The Importance of holding Annual General Meetings (AGMs) for all UAE Companies
What is an AGM?
An AGM is the Annual General Meeting where, once a year, the shareholders of a company and its board of directors meet to discuss company matters and corporate finances. Normally, this is the only time where the shareholders and directors meet throughout the year. An AGM gives the opportunity to present and discuss the annual business report, business concerns, corporate matters and audited financial records to the shareholders.
Is an AGM a mandatory requirement?
As per the UAE Commercial Companies Law of 2015, it is noted in Article 92 and Article 171 that all UAE companies must hold an Annual General Meeting (AGM) within four months of the end of the financial year. In addition most Memorandums of Association (MOAs) for UAE LLCs contain specific requirements to hold AGMs.
The shareholders of the company (irrespective of the number of shares that they hold) must attend the AGM where key business matters are addressed including company finances and issues etc.
AGMs are often forgotten, particularly by SMEs, however, with the introduction of the new Federal Law No 7 of 2017 relating to tax procedures, an AGM is a legal requirement in any company with multiple shareholders to ensure compliance within the relevant regulatory framework and corporate policies.
Through the introduction of the UAE VAT law, introduced in January 2018, the annual shareholder meeting must cover the review of audited accounts and financial records of the company to ensure that they are maintained appropriately. Failure to comply to both the UAE Commercial Companies Law and tax regulations could result in a business being fined or in the worst case scenario, have their trade licence revoked.
What is required for an AGM?
There are three key stages to an AGM which include; pre-AGM, the official AGM and post AGM. Below are the key elements included in each stage:
- At the end of each financial year, the general manager (GM) prepares a report which includes the company’s balance sheet, profit and loss account, details about the company’s activities, its financial position and proposals for the distribution of profits in respect of the financial year that has just ended.
- It is the GM’s responsibility to send out a notice to all shareholders
- Every shareholder has the right to attend an AGM, whether that be by way of personally, corporate representative, a proxy or delegation to another shareholder.
- Included in the Notice is the proposed agenda (Agenda) to be discussed at the AGM. Copies of any documents that will be referred to during the AGM, eg: the GM’s annual management report and the audited financial statements, should be sent to the shareholders with the Notice and Agenda.
- Every shareholder has the right to inspect the documents referred to and may submit to the GM written questions for the GM to respond to during the AGM.
- Every Shareholder shall have the right to request the GM to invite the shareholders to a meeting to discuss the report.
- Although not always enforced by the authorities, the GM has the obligation to submit a copy of the accounts to the authorities. Check the MOA for the timescale of when this should be done by and the documents required to be submitted.
- Chaired by a Chairman or Company Secretary. This individual can be nominated by the shareholders and may be a shareholder itself.
- In order for the AGM to proceed, quorum needs to be satisfied.
- The matters to discuss at the AGM are as set out in the Agenda.
- The AGM may not deliberate on any matter not included in its Agenda unless serious facts are revealed during the meeting, which require deliberation.
- Check the MOA for details about level of shareholder voting required in connection with resolutions.
- GMs should not participate in voting on resolutions relating to a resolution to absolve them from management responsibility or to their dismissal.
- No amendment of the company’s Memorandum and Articles of Association (MOA), increase or reduction of company share capital shall be effected without the approval of the shareholders representing three quarters of the capital, unless the MOA stipulates another percentage. Notwithstanding, the general rule is that the liabilities of the shareholders shall not be increased without their unanimous agreement.
- The company should deduct ten per cent (10%) of its net profits to form a legal reserve. This should continue until such time as the legal reserve reaches an amount equivalent to one half of the company’s share capital.
- Minutes should be prepared including an adequate summary of the AGM deliberations. The person nominated as Chair or Company Secretary for the AGM should sign the minutes.
- The AGM minutes and resolutions, and any documents thereto, shall be entered in a special register to be kept at the company’s place of business, and every shareholder shall have the right to peruse such register either personally or through an agent. Likewise, a shareholder shall have the right to peruse the balance sheet, profit and loss account and the annual report.
Note that the above is the requirements for Mainland UAE Companies – requirements in the Freezones will differ. Most Freezones are now requiring AGMs and Annual Audits to undertaken to bring requirements in line with UAE Commercial Companies Law and also in anticipation of the new Economic Substance requirements.
Although the AGM is a legal requirement, we regularly encounter situations where companies have either never held an AGM or an AGM has only been held on one occasion in the lifetime of the company.
A failure to convene an AGM within the period specified in the Commercial Companies Law can result in penalties consisting of fines ranging from AED50,000 to AED 100,000, in addition if the losses of an LLC reaches half of its capital, the fines resulting from the failure to hold an AGM can range from AED50,000 to AED1m.
In addition in the event that the company has a VAT audit they will be required to produce the annual audited accounts and the AGMs potentially within a very short time frame – 5 days.
It is important that partners and management of UAE Companies ensure that they remain compliant with the law and hold the AGM annually in order to ensure that their interests are continually protected.
PRO Partner Group can assist you in preparing for and conducting your Annual General Meeting (AGM) as well as assist you with ensuring good Corporate Governance whether you are a mainland LLC or a Freezone Company in UAE. For more information on these services please contact Jessica Ashford on +971 50 411 0496 or firstname.lastname@example.org or please contact a member of the team on email@example.com in Abu Dhabi +971 (0)2 448 5120, or Dubai +971 (0)4 456 1761.