Establishing a business with a partner always adds to the exposure and risk of business, even more so if you are expected to get into partnership with a stranger. This is the risk that foreign investors in the UAE take on when they look at setting up as an LLC with a local partner.
Finding a trustworthy sponsor that meets the criteria in support of the business model and legal form demands isn’t as challenging a task as some may think, as long as you perform the relevant due diligence. Most local sponsors prefer to have their involvement in the business limited and prefer to ensure the infrastructure and documentation of the entity reflects the same. Companies set up under the LLC legal form are managed solely by the foreign partners and the local partner receives an annual sponsorship fee for his association with the business.
It is essential you make an informed decision on whether or not you would like to go into business with the suggested sponsor. As we have developed an extensive insight over the years in establishing numerous entities and business, we are now in a position where we can guide you on what are the things you must consider when looking for a local sponsor for your business.
GET ACQUAINTED WITH THE SPONSOR:
First and foremost, meet your sponsor. It may seem like a no brainer but many investors, especially going through middlemen, never meet their partners. This is highly advised against, as it is in your benefit to have a better understanding of the partner, you are entrusting with your business. Especially since their social and legal standing will influence and have an impact on your commercial dealings.
SPONSOR’S INVOLVEMENT IN OTHER COMPANIES:
Looking through the portfolio of companies that the partner sponsors and understanding his involvement in the day to day running of the businesses can be an excellent indicator of what you can expect his participation in your business to be.
Expired licenses, WPS blocks on the sponsor’s other companies can pose as a hindrance to your company’s renewal and result in prolonged delays, which makes it necessary for you to know the kind of businesses that the sponsor is involved in.
AUTHORITY RELATING TO LABOUR AND IMMIGRATION:
Another crucial element to your selection process is whether or not you are in agreement about the powers relating to general management of the business.
For procedures relating to labour, immigration, management of business, signatures of both, you and the local partner are required. The partner can transfer his rights to you through a Power of Attorney that gives you complete control over the running of your business.
If possible, support documentation relating to the powers of the 51% ownership should be prepared. Detailing the relationship between the partners, will protect both partners in the future.
In conclusion, the local partner is an essential part of your business, it is imperative you make a decision that best suits the needs of the business model whilst providing maximum security in documentation and relationship.