UAE has taken a significant step in transforming its corporate framework with the issuance of Federal Decree-Law No. (20) of 2025, amending the existing Federal Decree-Law No. (32) of 2021 on Commercial Companies. This update reflects the UAE’s ongoing efforts to align its traditionally civil law-based system with common law practices, enhancing flexibility, investor protection, and corporate governance across mainland, free zone, and financial free zone entities. Here’s what businesses should understand about the key changes:

1. Clearer Scope and Free Zone Alignment

The Amendment clarifies the application of the Commercial Companies Law to foreign companies with a UAE presence and branches or representative offices of free zone entities when operating outside their designated zones. While free zone companies remain primarily governed by their own regulations, the Amendment ensures that branches conducting mainland activities must comply with the UAE Commercial Companies Law. Notably, free zone companies are now formally recognized as carrying UAE nationality, simplifying cross-jurisdictional planning and promoting operational integration between mainland and free zone entities.

2. Introduction of Non-Profit and Single-Person Companies

For the first time, UAE law formally permits the establishment of non-profit companies, whose net profits are reinvested to further their purpose rather than being distributed to owners. These companies will operate under rules to be issued by the Cabinet and relevant authorities, providing a structured legal framework for organizations pursuing social or public benefits. Further, CCL strengthens the single-person companies and provides a broader definition for ‘economic activities’ as well as ‘strategic impact activities’.

3. Bridging Civil Law with Common Law Practices

Mainland limited liability companies (LLCs) now have the option to include drag-along and tag-along rights in their Memorandum of Association (MOA), as well as mechanisms for handling shares of deceased shareholders. These provisions align with common law norms familiar in global markets, including the UAE’s DIFC and ADGM, reducing friction in shareholder succession and exit scenarios while maintaining legal clarity.

4. Enhanced Capital Structure Flexibility

LLCs in the mainland can now issue different classes of shares, such as Class A and Class B shares, with distinct voting rights, dividends, liquidation priorities, and other privileges. This new flexibility supports sophisticated capital arrangements, including venture-style structures and preferential rights, bringing mainland LLCs in line with global private capital practices.

The Amendment also emphasizes that in-kind capital contributions are permitted, provided they are accurately valued by qualified valuers. This ensures proper accountability and transparency in non-cash investments.

5. Access to Capital Markets

While public offerings remain limited to public joint stock companies with SCA approval, private joint stock companies may now raise funds through private placements under SCA regulations. This change broadens financing options for growth-stage companies and supports strategic pre-listing capital planning.

6. Re-Domiciliation: Strategic Portability

A new feature of the Amendment is re-domiciliation, allowing companies to transfer their legal domicile between UAE jurisdictions or even from abroad while retaining their corporate history, shareholding, and operations. This offers strategic flexibility for businesses looking to optimize licensing, regulatory frameworks, tax benefits, or operational footprint without losing legal continuity.

7. Strengthened Governance and Continuity

The Amendment introduces clear rules on the resignation, removal, and continuity of managers and boards for mainland LLCs. Resignations take effect automatically after 30 days, authorities must be notified of appointments within 30 days, and boards can continue operations for up to six months post-term. These provisions reduce governance gaps and ensure smoother transitions during management changes.

These transformative provisions bring the UAE’s corporate framework increasingly in line with DIFC and ADGM practices, further harmonizing the civil law system with modern common law standards.

How MBG Legal Can Help?

MBG Legal is fully equipped to support in understanding and implementing the changes introduced under Federal Decree-Law No. (20) of 2025 in consonance with the Commercial Companies Law. Our team assists with reviewing existing corporate structures, updating constitutional documents, ensuring compliance with the amended Commercial Companies Law, and advising on governance, restructuring, and regulatory requirements. We provide end-to-end legal guidance to help businesses transition smoothly and operate confidently under the updated regime. On the introduction of the amendments, it is prudent for all the companies to do an assessment to determine how these changes impact them and their day to day operations along with governance:

• Review and update MOA, Articles of Association, and shareholder agreements
• Incorporate drag-along/tag-along rights and deceased shareholder provisions
• Introduce multiple share classes with distinct rights, if needed
• Ensure in-kind capital contributions are incorporated, if needed and valued
• Confirm free zone entities and branches comply with Commercial Companies Law
• Update corporate documents to reflect UAE nationality recognition of free zone entities
• Review board and management structures for resignation, removal, and appointment procedures
• Notify authorities of appointments within 30 days
• Implement board continuity measures for up to six months post-term
• Assess feasibility of re-domiciliation within UAE or from abroad

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