INVESTING IN A MAINLAND LIMITED LIABILITY COMPANY IN UAE? IMPORTANT ASPECTS TO BE AWARE OF
Thanks to the keenness of the country’s leaders to achieve excellence and ease in the economic sector, the UAE maintains a 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 get a proper understanding of the local business practices. Also, the legalities, and the liabilities involved in setting up a LLC license in Dubai and the UAE. The establishment of a successful company in the UAE requires a thorough business plan and, ideally, some 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 regardless of the either type of company in the UAE. However, if an investor wants to conduct economic activities without any restrictions in the UAE, then the setting up a of a mainland company is impossible to avoid. The restrictions on setting up a business in a free zone could be on the location, customers, and suppliers. Also, whether it is a regulated activity or not allowed in any of the designated free zones.
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 a limited liability company (LLC), a civil company or a branch of foreign company. An LLC company formation in UAE is by far the most common type of company set up by foreign investors to conduct commercial activities in the UAE mainland.
Basic legal aspects that a foreign investor needs to know about the LLC COMPANY FORMATION IN DUBAI AND UAE
- A UAE national or a UAE 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 whether an individual or a company is also allowed. In this case, the shareholder is a UAE national or a UAE owned corporate entity.
- It is possible to establish an LLC as a holding company. This allows the LLC to conduct activities through subsidiaries.
- The managers or the authorized signatories of an LLC Company in UAE, are liable for acts and commitments towards the LLC. As long as the individuals have the power to act on behalf of the company.
- There is no limit to the number of number of managers that can be appointed. Importantly, managers are not allowed to manage any other business in competition with the LLC without the approval of the general assembly.
- It is possible for the partners in an LLC Company in UAE to pledge their shares in the company.
- LLCs are subject to annual mandatory audits of accounts. The regulatory requirement is to keep accounting records for five years.
- It is a need for company auditors to follow International Accounting Standards and Practices.
- The quorum for the general assembly of an LLC is 75% of the share capital present or represented.
An LLC can operate under the following license types
- Commercial: covering all kinds of trading activity.
- Professional: covering professions, services, and crafts.
- Industrial: covering industrial or manufacturing activities.
UAE Foreign Ownership Restrictions
The principle limitation for foreign investors setting up an LLC is the “UAE foreign ownership restrictions”. When setting up an LLC, as per the law it is a must that registration of at least 51% of shares are to a UAE/GCC national sponsor as per the DED / UAE Law. This can be either a UAE/GCC national individual or a corporate entity 100% owned by UAE/GCC nationals, often referred to as a local partner or a local sponsor in Dubai and the UAE.
If your business requirement is to trade in the UAE mainland with local companies then you need a DED-licensed company. This requires a local partner or a local sponsor in Abu Dhabi, Dubai, or the UAE. Many foreign investors have concerns regarding foreign ownership restrictions. They may be uncomfortable about relinquishing control of their company to a local partner or local sponsor. To address these concerns, ACT PRO and Business Services have created a “corporate shareholder” model. This model allows clients to maintain 100% ownership and control of their business. While also remaining in complete compliance with UAE’s company law.
ACT’s Corporate Shareholder Model
ACT PRO and Business Services have created a corporate entity that it manages and controls completely. This company can act as the 51% local partner (Corporate Sponsor). And through a suite of risk mitigation documentation, pass all management control, financial control, and the day-to-day running of the business back to the 49% shareholder in return for a “Fixed Annual Sponsorship Fee”. You could also avail of our “Free Corporate Sponsorship” option.
ACT will not take any commercial role in the new company. Instead, we will charge a fixed annual fee that will have no variation dependent on increased or decreased turnover or profitability of the business.
The primary benefit of the Corporate Sponsorship model is that the investor does not deal with an individual person as a shareholder. Rather with a fully licensed and regulated company that has no emotional ties to the business and no vested interests.
ACT has multiple signatories who are available all year round. As a company, ACT Corporate Sponsor in Dubai and the UAE offers perpetual succession so that the business is not affected by the ill-health or death of a local individual partner.
ACT Corporate Shareholder can also act as the local service agent where a 51% local sponsor is not required. For example, for a Professional License Branch or Representative Office.
Formation of Limited Liability Company(LLC) in UAE
Following are the procedures for the LLC formation in UAE of getting an LLC license in Dubai and the UAE:
- Signing of prescribed application form by partners. Then, obtaining approval of the trade name, activities, and partners. The approval needs to be acquired from the DED, Government of Dubai. For certain activities, there is a requirement of an NOC from other Departments or Ministries. For example, an NOC from the Central for Exchange companies, KHDA for schools, etc.
- Signing of the Memorandum of Association for forming an LLC before a Notary Public.
- There is a requirement to deliver the following documents to the Office of the DED:
- Prescribed application approving trade name, activities, and partners. All this requires approval from the DED.
- Notarised Memorandum of Association in original and copy.
- Passport copies of all partners.
- Tenancy contract for the premises.
- If the partner is a foreign body corporate, the following documents need submission. These documents need notarisation at the place of incorporation and legalised by the UAE Embassy. They also require attestation by the UAE Foreign Ministry and an Arabic translation:
- Resolution of the Board of Directors.
- Power of Attorney in favour of the Representative.
- Memorandum & Articles of Association and Certificate of Incorporation.
- The DED checks the application and the above-mentioned documents. They enter these details in the Commercial Register and furnish them to the Ministry of Economy and Commerce.
- Once approved, they will then notify The DED accordingly.
- Activities of an LLC can only commence after the above-mentioned details get approved. It also must obtain the trade license from The DED before commencing any activity.
- It is possible for an LLC to set up branches in other Emirates only after complying with the trade license rules of the concerned Emirate.
Contact us to setup an LLC in Dubai
Call us at +971 4 428 1505 / +971 52 104 4794 / +971 52 6679677 to speak to our consultants now and know more about LLC Company formation in Dubai and the rest of UAE and about our Free Corporate Sponsorship in Dubai, Abu Dhabi, and Sharjah. Likewise, you can email us at firstname.lastname@example.org to know more or click here for other ACT Services.