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Corporate Transparency to Change Business Culture

The instructions that directed at the managements and particularly the board of directors of thousands of companies urging them to recognise their legal role and strictly follow rules of business is nothing new. Yet it seems something new. As it carries a strong commitment by the Ministry that wanted to in force the already laid down rules and regulations in latter and spirit.

Business is done in six different forms of the companies: Establishment; partnership between UAE nationals; Limited Liability Company with 51:49 per cent shareholding or private joint stock company; public joint stock company; partnership; and branch of a 
foreign company.

There are about 100,000 LLCs only in Dubai so we can safely add another 100,000 for rest of the nation. Hence the LLC is the most popular form of doing business in the country involving 51 per cent shareholding of local partner and remaining held by the 
expatriate investor.

But, despite already prescribed rules and regulations under the commercial companies’ ordinance of 1984, it has occurred that a majority of companies don’t follow the rules or there is penalty if it is overlooked. There are many reasons attached to it; business operations of many companies are so small that it is almost funny to carry out their board meetings or annual general meeting, as number of directors and shareholders doesn’t exceed three or four.

In Dubai, LLCs are not required to submit even an audit report, but not in the case of an industrial firm according to Jitendra Gianchandani, Chairman Jitendra Consulting Group. It is only required in Abu Dhabi, at the time of renewal of license, he said.

But why government has reiterated on these implementing these regulations which are already essential part of the commercial companies’ law?

Abdul Jabbar Abdul Mohsin Al Sayegh, a leading businessman who is on the boards of at least dozen of public as well as private joint stock companies agrees that the instructions meant to recognise the role of managements and board of directors to more transparent. “It’s nothing new,“ he said. Al most all the companies are already following the rules, it is their business. However, Al Sayegh a director of Abu Dhabi Chamber of Commerce and Industry was not sure if 100 per cent of the firms 
follow such rules.

Gianchandani said that whether the firm is small or large, there is no escape from the law. “Even if you have two directors on the board, its meeting must held, agenda chalked out and AGM held,” the chartered 
accountant clarified.

“As a corporate law practioners, we do all these formalities for our clients,” he said, as it can be helpful in sorting out business disputes in future.

Dr Qaiser Anis, a leading chartered accountant in Abu Dhabi said that the instructions could help maintain not only the official records of business decisions but will also streamline business doing culture that is often ignored.

“Seventy per cent of the firms do not even take such instructions seriously at all or are even aware of it, which can give powers to shareholders and increase their efficiency, performance, profitability at the end of the day,” Dr Anis said.

These instructions are directed towards a good number of private joint stock companies about 70 per cent of the total LLCs, whose shareholders number up to 50, a maximum limit under the law. These shareholders would stand benefit from these instructions, as government is emphasising on the ‘real’ annual general meeting, where management announces its business plans, and present a report of their achievements in past and reveal profit and loss accounts.

—haseebhaider@khaleejtimes.com