The amendments to the UAE Commercial Agency Law (CAL) brought about by Federal Law No. 11 of 2020, makes a significant addition to the types of UAE legal entities that can register a Commercial Agency arrangement at the Ministry of Economy, UAE.
Commercial Agency is basically an arrangement entered into between a Producer/Manufacturer and his appointed Agent who represents the Producer/Manufacturer for the purpose of distribution, selling, display or rendering of a commodity or service against a commission or profit. The appointed Agent acts as a middleman, promotes and negotiates with Third Parties and contractually binds the Principal/Manufacturer with Third Parties.
Before the amendment only UAE Nationals or Companies wholly owned by UAE Nationals could qualify for registration as a Commercial Agent and avail the protections afforded to them. The amendment has introduced two additional legal entities that may qualify for registration:
- a Public Joint Stock Company incorporated in the UAE; and
- a Private Company wholly owned by a UAE Public Joint Stock Company.
At present the following entities can now be registered as agents:
- a UAE National; or
- a UAE Public Joint Stock Company owned, at least, 51% by UAE Nationals; or
- a UAE Private Entity owned by a Public Joint Stock Company meeting the requirements of (2) above; or
- a UAE Private Entity that is 100% owned by UAE nationals.
If an application for registration of a Commercial Agency is submitted under the newly introduced Entities (2) and (3) above, the requirement for an Agent to be wholly owned by UAE Nationals will not apply. Instead, such an applicant can qualify for registration provided its capital is ultimately owned at least 51% by UAE Nationals.
The additional registration criteria previously required remains the same.
- The relevant Commercial Agency arrangement must be exclusive, either in respect of an Emirate or Emirates or the entire UAE; and
- The Commercial Agency agreement must be notarised and accompanied by necessary supporting documents.
The move will encourage family owned trading businesses in the UAE to list on the UAE public markets. It eliminates a key impediment of registered Commercial Agents seeking access to outside equity through the UAE public markets. Local family businesses can now convert their Private Companies into Public Joint Stock Companies and draw foreign investment without forfeiting their registered Commercial Agent status.
The Regulations that might bring clarity to this new UAE Agency Law regime are yet to be issued by the Ministry of Economy, UAE. The Ministry is expected to lay down the procedures and controls necessary for engaging Public Joint Stock Companies or Private Companies owned by Public Joint Stock Companies in commercial agency activities.
The Federal Law No.11/2020 which came into force on 01/06/2020 incorporates the changes to the Federal Law No.18/1981 regulating Commercial Agencies. It is a milestone that will fuel the local capital markets tremendously. Local UAE Companies with Commercial Agencies in their business portfolio will be encouraged to access the equity markets for additional funding and investment. It also expands the potential scope of UAE businesses as existing Public Joint Stock Companies with partial foreign ownership can now register as commercial agencies in the UAE.
