When starting a business in Dubai, foreign investors are often required to find a local sponsor. This is a mandatory requirement for acquiring a mainland license in Dubai, Abu Dhabi, or other parts of UAE. Although a rare exception to this rule does exist.
A local sponsor or local service agent is always an Emirati national or a corporate entity founded by UAE nationals. This local sponsor or local service agent holds at least 51% of the new company’s shares. However, the sponsor’s involvement in running the business is minimal.
Circumstances can still arise that warrant a change in local sponsor for a company. Below is a breakdown of what you need to take into consideration. Also, what and how is it that you need to go about changing the local sponsor or service agent.
What are the main reasons that companies change their service agent or local sponsor?
Sponsors normally do not interfere in any of the Company’s activities. Although operational powers are in the hands of the managing director/manager. A Local sponsor still holds the power to sign on Immigration and Labour-related affairs of the company. Also, as there is no limitation to the number of companies they can sponsor; some UAE nationals are sponsors to hundreds of companies. Their personal PROs generally represent these individuals. Hence, most of the interactions happen through this PRO – if not all interactions. Common issues faced by companies are:
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No access to the sponsor or service agent:
There are many business owners in the market who do not have access to the local sponsor directly but through their PROs/consultants/lawyers. The setup of these companies happens through conversations with either the PROs, consultants, or lawyers. There is no formal introduction to the sponsor or service agent. To a point where the actual company owners do not have the passport details, location details, or even the contact details of their sponsor.
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Busy or Unavailable sponsor:
This is another common issue faced by companies that have busy or unavailable sponsors. They have no option but to speak to their PRO or representative. They are at times forced to continue the services as they have no way out of the contract.
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Limited rights:
Company setups that do not have the required rights to represent the shares of the sponsor have to run pillar to post trying to get jobs done at a premium price. In a situation where there is a requirement for the presence of the sponsor, they may also incur constant expenses.
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Labour and Immigration rights:
Most of the company owners are not aware of the fact that they can have rights to labour and immigration. They can also have these accounts set up independently to remove the dependency on the sponsor. Registration of general companies’ setup with the labour and immigration department is only done with the sponsor’s details. Thus, there is a requirement for the sponsor’s e-signature card to apply for work permits. Also, when the immigration account is part of their group account, it creates a complete dependency on them for every visa task required.
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Lack of process clarity:
“Everything seems to be lengthy and difficult” is the general complaint received. This is because the representative or PRO does not educate the owner on the process or the reasons for costs. They may also not provide original government receipts or even the basic services in a timely manner.
In such situations what does one need to do to initiate the change of sponsor or local service agent? -
Refer to your company documentation:
In the case of a local sponsor, you would have a Memorandum of association. And in the case of a service agent, you would have a Service Agent agreement. Both of these documents should have a termination of services clause. This generally is a 3 months’ notice prior to the renewal of the license. It is important to provide the local sponsor or service agent with this notice in writing or via email on their official physical / email address.
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Dispute resolution:
If a conflict has developed between you and your current sponsor, try to resolve the matter first. If things still do not work out, then change your sponsor (hopefully with your current sponsor’s cooperation). Mediation, and even informal discussions, can help all the parties work through their matters and come to an agreement. If your current sponsor refuses to agree to a change in sponsorship, then you may need legal assistance to pursue the matter through the courts.
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Gather all documents to ensure you are safe:
For a smooth change of local sponsors, it is essential for foreign investors to present certain documents to the court. These documents include a Memorandum of Association (MOA). The MOA is between the foreign investor and the local sponsor. Also, the power of attorney, Labour and Immigration documents and cards, and receipts of annual sponsorship payments. However, there may be a requirement for more documents.
Once you have your documents and your current sponsor agrees to the change, in the case of your LLC Sponsor you will meet at the court where an official will review your documents and confirm your current sponsor’s approval. Then, new documents, including a shares sale agreement, revised MOA, and trade license is for your company to show your new sponsor.
In the case of a Local Service Agent, you will need to ensure that he/she provides you with a No Objection Letter. This letter will need submission at the Notary Public and DED. After which the signing of the new Service Agent agreement with the new service agent is done and the license gets updated.
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