the said Article segregated public joint-stock companies registered in the State excluding them from the operation Article 2. It was reserved for the Council of Ministers to issue a decision on the procedures, controls and conditions for the companies mentioned in Part 3 of the Article to practice Commercial Agency Activities in the State.
Just a few months after the publication of the New Commercial Agency Law, clarifying guidelines for conducting activities by the Public Joint Stock Companies were issued in the form of Cabinet Decision 83/2023 On The Procedures, Controls And Conditions Required For The Practice Of Commercial Agency Business By Public Joint Stock Companies
The key guidelines are to be found in Articles 2 and 4 of the Decision.
Article 2 “Principal Conditions and Controls”
1- The shareholding by the State nationals shall not be less than (51%) of its capital.
2- Preserving the legal form of the public joint stock company throughout its commercial agency business.
3- Its activity and the purpose for which it was established shall be to carry out the commercial agency business.
4- Carrying out the commercial agency business by itself.
5- The nature, objectives and activity of the public joint stock company shall be related to the nature and objectives of the commercial agency contract.
6- The public joint stock company may register more than one commercial agency with more than one commercial agent as long as the nature of those commercial contracts is consistent with the nature, objectives and activities of the public joint stock company.
7- Meeting the necessary requirements regarding registration in the Commercial Agencies Register at the Ministry.
8- Meeting the necessary conditions and requirements from the competent authorities and any of the official authorities in the State, including the Securities and Commodities Authority, whenever necessary, due to the nature of the commodity or service subject of the commercial agency or company contract.
9- Providing the Ministry with the information it needs.
10- Notifying the Ministry immediately of any change that occurs to any of the conditions and controls referred to in this Article, as well as any change that may affect the company.
Article 4 of the Cabinet Decision stipulates the Cases when permission to Practice Commercial Agency Activities shall be recalled:
The public joint stock company shall forfeit its right to practice commercial agency business in any of the following cases:
1- Transforming its legal form into any other form of commercial company.
2- Non-nationals’ equity in the capital increased to (49%).
3- The shareholding by the State nationals decreased to less than (51%) of its capital.
The Cabinet Decision, hence, sets out a definitive requirement to a PJSC’s shareholding structure in order to be eligible for registration as a Commercial Agent. Failure to satisfy these requirements at any time shall amount to revocation of the permission and striking off the registry.
For further guidance and information, please get in touch with the Al Dhaheri International Advocates & Legal Consultants using the contact details listed on our website. Our team is committed to promptly and effectively addressing any inquiries you may have on the application of the concerned law.
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