Published: Jan 19, 2023

New Penalties Announced: Can my LLC be hit with a fine?

New Penalties Introduced by the Cabinet

Recently, the UAE Cabinet enacted Cabinet Resolution No. (102) of 2022 Promulgating the Administrative Penalties Regulations Regarding Acts Committed in Violation of the Provisions of Federal Decree-Law No. (32) of 2021 regarding Commercial Companies (“Penalties Law”). The Penalties Law introduces penalties on UAE onshore companies that are found in violation of certain provisions of the UAE Federal Decree by Law No 32 of 2021 concerning Commercial Companies (“UAE Companies Law”).

Who is impacted?

The Penalties law applies to all types of entities that can be formed in the UAE onshore, including partnerships and joint stock companies.

In this alert, we would like to highlight the key fines that could be imposed towards onshore limited liability companies (“LLCs”).

Impact on LLCs

If you are a shareholder or a manager of an LLC, you should be mindful of the following sanctions that have been introduced under the Penalties Law:

  • Ownership: AED 100,000 fine, for incompliance with the required UAE national ownership percentage, or the min. number of Emirati board of directors members, if the LLC is carrying out activities with strategic impact;
  • Sharia Controller: AED 7,000 fine on the Sharia Controller and every member of the Internal Sharia Control Committee of an LLC when not operating in accordance with the provisions of Islamic Sharia;
  • Trade Name Change: AED 500 fine per month for failure to comply with the decision to change the LLC’s trade name. This fine begins to be calculated after the lapse of a period of 30 working days from the date of notification of the decision (total should not exceed AED 5,000 per year);
  • Accounting Registers: AED 15,000 fine for failure to keep Accounting Registers;
  • Data Control: AED 5,000 fine on an LLC that refuses access to a shareholder to the minutes of the meetings of the general assembly, books and documents, or any other documents related transactions involving the LLC and a Stakeholder;
  • Board Meetings: AED 3,000 fine on any director, chairman of the board of the LLC, or their representative in an LLC for failure to invite a director or a member of the Board of Directors;
  • General Assembly: AED 5,000 fine, on the director or chairman of the board of the LLC, for failure to call the annual general assembly meeting. AED 10,000 fine for failure to call the annual general assembly meeting when requested by Ministry;
  • Losses: AED 50,000 fine, on the director or chairman of the board or their representative in the LLC, if the losses of the LLC amount to 50% of its capital and the LLC  has failed to invite the general assembly to convene as per the UAE Companies Law;
  • MoA: AED 1,000 fine per month, for failure to amend the memorandum of association to comply with the provisions of the UAE Companies Law which came into force on 2 January 2022 (Such penalty will apply after 1 year of the UAE Companies Law coming into force, i.e. from 2 January 2023);
  • Inspectors: AED 5,000 fine on the director or chairman of the board of directors of the LLC, their representative, or the auditor who refuses to provide information to the Authority’s inspectors to carry out their duties, or conceals, or provides misleading information;
  • Share(s) Disposal: AED 20,000 fine, on whoever disposes the shares of an LLC in breach of the UAE Companies Law;
  • Miscellaneous: AED 10,000 fine, for violations not specified in the UAE Companies Law or the provisions of rules, regulations, or decisions issued in implementation thereof.

What can be done?

Be Proactive, Not Reactive!

Although we are yet to see what impact the enactment of the Penalties Law will have on the UAE onshore companies, the enactment itself indicates authorities may intend to start taking a closer look at compliance by individual companies with the UAE Companies Law.

We recommend you assess practices adopted by your UAE company, to reduce the risk of finding yourself/ your company in breach of UAE Companies Law, as such breach can result in sanctions being imposed by the authorities.

How can we help?

To assist you in preventing your LLC being found in breach of the UAE Companies Law, we would be delighted to:

(i) conduct a “health check” review of your company;
(ii) share our findings/ recommendations; and
(iii) assist you in rectifying areas that may so require.