The UAE has just marked its 47Th anniversary and the end of the year is just around the corner. Thanks to the keenness of the country’s leaders to achieve excellence – and easiness – in the economic sector, the UAE maintains its solid position as a top business hub among the countries preferred by expatriates around the globe.
Nevertheless, a new investor in the UAE still needs time and effort to deeply understand the local business practices, the legalities, and the liabilities involved in setting up a company in the country. The establishment of a successful company in the UAE requires a thorough business plan and, ideally, a piece of good advice from accredited consultants.
The first dilemma arises when the investor must choose between a mainland or a free zone company. A venture may flourish with either company type in the UAE, however, if an investor wants to conduct economic activities in the UAE without any restrictions of location, customers, and suppliers, or if the activity is regulated or not allowed in any of the designated free zones, then the setup of a mainland company is impossible to avoid.
The Department of Economic Development (DED) of each Emirate is the governmental authority responsible for the issuance of a mainland company’s license in the UAE. The license can take different legal forms such as limited liability company (LLC), civil company or branch of foreign company. The LLC is by far the most common type of company utilized by foreign investors to conduct commercial activities in the UAE mainland.
Basic legal aspects that a foreign investor needs to know about the LLC:
* A UAE national or a UAE fully owned corporate entity will have a mandatory presence in the shareholding: the UAE partner will own at least 51% of the shares in the company.
* LLCs may have a minimum of two and a maximum of fifty partners. One sole shareholder – individual or company – is also allowed. In this case, the shareholder is normally a UAE national or a UAE fully owned corporate entity.
* LLCs may be established as holding companies allowed to conduct activities through subsidiaries.
* The LLC shall abide by the acts and commitments of its managers or authorized signatories, as long as such individuals have the power to act on behalf of the company.
* Managers and directors are personally liable while performing normal business of the LLC. They shall also indemnify the company for losses or expenses caused by their negligence, misuse of power or any other act of default. Any provision in the corporate documents excluding such liability will be considered invalid.
* There is no maximum number of managers. However, managers are not allowed to manage any other business in competition with the LLC without the approval of the general assembly.
* Partners in an LLC are allowed to pledge their shares in the company.
* LLCs are subject to mandatory audit of accounts annually and they are required to keep accounting records for five years. International Accounting Standards and Practices must be applied by the appointed auditors(s).
* The quorum for general assembly of an LLC is 75% of the share capital present or represented.
Basic formal and practical aspects that a foreign investor needs to know:
* The investor will need to obtain a preliminary approval from the competent authority and reserve the trade name. Some activities are regulated by external regulatory bodies hence the respective permissions must be obtained previously to the issuance of the final license. Some regulatory bodies include but are not limited to the Dubai Health Authority, Knowledge and Human Development Authority, Food Department of the Municipality, Real Estate Regulatory Authority, Dubai Tourism and Marketing Department, UAE Central Bank, Civil Defense, etc.
* The formation of an LLC company requires the partners to sign the memorandum & articles of association in front of a Notary Public.
* The UAE partner has a crucial role in a local business because of its government relations’ skills and prerogatives, in particular while facilitating matters with the Immigration and Labour departments, Ministries and Municipalities.
* Typically, the UAE partner will not get involved in the operations of the company. It depends on the relationship to be contractually established between the partners with regard to rights, obligations, dividend distribution and investment. Private agreements may be put in place to regulate and define the relationship of the shareholders.
* There is minimum space requirement for commercial business, hence a property must be acquired or rented out on annual basis. Exemption applies in case of the instant license currently offered to investors by the DED – valid only in the first year of operation as a start-up support – however it’s application must be assessed on a case-by- case basis as it depends on the chosen activity.
* The number of visas allowed to the company to hire employees is normally linked to the premises’ space.
* Currently there is no minimum capital requirement to open a company in the UAE.
There is obviously more to be aware of and one must dedicate time to get familiar with the local requirements and practices. The UAE has introduced a sophisticated yet pragmatic corporate regulatory regime hence doing business in this country is possible for all entrepreneurs.
Despite the easy access to business services provided by the UAE competent authorities, investors shall not neglect the importance of a good business advisor and most importantly, a trustworthy UAE partner. Being a business owner in the UAE may be challenging but it is extremely rewarding.
“The contents of our articles do not substitute a specific professional advice on any particular matter. Whilst we strive to provide accurate information, we do not accept responsibility for unintended error or omission