Is share capital decreasing possible? Are statutory retained earnings and statutory capital reserve the same?

The documents required to reduce capital include:

- Special decisions of members

- Statement of financial solvency

- Newspaper advertisements (in Arabic and English)

- Government fee, approximately 4000 dirhams

Retained earnings are the portion of net profits that a company retains instead of distributing to shareholders as dividends. They are typically reserved for investment, expansion, or debt repayment.

The company's management decides whether to distribute or retain profits based on its assessment of the company's financial situation and future needs.

A legal reserve is formed as follows:

10% of the company's net profits must be allocated annually to form a legal reserve unless the company's articles of association specify a higher percentage.

The General Assembly may halt this deduction once the legal reserve reaches 50% of the company’s paid-up capital unless the company’s articles of association stipulate a higher percentage.

The legal reserve cannot be distributed as dividends to shareholders. However, the portion exceeding 50% of the company’s capital may be distributed as dividends in years when the company does not achieve sufficient net profits according to the percentage specified in the company’s bylaws.

The legal reserve may not be distributed as dividends to shareholders except for the portion exceeding 50% of the company’s capital under certain conditions.

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Dear Questioner,

Thanks for your inquiry.

1. Yes, according to Article 101 of the UAE Company Law, the share capital can be decreased by a resolution of the general assembly of shareholders, subject to certain conditions and procedures.

2. No, statutory retained earnings and statutory capital reserve are not the same. Statutory retained earnings refer to the portion of a company's profits that are required by law to be retained for specific purposes, such as the distribution of dividends or allocation to reserves.

Statutory capital reserve, on the other hand, refers to the portion of a company's share capital that is required by law to be maintained as a reserve.

3. Yes, there are certain statutory retained earnings and statutory capital reserve requirements under the UAE Company Law.

The specific amounts may vary depending on the type of company and its activities. It is recommended to consult with us as a legal advisor for more information on the applicable requirements for a specific company.

Please feel free to contact us by email or phone for any further inquiries.

Greetings,

Dear questioner

1. Yes, a company can decrease the share capital

2. Retained earnings represent profits reinvested at a company's discretion, while statutory reserves are mandatory reserves imposed by law to improve financial stability. Although they are both reserves, their origin, purpose, and usage differ significantly.

3. Statutory Capital Reserve is required and it depends upon the company structure and type.

If you need further clarification, we can arrange a consultation.

1. Thank you for reaching out with your inquiry regarding UAE Company Law and share capital.

In accordance with UAE Company Law, it is indeed possible to decrease the share capital of a company under certain circumstances and subject to specific procedures outlined by the relevant regulatory authorities.

Share capital reduction may be pursued for various reasons such as financial restructuring, capital optimization, or other legitimate business objectives.

However, it's important to note that the process of reducing share capital involves legal complexities and regulatory compliance requirements.

Therefore, I recommend seeking professional legal advice to ensure that the process is executed properly and in accordance with the applicable laws and regulations.

2. Statutory retained earnings and statutory capital reserves are distinct concepts in the context of company finances.

Statutory retained earnings typically refer to the portion of a company's net income that is retained within the business after dividends have been distributed to shareholders.

These retained earnings are often used for reinvestment in the business or to meet future financial obligations.

On the other hand, statutory capital reserves are specific reserves set aside by a company in compliance with legal or regulatory requirements.

These reserves may be established for various purposes such as ensuring financial stability, fulfilling legal obligations, or safeguarding against potential risks.

While both concepts relate to the financial management of a company, they serve different purposes and may be subject to different regulatory provisions.

3. In accordance with UAE Company Law, companies may be required to maintain statutory retained earnings and statutory capital reserves as part of their financial obligations and regulatory compliance.

The specific requirements and amounts for these reserves can vary depending on factors such as the type of company, its legal structure, and applicable regulations.

While UAE Company Law does not prescribe fixed amounts for statutory retained earnings or statutory capital reserves, it may specify minimum capital requirements or reserve ratios for certain types of companies or industries.

These requirements are typically established to ensure financial stability, protect stakeholders' interests, and maintain the integrity of the business environment.

To determine the applicable statutory requirements for your company and ensure compliance with UAE Company Law, I recommend consulting with a legal expert familiar with corporate regulations in the UAE.

As an experienced attorney specializing in corporate law, I would be happy to assist you with this matter and provide guidance tailored to your specific circumstances.

Please feel free to reach out to me via WhatsApp or phone to discuss your company's financial obligations and regulatory compliance in further detail.

I'm here to help you navigate the complexities of UAE Company Law and ensure the success of your business endeavors.

Best regards,

Suhail Rana