How to Increase or Decrease Share Capital in Dubai
Increasing and decreasing share capital in Dubai is regulated by UAE and Dubai-specific laws. If you want to adjust share capital in Dubai, the Federal Law By Decree No. 32 of 2021 on Commercial Companies (New Companies Law), which replaced the Federal Law No. 2 of 2015 on Commercial Companies, is the main law you need to be aware of. This law outlines the framework for share capital adjustments for companies operating across the UAE and came into force in early 2022.
Each authority has its own requirements regarding minimum share capital and whether it needs to be deposited into a company corporate bank account. Companies incorporated in Dubai’s free zones must follow regulations from relevant authorities, such as Dubai Economy (DE) or free zone authorities like DIFC, DMCC or JAFZA. These laws specify required approvals, minimum share capital and necessary documentation for adjustments to ensure alignment with UAE regulations.
Changing share capital in Dubai: step-by-step
If you’re hoping to increase share capital in Dubai – for example, if you wish to raise funds, expand operations, or attract new investors – you will need to follow these steps:
Step 1: Obtain approval from the Board
You will need to ensure the board of directors has approved the capital increase with a Board Resolution (including details on the purpose, how much and the structure of the proposed increase) that has been notarised and attested by the UAE Embassy. Companies with multiple shareholders might need to hold a general assembly to ensure approvals.
Step 2: Prepare the documentation
Documents required to increase shares typically include a board resolution, an application form and amendments to the Memorandum of Association (MOA) and Articles of Association (AOA), however you will need to consult with the relevant authority to confirm exact requirements. These must reflect the new share structure.
Step 3: Submit the application
Submit the application to the Dubai Economy (DE) or specific free zone authority overseeing your company with relevant documentation. You will usually need to deposit the new share capital into the company bank account and provide a bank letter confirming the deposit. There will also be administrative fees. Once approved, your trade license will be updated to reflect the new capital.
You can typically expect to wait up to two weeks for approvals on the Dubai Mainland, while each free zone has different timelines. You can speed up the process by ensuring you have all the required documents and enlist the help of a business setup consultancy, such as Global Link, to ensure you have ticked all the boxes.
Steps to decrease share capital in Dubai
You may need to decrease share capital to optimise balance sheets or return capital to shareholders. The process for doing so is similar to that for increasing share capital:
Step 1: Obtain approval from the Board and shareholders
The Board must approve the decrease and clearly explain the purpose with a Board Resolution. If there are multiple shareholders involved, you may need to hold a general assembly.
Step 2: Prepare the documentation
Documents include the board resolution, shareholder approval, amended MOA/AOA and an application for capital reduction. You will need to notarise the revised MOA/AOA to reflect the reduced share capital.
Step 3: Inform creditors and obtain NOCs
Notify creditors, who may need to submit objections or consent. No-Objection Certificates (NOCs) from creditors are often required to ensure the capital reduction doesn’t compromise obligations to creditors.
Step 4: Apply and pay the fees
Submit the capital reduction application to DE (Dubai Economy) or the relevant free zone authority with all necessary documents. You will need to pay an administrative and processing fee, which varies depending on the authority. Once approved, you will receive an updated trade license.
Due to creditor notification requirements, processing times and approval requirements can take longer than increasing shares. The average processing time is around three weeks.
Benefits of changing share capital
Adjusting share capital can offer significant strategic advantages that drive growth, optimise financial health and enhance flexibility in ownership and investment structures. Let’s take a deeper look at these benefits:
- Drive expansion
Increasing share capital is an effective way to raise funds for business growth. By injecting additional capital, a company can finance expansion projects, develop new products or services and even enter untapped markets. This increase in resources can help strengthen the company’s position in competitive industries and fuel long-term profitability. Expansion opportunities, such as establishing new branches, scaling production and entering global markets, often require substantial upfront investment. By raising capital by issuing new shares, a company can access funding without increasing debt, which helps maintain a healthy balance sheet and enhances stability.
- Optimise financial structure
Adjusting share capital, particularly if you are considering reducing it, can help optimise a company’s financial structure. Businesses aiming to align their capital with actual asset requirements or to reduce surplus capital, which may dilute financial performance metrics, often reduce share capital. By doing so, companies can improve their return on equity (ROE), a measure of financial performance that demonstrates to investors how effectively a company is using its capital.
Reducing capital may also be part of a strategy to return excess funds to shareholders, which can increase shareholder value and make the company more attractive to long-term investors. A leaner capital structure can reduce liabilities, improve credit ratings and allow the company to operate more flexibly.
- Attract investors
Increasing share capital by issuing new shares is a valuable way to attract investors who bring capital, as well as expertise, networks and strategic partnerships. This influx of new shareholders can be especially advantageous for startups or growth-phase companies aiming to attract venture capital or strategic partners to accelerate their development.
New investors may also strengthen governance by bringing additional expertise to the board. In contrast, reducing share capital can consolidate ownership among existing shareholders, which may align control with the company’s long-term strategic goals. By decreasing the number of outstanding shares, companies can enhance ownership stakes for primary shareholders, aligning the ownership structure with the company’s vision.