Business in UAE
Before 1984, each emirate, Dubai, Abu Dhabi, Sharjah, Ajman, Ras Al Khaimah, Umm Al Quwain and Fujairah, followed its own procedures governing the operations of foreign business interests. In 1984, Federal Law No.8 of 1984, its amendment by Federal Law No.13 of 1988 – the ‘commercial Companies Law’ and its by-laws have been issued. The law makes it conditional that nationals must wholly own the companies or that nationals must own at least 51% of its share capital, while the remaining 49% may belong to foreigners. The law provides that commercial companies established in the U.A.E must take any of the following legal forms:
General Partnership Company
it is a firm that consists of two or more partners who are jointly and severally responsible for all the firm’s liabilities. Partnership companies are confined to UAE nationals only because partners are responsible towards the liabilities of the firm by all their assets, which may not be applied to foreigners as in most of the cases their assets are usually abroad.
Partnership in-commendam (Limited Partnership)
it is a firm consisting of one joint partner or more who is liable with all his money for the firm and another in-commedam partner or more who shall not be responsible for the liabilities of the firm except to the value of his share in the capital. According to law, all joint partners in such type of firms should be nationals of the UAE.
Public Shareholding Company (PJSC)
Public Shareholding Company 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 Shareholding Company is AED 10 million (US $2,724,796) with a nominal face value of AED 1-100, and for a banking entity it is companies AED 25 million. Among the other requirements for establishing a public joint stock company is the preparation of a founders’ agreement, a prospect or invitation for public subscription supported by an overall business plan or feasibility study and an auditor’s certificate, a due diligence survey, a memorandum and articles of association. A PJSC must have at least 10 founder members and its management should be vested in a board of directors consisting of a minimum of three to a maximum of fifteen persons whose terms of office may not exceed three years. The Chairman and majority of the Directors should be nationals. In addition, UAE nationals should hold at least 51% of the shares of the PJSC. The founder members may only hold 35% of the share capital, as 65% is required to be offered to the public. The Law stipulates that the company engaged in banking, insurance or financial activities should be run as public share holding companies.
Procedures to set up a Public Shareholding Company
Basic Requirements:
Name: To be derived from the purpose
Capital: AED 10,000,000
Duration of the Company: To be decided by the founder members
Memorandum of Association: To be prepared in consultation with the standard Memorandum of Association available with the Ministry
Number of founding members: Minimum 10
Committee to continue: 3 – 5 members from the founding members.
Application Procedure:
Procedure A:
1. Application
2. Memorandum of Association
3. Feasibility Study of the Project (Application along with 2 & 3 to be submitted to the Ministry of Economy and Commerce)
4. Permission from the Emirate where the company is intended to be established.
5. Suggested completion period of the execution of the project to start its operations to be provided.
Procedure B:
1. The Ministry shall set up a committee to study the project
2. The Committee shall prepare a report within 2 weeks of the application
3. The Ministry shall issue a decision within 60 days from the date of application. If the decision has not been issued within the period the application is deemed rejected.
4. If the application is rejected, the applicants can contest before Civil Court within 60 days.
Subscription:
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Founders: 20% or above but less than 35% Certificate from the bank to be provided.
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Subscription of Money: 25% of the commercial value. Balance 75% within a period of maximum 5 years. However, subject to companies contract.
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Period of Subscription: 10 – 90 days
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Minimum Subscription: 100%
General Assembly: The founding members shall invite the subscribers to a general assembly meeting within 30 days of the close of subscription.
Quorum:
3/4 of the owners of the shares
if no quorum:
Second Meeting – After 30 days; quorum is half of the owners of shares
Third Meeting – After 15 days; on quorum required
After the general assembly, within 7 days, application for declaration of company to be in existence to be provided to the Ministry.
Minister will issue a decree within 30 days regarding the establishment of the company.
Private Shareholding Company
A private Shareholding Company is incorporated by a number of persons not less than three. Unlike public shareholding company, a private shareholding company cannot invite the public for subscribing in its shares. The minimum share capital to form a private shareholding company is AED 2 million. (US $544,959). The chairman and majority of the Directors in a private shareholding company must be UAE nationals.
Limited Liability Company (LLC)
A Limited Liability Company is the most common form of business entity currently formed in UAE. A limited liability company can be formed by a minimum of two and a maximum of 50 persons whose liability is limited to their shares in the company’s capital. The minimum equity participation by UAE national is 51%. Capital required to form a limited liability company in Dubai is AED 300,000 (US$81,744) contributed in cash or in kind. However, in the other Emirates, the capital requirement is AED 150,000 (US$40,872). Profit or loss distribution can be prescribed and responsibility of management of an LLC can be vested in the foreign or national partners or third party. The shares of such company are not open for subscription by the public and it does not issue negotiable shares.
An LLC with general trading activity can also be formed in Dubai with a paid up capital of AED 3,000,000 (USD 817,440) AED 1,500,000 [USD 408,720] in other Emirates).
Minimum capital required for registering a limited liability company with industrial licence is AED 250,000 (USD 68,120).
Joint Venture (Consortium Company)
A joint Venture is a type of company where two or more partners agree by contract to share the profits or losses of one or more commercial enterprises, which will be carried on in the name of one of the partners. Contract of Joint Ventures may be written or oral and not required to be notarized. Third parties can recourse only to the partners with whom they deal. However, should the joint Venture is disclosed to the third parties, all the partners are liable to the third parties. Existence of joint Venture may be proved by any method of proof.
Professional Companies (Professional Partnership)
A firm shall be regarded as a professional company that practices a profession as its main object and that partners rely on their livelihood on the intellectual effort they exercise more than on profiting from the business of others. On this basis the professional companies are set up between professionals or partisans and carry out on-commercial activities.
The firms, which are registered as professional companies or firms may only practice specific activities. Such activities include rendering that services of legal practice and consultancy, auditing, organizing and keeping accounting records and books, civil engineering, architecture consultancies and services, managerial and economic consultancies and studies technical services, medical and curative services, educational services and other similar services.
Sole Proprietorship Firm to Practice Profession
a foreign investor is permitted to practice certain types of business activities allowed for non-nationals without having a national partner. Such activities are medical services engineering consultancies, legal practice and consultancies, computer consultancies and similar services provided that such an investor holds a valid and legal UAE residence permit. However, it is a condition that he should have a local service agent according to service agency contract authenticated by a Notary public.
Appointing a Commercial Agent (Exclusive Distributor)
Foreign investors may appoint a commercial agent to represent their interests in the U.A.E. instead of establishing a permanent presence. The U.A.E. Commercial Agencies Law (Federal Law No. 18 of 1981, as amended by Federal Law No. 14 of 1988) regulates and governs the appointment of commercial agents, sales representatives, and distributors in the U.A.E. This law defines a commercial agency as any arrangement whereby a foreign company is represented by an agent to “distribute, sell, offer, or provide goods or services within the UAE for a commission or profit”.
The primary requirements and characteristics of commercial agencies are:
1. Commercial agents must be U.A.E. nationals or companies incorporated in the U.A.E. and owned entirely by U.A.E. nationals.
2. Commercial agents must be registered with the U.A.E. Ministry of Economy and Commerce to engage in commercial agency activities.
3. The agency agreement must be registered in order for the agent to avail himself of the protections afforded under the law and to have the agency relationship recongnized under U.A.E. law.
4. Commercial agents are entitled to have an exclusive territory encompassing at least one Emirate for the specified products (Article 5(1) of the commercial Agencies Law).
5. Unless otherwise agreed commercial agents are entitled to receive commissions on sales of the products in their designated territory irrespective of whether such sales are made by or through the agent (Article 7 of the Commercial Agencies Law).
6. Commercial agents are entitled to prevent products subject to their agency from being imported into the U.A.E, if the agent is mot the consignee.
7. Commercial agents are entitled to receive compensation from the principle if the agency is terminated without substantial justification or if the agency is not renewed by the foreign principle, and foreign party from appointing a replacement agent in such circumstances.
Opening a branch or representative office of the foreign company
The companies law, in article (313) allows a foreign company to exercise its main activity in the UAE by opening a branch or a representative office. The difference between the two is that the foreign company that opens a branch in the UAE may exercise freely the activities for which it is licensed whereas a representative office may practice only promotional business for the products and services provided by the parent company. Unlike a foreign branch , a representative office cannot conduct business operation or market directly its products. In order to engage a foreign branch to conduct its operation in UAE it should obtain a license from the Ministry of Economy & Commerce prior to obtaining the license from the concerned authority in the respective Emirate. Foreign companies licensed to operate in UAE may not start their activities before being inscribed in the Ministry’s Register of Foreign Companies. The main stipulation for opening a representative office or a branch of a foreign company in the UAE is to appoint a Service Agent who should be a UAE national or a company fully owned by a UAE national. A service agent is not an empowered agent who can bind his principle as explained in the definition of the term “agent” in the Commercial Companies Law. A service agent is not responsible to undertake any financial obligations concerning the activities of the company’s branch or office within the UAE or abroad. He should not interfere in the matters related to the company’s management or activities. His duties towards the company and others are confined to providing such services as required by the principle. These services usually include the obtaining of entry or residence permits, acquiring of the necessary Licenses or facilitating the processing of its transactions with the government authorities. The service agent is remunerated in lump sum for the services rendered to the foreign company that sum shall be the subject of an agreement between him and the company.
Establishment by GCC Citizens
The states of the Gulf Cooperation Council (the UAE, Saudi Arabia, Sultanate of Oman, Qatar, Kuwait and Bahrain) signed the United Economic Agreement in Riyadh on 7the June 1981, with a view to coordinate and unify economic, financial, monetary, commercial and industrial legislations and UAE endorsed this agreement in 1982. It is conditional as per the Federal Law No. 2 of 1989 concerning permitting the GCC citizen to conduct a business operation in UAE that the investor should be a natural person residing tin UAE and practice the required activity by himself and have a license to practice the activity in his country of origin. In case the investor is a juridical person wishing to conduct retail or wholesale trade then the investor must be in the form of a company of which the share owned by UAE nationals is not less than 50% of the capital.
Process of establishing an ‘LLC’
1. Obtain initial approval for name and activity from the Department of Economic Development or the Economic Development Department/Municipality/Chamber of Commerce.
2. Obtain approval from concerned Ministry/Department in case the activity is of special nature.
3. Draw up company’s Memorandum of Association and have it notarized.
4. Capital contribution certificate to be obtained from banks for cash shares and auditor’s certificate for both cash shares and kind shares.
5. Submit applications and initial approval along with notarized copy of Memorandum of Association, capital certificate, and tenancy contract etc., to the Department of Economic Development or the Municipality.
6. After scrutiny by the legal department, the Company name will be entered in the Commercial Register and have its Memorandum of Association published in the Ministry of Economy and Commerce Bulletin. The Department of Economic Development or the Municipality will then issue the license.
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