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The
UAE Civil Code which was promulgated in 1985, i.e. subsequent
to the Company Law of 1984, adopted a different classification
of companies than the Company Law, but similar to that of
Islamic Law. It provided for:
1.
Work Companies: are defined as companies where two or more
partners join together to perform specific work.
2.
Persons' Companies: are established when two or more persons
join together to purchase goods on credit based on
goodwill and reputation to sell such goods for a profit.
3.
Speculative (Mudharaba) Companies: are defined as those
companies in which a person lends capital to another to
carry out speculative business.
Questions
might arise regarding the exact meaning of a 'civil company'.
In some Arab countries commercial laws define the concept of
trade and categorise the different operations or transactions
that are considered as trade, such as the purchase and sale
of goods, contracting, transport, banking and finance and other
similar transactions. The main difference between civil and
commercial companies, which can be quite significant, depends
primarily on the intention to trade, and can be compared to
the distinction made between a 'merchant' and an 'investor'.
A
merchant is a person who has the capacity to engage in his
name and for his account in commercial transactions making
a profession of the practice of these transaction. A company
performing commercial activities or adopting one of the types
specified in the Company Law shall also be considered commercial
concern or merchant. Consequently, he should declare
his intention to trade by registering with an appropriate
authority, keep proper books of account, pay taxes and dues
on profits and may be subject to all commercial laws and regulations
including bankruptcy. An investor is defined by the
absence of the intention to trade as a profession irrespective
of the odd commercial transaction. The investor is therefore
not obliged to declare his intention to trade by registering
nor need he fulfil the other requirements of a merchant.
As
the definition of the merchant clearly provides, the same
criteria apply to companies. A company formed to carry on
commercial business with the intention to trade will be considered
a commercial company and is obliged to register, maintain
books of account and be subject to commercial laws and regulations,
unlike a company which merely invests and is considered a
civil company.
Thus,
when a person or a company is performing an activity not classified
as trade and that person or company does not have the intention
to trade as a profession, then that person is not classified
as a merchant and that company is not classified as a commercial
company but as a civil company. The legal concepts and differences
may be clear, yet the practical application could be more
problematic.
For
further information on UAE Company Law and Practice,
it is recommended that the full text be referred to. Click on the link to obtain
a copy. For specific legal advise, please contact Sabah
M A mahmoud or other reputable Law Firm.
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