Wednesday, August 17, 2011

Doing a Business in UAE

Legal Structures for Business in UAE
Earlier, each emirate followed its own procedures governing the operations of foreign business interests. In practice, however, Dubai and the other emirates followed the same general system, whereby foreign companies operated in one of three ways: with a local sponsor, through a partnership with a UAE national or company, or through a private limited company or public shareholding company incorporated by Ruler's decree. 

Since 1984, steps have been taken to introduce a codified company’s law applicable throughout the UAE. Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 - the "Commercial Companies Law" - and its by-laws have been issued. In broad terms the provisions of the Law are as follows:
The Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organisation which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. It further lays down provisions governing conversion, merger and dissolution of companies.

Ownership Requirements

51 % participation by UAE nationals is the general requirement for all UAE established companies except:

1.       Where the law requires 100% local ownership

2.       In the Jebel Ali Free Zone

3.       In activities open to 100% AGCC ownership.

4.       Where wholly owned AGCC companies enter into partnership with UAE nationals.

5.       In respect of foreign companies registering branches or a representative office in Dubai.

6.       In professional or artisan companies where 100% foreign ownership is permitted.

The basic requirement for all business activity in Dubai is one of the following three categories of licences: 

·         Commercial licences covering all kinds of trading activity.

·         Professional licences covering professions, services, craftsmen and artisans.

·         Industrial licences for establishing industrial or manufacturing activity.  

These licences are all issued by the Dubai Economic Department. However, licences for some categories of business require approval from certain ministries and other authorities: for example, banks and financial institutions from the Central Bank of the UAE; insurance companies and related agencies from the Ministry of Economy and Commerce; manufacturing from the Ministry of Finance and Industry; and pharmaceutical and medical products from the Ministry of Health.

More detailed procedures apply to businesses engaged in oil or gas production and related industries.

Practising some trade activities (e.g. jewellery and insurance) requires the submission of a financial guarantee issued by a bank operating in Dubai. In general, all commercial and industrial businesses in Dubai should be registered with the Dubai Chamber of Commerce and Industry.
Company Formation UAE may take one of seven forms: 

1) Public Shareholding Companies

2) Private Shareholding Companies

3) Limited Liability Companies

4) General Partnerships

5) Limited Partnerships

6) Partnerships Limited by Shares

7) Shareholding Companies

Each entity must be registered and licensed with the UAE Federal Ministry of Economy and Commerce and with the appropriate authority in the Emirate in which its office will be located.

Public share holding company 

Public shareholding company formation uae is a company with a capital divided into equal negotiable shares. In such companies a shareholder’s liability is limited by the number of shares held by him.
Minimum capital required to form a public share holding company in uae is AED 10 million with a nominal face value of AED 1-100. Shares are registered in a share register and cannot be issued lower than the nominal value. All shares must have equal rights.

The Board of Directors must have a minimum of three and not more than twelve directors. The chairman, as well as a majority of the board, must be UAE nationals for public share holding company formation uae.

Private Shareholding Company

Another company formation uae is private share holding company. A private shareholding company must have a minimum of three shareholders. The minimum share capital to form a private share holding company is AED 2 million.

Shares may not be offered to the public. The Chairman and majority of the Directors in a private shareholding company must be uae nationals.

Limited Liability Company

This type of company formation uae is widely accepted way to business. Under the Commercial Companies Law or CCL (Federal Law No. 8 of 1984 Concerning Commercial Companies as amended by Federal Law No 1 of 1984 and Federal Law No 13 of 1988, Federal Law No. 15 of 1998), foreign investors are permitted to hold up to 49 per cent equity ownership in UAE companies, 51 per cent of the equity must be held at all times by one or more UAE nationals

This type of company formation uae can be formed by a minimum of two and a maximum of fifty persons. Shareholder liability is limited to the value of shares held in the company’s capital.Non UAE nationals may own up to 49 percent of an LLC. The Companies Law provides that an LLC may engage in any lawful activity except insurance, banking and investment of money for others. 

The following steps are required in establishing a limited liability company in Dubai. 

·         Select a commercial name for the company and have it approved by the Licensing Department of the Economic Department;

·         Draw up the company's Memorandum of Association and have it notarised by a Notary Public in the Dubai Courts;

·         Seek approval from the Economic Department and apply for entry in the Commercial Register;

·         Once approval is granted, the company will be entered in the Commercial Register and have its Memorandum of Association published in the Ministry of Economy and Commerce's Bulletin. The licence will then be issued by the Economic Department;

·         The company should then be registered with the Dubai Chamber of Commerce and Industry

General Partners

General Partnership company formation uae is a type of company where all the shareholders are jointly liable for the company liabilities to the extent of their assets. All the partners should be UAE nationals.  General partnerships are formed by two or more UAE nationals who are jointly and severally liable for its debts. Interests of a partner can be transferred as stipulated in the partnership agreement or with the approval of all partners. 
Limited Partnership
 A limited partnership is another type of company formation uae which composed of one or more general partners who are jointly and severally liable for all of its debts, and one or more limited partners who are liable for the limited partnerships debts only to the extent of his capital contribution.

A partnership limited by shares has both general partners with unlimited liability and partners whose liability is limited by their shares in the capital. The capital must be at least DH 500,000 and has to be divided into negotiable shares of equal value.
Joint Ventures
Another company formation uae is Joint Participation is a form of company consists of two or more partners for carrying out a single or multiple businesses by one of the partners in his own personal name.

This is a contractual agreement between a foreign party and a local party licensed to engage in the desired activity. The local equity participation in the joint venture must be at least 51%, but the profit and loss distribution can be prescribed.
There is no need to license the joint venture or publish the agreement. The foreign partner deals with third parties under the name of the local partner who – unless the agreement is publicized – bears all liability.

A joint venture is a type of company formation uae where contract may be written or oral and not required to be notarized. Third parties can recourse only to the partners with whom they deal.