Increase/Decrease in Share Capital

How to Increase or Decrease Share Capital in Dubai - Global Link Corporate  PRO Services and Business Setup

Company needs to be flexible when it comes to capital management. Sometimes businesses look out for raising share capital to expand funds and bring in more investors. Similarly, at the other time they have to decrease the share capital to meet up with certain regulatory requirements and to retain financial balance.

That whole process involves a lot of complexities to bring documentation, approvals, compliance with legal framework all in one frame to tackle with affairs of share capital.

However, adjusting share capital can be streamlined with the right guideline.

Let’s see how it can be done!

What is Share Capital?

Amount of money invested by shareholders in any entity in exchange for shares is called Share Capital. All businesses operating in UAE either under Dubain Economy ( DE) or regions considered as freezone like JAFZA, DMCC, and DIFC etc. should have to stick with laws about minimum share capital.

Nature of business activity and regulations of government authority are two key factors in deciding that amount.

There are different types of shares that a company can issue, such as:

  •  Ordinary shares

 They are the most common ones also defined as default in MOA which grant voting rights, meeting participation and dividends to the investors.

  • Preference shares

These shares offer priority to shareholders in dividends over ordinary shareholders. However they don’t get voting rights or meeting participation.

  • Non voting shares

 They are similar to the default shares except the difference is that there would be no voting right.

  • Treasury shares

These shares are owned by the company itself instead of external investors. If any one desires to purchase these shares they will directly ask the company, not another investor.

 What are the reasons behind increasing or decreasing share capital?

Now the next question arises: what are the benefits of changing share capital?

Business go for increase in share capital when they are looking for :

  1. Raising funds to incorporate new projects
  2. Attracting new investors
  3. Expanding operation to a large extent for improvement.

Likewise, businesses choose to decrease their share capitals when they have to :

  1. Truncate liabilities that are unpaid.
  2. Cancel the shares which are not represented by available assets.
  3. Return excess capital to shareholders for optimizing resources.

How to increase share capitals in UAE?

 In order to increase share capitals in Dubai companies have to follow these steps :

  1. Obtain board approval

 Begin with taking approval from the board of directors via notarized resolution. That resolution should cover the details regarding purpose structure and amount of increase. Additionally, If your company owns additional shareholders then you have to take approval through the general assembly.

  1. Prepare documentation

Prepare following documents :

  1. Application which covers the details of new share structures
  2. Board notarized resolution
  3. Updated MOA (Memorandum of Association) or AOA (Articles of Association)
  1. Submit the application

 After preparing documents, submit an application to DE ( Dubai Economy ) or the freezone authority that is overseeing your entity. You also have to:

  • Provide proof through bank letter
  • Pay administrative fees
  • Deposit new share capital into a corporate bank account.
  1. Await approval

 It requires almost two weeks for approval on the mainland while freezone can have different timeframes. Avail PRO services in UAE  to expedite approval.

Authorities update the trade license with new share structures once they approve the application.

How to decrease share capital ?

 The method for decreasing shareholders is not different from the one we follow for increase in share capital. It involves the same steps like: taking approval from the board and shareholder, giving the valid justification, amending MOA and AOA to reflect new capital structure, submitting final application to the relevant authorities and getting approval from respective authority with updated trade license.

  What rules should businesses need to follow?

 Companies must stick with following rules while increasing or decreasing capital share :

  1. Validity of license should be retained throughout the process.  
  2. Only the main company can apply for change in share in capital, not its branches.
  3. Dormant businesses are not eligible and the same goes for the companies which are under sanction.
  4. Compliance with the UAE laws including Federal Decree No. 32 of 2021.

What are the rules for freezone companies?

Though most processes mirror mainland practices, but, those companies which are serving in freezone areas of the UAE such as DMCC, JAFZA, or DIFC  have to meet certain additional requiremnts. These specific regulations are :

  • 80/20 rule:  80% of total share must be an ordinary one, while the remaining 20% is specified for all other types of share.
  •  If the shares are not ordinary ones then shareholders have to switch for non-standard AOA.
  • For DMCC in specific it requires detailed documentation and adherence to CR 2020.

What’s about the fee structure ?

There is no hard and fast rule for administrative fees as it varies for mainland and freezone. Thus, businesses should consult FAR consulting Middle East experts or PRO services in UAE  to meet specific requirements set by regulatory bodies.

Final note

 In order to stay competitive it’s important for businesses to adjust share capitals wisely. Thus, seek guidance from trusted PRO services in UAE to cope up with complexities that arise on the way and to ensure the boom of your business.                                

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