In terms of addressing business challenges, improved corporate governance requirements, better risk management practices, and reforms to the legal framework would enhance the development and resilience of the UAE economy. Good corporate governance is a key factor in sustaining economic growth. Adhering to best practices in this respect can play an important role in enhancing the confidence of investors. As economic conditions change, so too must risk management priorities. Risk management is an increasingly important business driver and stakeholders have now become much more concerned about risk. An enterprise-wide approach to risk management enables a firm to consider the potential impact of risks on all processes, activities, stakeholders, products and services.

To reinforce its leading position as a major hub for international trading activities and improve the overall performance of the national economy, the UAE needs to further develop its legal system in line with international standards. The rapid pace of economic development in the country has also necessitated a constant upgrade of the federal legislative framework to modernise the country’s economic legislations.

Abu Dhabi, which leads national efforts to expand and diversify the country’s vital economic sectors, has long realised the importance and benefits of a healthy legislative environment for a prosperous economy. Considerable attention is being devoted to the emirate’s local legal system, which already guarantees investors a stable and safe atmosphere to invest their money.

Reform of insolvency and creditor/debtor regimes can improve economic efficiencies and strengthen market resilience in times of crisis. Reforming the insolvency law to provide a predicable and transparent means for a company to reorganise would benefit the national economy by reducing the cost of capital for UAE companies over the medium to long term. A bankruptcy law already exists, but it has not been tested by any company, which means there is much uncertainty in legal circles about how it could be applied in reality.

The UAE accounting standards for auditing practices are relatively undeveloped. Currently, the Commercial Companies Laws do not specify an accounting standards framework for the preparation of financial statements. However, the Central Bank of the UAE has made it mandatory for banks and listed companies to prepare their accounts as per International Financial Reporting Standards (IFRS). In the absence of any specific standards framework, most UAE firms apply IFRS in the preparation of audited financial statements and apply International Standards of Auditing in the conduct of audits of financial statements.

The new draft companies law introduces some incremental reforms to the existing companies law, but mostly maintains the fundamental framework and features of the old provisions. The draft law applies the same conservative approach in relation to foreign ownership restrictions under the existing law, so foreign investors are limited to 49%. The draft law also prohibits sell-downs in initial public offering (IPO) deals. By the same token, the majority of board seats of public joint stock companies must be held by UAE nationals.

Founders of public joint stock companies continue to be restricted by a lockup period of two years under the draft law, which defeats sell down exit options for IPOs.

Also, the draft law has not reformed the governance of limited liability companies through introducing a proper board of directors’ structure, but has maintained the old form of governance by “managers”. However, the restriction on the number of managers under the existing law has been lifted under the draft new law.

Despite the similarities, the draft law does introduce some new concepts such as single member limited liability companies, private joint stock companies and employees’ incentive shares schemes. The law also enables shareholders in public joint stock companies to sell their preemption rights (rights issue), prohibits financial assistance (in line with international practices) and facilitates strategic share placements for public joint stock companies, among other concepts.