Corporate Directors in the U.A.E. Free Zones

Roles of Corporate Directors

Corporate directors, i.e., legal entities acting as directors of other companies, are a useful instrument for complex corporate structures. In our experience, one of the most common scenarios of appointing corporate directors involves Investment Funds, where the company acts as a vehicle for attracting investors’ funds and making investments, while its director is another company licensed as a fund manager. Moreover, corporate directors are also used in the following cases:

• ring-fencing liability arising from the role of a director;
• holding companies being appointed as directors of their subsidiaries;
• registered agents or corporate services providers offering nominee or local director services for their clients in jurisdictions where it is permissible; or
• complex joint ventures.

On the other hand, many jurisdictions prohibit corporate directors and only allow individuals to act as company directors. The primary argument for this position is that corporate directors may be used in bad faith to evade liability or to hide beneficial owners and controllers in money laundering schemes.

U.A.E. Background

There is no single source of corporate law in the U.A.E. free zones. Each of the more than 40 free zones typically has its own internal regulations applicable to companies incorporated within them. Additionally, there are two financial free zones governed by common law: Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM). These free zones operate under common law and have their own extensive corporate regulations.

Regulations in various U.A.E. free zones have different rules related to corporate directors. Therefore, it is crucial to be aware of these rules if you want to appoint a corporate director in your free zone company.

Furthermore, it is important to mention that there are two distinct corporate roles in some U.A.E. free zones: directors and managers (general managers). The distinction between these roles warrants a separate discussion. However, in brief, a manager is responsible for the day-to-day operations of the company, while the role of directors in such U.A.E. jurisdictions is designed for more strategic actions.

DIFC

Non-financial companies in the DIFC cannot appoint legal entities as their directors. Companies Law DIFC Law No. 5 of 2018 states that no person shall be a director of a DIFC company who is not a natural person. However, there are several exceptions for certain legal entities in the DIFC.

The first example is when a DIFC company is incorporated as an Investment Company for the purpose of structuring collective investments via investment funds. A director of such an Investment Company must be a corporation with a Fund Manager licence, according to the Collective Investment DIFC Law No. 2 of 2010. Therefore, the DIFC Investment Companies Regulations 2018 establish a direct exception for Investment Companies from the general requirement for a director to be a natural person as per Companies Law DIFC Law No. 5 of 2018.

Another example is DIFC Foundations, which must have a Council (an equivalent of a board of directors), and corporations can be members of such a Council according to the Foundations Law DIFC Law No. 3 of 2018.

ADGM

According to Companies Regulations 2020, at least one director of an ADGM company must be an individual. Interpreting this rule in conjunction with another section of the Companies Regulations 2020, which states that private ADGM companies must have at least one director, allows us to conclude that it may be possible for a private ADGM company to have several directors, one of whom must be a natural person, while others may be legal entities.

DMCC

According to the DMCCA Company Regulations 2020 (version as of January 2022), only individuals can be appointed as directors of DMCC companies. However, these Regulations grant the DMCC Authority the power to approve corporate entities as directors of DMCC companies in certain circumstances.

Managers in DMCC companies can only be natural persons, and a legal entity cannot be appointed as a manager of a DMCC company in any case.

IFZA, Dubai Silicon Oasis

The Dubai Integrated Economic Zones Authority Implementing Regulations 2023, which apply to IFZA and Dubai Silicon Oasis, state that FZCO (LLC equivalent) must have at least one director, who must be a natural person. Those Regulations also permit incorporation of a public limited company (PLC), where there must be at least two directors, one of whom must be a natural person. 

Those rules may be interpreted as allowing for the appointment of a corporate director in addition to an individual director in a FZCO or a PLC incorporated within one of the free zones supervised by the DIEZ Authority.

Managers of companies incorporated within the DIEZ Authority jurisdiction can only be natural persons, without any exceptions.

Meydan Free Zone

Companies in the Meydan Free Zone are managed by directors and general managers. The Meydan Free Zone Companies and Licensing Regulations 2022 define a “Person” as including natural persons, legal persons, and any association or partnership. Furthermore, “Person” is used in defining the terms “Director” and “General Manager.” Although this technically means that legal entities may be appointed as directors or general managers of companies incorporated in the Meydan Free Zone, in our opinion, feedback for a particular proposed structure should be sought from the Meydan Free Zone before making a decision.

JAFZA

The JAFZA Companies Implementing Regulations 2016 do not seem to have a direct rule on whether a legal entity can be a director or a manager of a JAFZA company. However, those regulations state that a person cannot be a director / manager who “if a natural person, is under the age of 21 years…”. In our opinion, the phrase “if a natural person” may imply that legal entities could be appointed as directors / managers of JAFZA companies. It is advisable to discuss such a structure with the Jebel Ali Free Zone Authority in advance.

DWTC

DWTC Company regulations state that a corporation cannot be appointed as a director of a company in DWTC.

Should you have any questions, please feel free to contact CHENINS via www.chenins.ae.

This article is based on laws and regulations existing on 26 August 2024. It is intended for general informational purposes only and does not constitute legal advice or create client relationships.