Legal Business Structures in UAE

Legal Business Structures in UAE

Individual Establishment

It is an establishment owned by a sole proprietor to operate an economic activity (commercial, professional, industrial, agricultural or real property). An establishment’s financial liability is linked to the proprietor who shall be responsible for all its financial obligations.

Civil Company in UAE

Civil Company in UAE offers 100% foreign ownership and full access to the UAE's local market. Civil Companies are commonly known as professional companies that can be set up by investors to provide specialized services. Doctors, Lawyers, Engineers, Accounts, and Consultants can apply for a Civil Company in Dubai, UAE. A Civil Company is established with two or more professionals, holding professional qualifications in their expertise.

The Civil Company requires appointing a Local Service Agent (LSA) for the formation of the company. The ownership can be vested 100% with foreign investors. The LSA does not have any stake in your company, like the local sponsor in the LLC Company structure. LSAs will liaise with the governmental departments on your behalf and assist with all legal procedures and getting the civil work company license approved, processing work permits, and visa applications, etc. The LSAs are to be paid an annual fee and they do not share any profit percentage of the company.

Highlights

•   A civil Company is each company that undertakes directly a specific profession as its target and partners depend, for their earnings, on the practicing of activities which involve the use or investment of intellectual faculties more than depending on speculation, materials, or others' work.
•   Under Dubai Local Order No. 63 of 1991 on licensing professionals and tradesmen in the Emirate of Dubai, it is allowed for a number of normal individuals to practices a service or professional activity as distinct form, a commercial one, the business takes the form of a “Business Partnership” in accordance with the provisions of the rules (from 683 to 690) of the Federal Civil Dealings Law. Professional companies may be 100% foreign owned. However, it is necessary to appoint a "Local Service Agent".
•   The obligations of the local service agent towards his principal and third parties shall be restricted to render the usual experience in order to enable him to practice the professional or craftsmanship work without holding any responsibility or financial commitment in respect of his principle’s business or activity inside the Emirate or abroad. The relations between the two parties shall be regulated by any agency agreement.

Benefits of Setting up a Civil Company

•   Civil Work company is easy to set up with minimal paperwork. The Dubai Economy facilities the quicker issuance of a professional license.
•   The total cost of starting a Civil Work company is lower than other Company Structures such as LLC Company. There is no requirement of paid-up capital while registering a civil work company.
•   The Civil Company setup in UAE enables 100% foreign ownership and also no requirement of a local sponsor.
•   An ideal choice for large organizations as it gives visa quota and option to sponsor dependents under the civil company's visas.
•   Easier to open a corporate bank account using civil work company documents.

Legal Forms of Commercial Companies

Legal forms of commercial companies, pursuant to Federal Law No. 8 of 1984 as amended, is summarized below. For more information you may refer to the said Law which is available at the Department’s library, offices of legal consultants and advocates, as well as in commercial libraries in the United Arab Emirates.

General Partnership

•   A general partnership is an arrangement between two or more partners whereby each of the partners is jointly and severally liable to the extent of all their assets for the company's liabilities.
•   Only UAE nationals are allowed to be partners in a general partnership.
•   The name of the company shall be made up of the name of all partners, and its name might be limited to the name of one or more partners and adding a word to modify the presence of the company. In addition to that the company may have a special commercial name, if the name of a person other than the partners was mentioned in the name while he is aware of that, the said person shall be responsible in partnership for the company's obligations.
•   All partners shall be considered a dealer, and the bankruptcy of any partner leads to the bankruptcy of all partners.
•   The company shares may not be represented in negotiable certificates.
•   Partners are severally responsible in all their money for the company's obligations and any agreement to the contrary might not be made against Third Parties.
•   The company administration shall be undertaken by all partners, unless the company contract or an independent contract assigns the administration to a partner or to a non partner party.

Simple Limited Partnership

A Simple Limited Partnership is a company formed by one or more general partners liable for the company liabilities to the extent of all their assets. The Partners are liable only to the extent of their respective shares in the capital only.

Highlights

•   Only UAE nationals are allowed to be general partners.
•   The name of the company shall be made up of the name of one or more of the limited partners, adding a word to modify the presence of the company. In addition to that the company may have a special commercial name.
•   The name of the limited partner may not be mentioned in the company name, if it was mentioned with his knowledge of that, he shall be considered a partner for Third Parties in good faith.

The simple limited partnership shall be a partnership for all partners and shall be subject to all the rules of partnerships, based on the following:

•   The simple liability contract shall include in addition to the other data, the name of each limited partner, his surname, nationality, date of birth, country, capital share, and the part paid of it.
•   The limited partner is only liable towards the company's debtors with his capital share.
•   A limited partner may not intervene in the company administration-related issues related to others even if upon authorization, he may rather require a copy of the loss / profit accounts and the balance sheet and check the validity of the data by reviewing the company's records and documents by himself or by a representative from any of the partners or others provided that this does not harm the company.
•   If the limited partner violates the above mentioned ban, he shall be responsible in all businesses for all the obligations resulting from his business.
•   The limited partner may be held responsible in all his money for all company's obligations if the business administration he carried out leads others to believe that he is one of the ultimate actual partners, in which case the rules and regulations of the actual partners shall apply to the limited partner.
•   If the limited partners carried out any of the banned administration business based upon an explicit or implicit authorization from the partners, such partners shall be held responsible with him for the obligations resulting from such acts.
•   Limited partnership shall issue resolutions in consensus of all partners and limited partners, unless the contract states a majority, and the majority in number shall be considered, unless otherwise stated.
•   Resolutions to amend the company contract shall not be passed unless duly approved in consensus of all partners and limited partners.

Private Joint Stock Company

A number of founders, not less than three, may establish a Private Joint Stock Company. The shares of a Private Joint Stock Company cannot be offered to the public or for the Public Subscription. The founders must subscribe all capital and minimum requirement for such capital is Dh. 2 million. A Private Joint Stock Company is subject to all rules and regulations pertaining Private Joint Stock Companies, except for rules and regulations of the Public Subscription.

A Private Joint Stock Company may be converted into a Public Joint Stock Company, in order to do so the following conditions must be satisfied:

•   The nominal value of the issued shares is fully paid up.
•   A period of not less than two financial years has expired.
•   During the two years preceding the application for conversion, the company has achieved net profits, distributable to the shareholders whose average is not less than 10% of the capital.
  
•   A resolution of the extraordinary assembly for the conversion of the company is adopted by a majority of three-quarters of the company capital.

Limited Liability Company (LLC)

Limited Liability Company is one with limited liability, where the number of partners may not exceed fifty and should not be less than two. Each of the partners shall only be liable to the extent of his share in the capital. The partners’ participation should not be represented by negotiable certificates.

The name of the Limited Liability Company shall be taken from its purpose or from one or more of the names of partners, the statement Limited Liability Company shall be added to the company's name, stating the company's capital. Other than the insurance, banking, and investment businesses for others, the Limited Liability Company shall be entitled to practice any legal business. The company may not resort to Public Subscription to make up its capital or to increase it or to get the necessary loans, and it may not issue any negotiable stocks or shares.

Highlights

•   Shares may not be divided, and if several people owned it, they shall choose one to be an individual owner against the company, and it may fix for the share owners a time for such selection, provided that after that date, the share may be sold to its owners, in which case partners shall enjoy a priority in purchase.
•   Losses and profits shall be divided equally among shares unless otherwise herein stated.
•   The share of each partner shall be transferred his heirs and the ones mentioned in the will shall be treated as heirs.
•   A Limited Liability Company can be managed by manager / managers that may be selected from among the partners or any other parties providing that they do not exceed a total of five persons.
•   The manager / managers shall be appointed by memorandum of association or by a separate management contract for limited/unlimited terms. If the manager/managers are not appointed as stated in the above paragraph, the General Assembly of the partners will appoint them.
•   Unless otherwise stated in the MOA, the company manager shall enjoy full powers of administration, and his acts shall be binding to the Company, provided that it is supported with stating the capacity he enjoys.
•   The manager's resolution shall be as responsible as that of the company board, all conditions in the company contract contrary to that shall be invalid.

Partnership Limited with Shares (PLS)

A Partnership Limited with Shares is a company formed by general partners who are jointly liable to the extent of all their shares for the company liabilities and participating partners who are liable only to the extent of their shares in the capital.

For the general partners, the company shall be a general partnership, and the general partner shall be a dealer even if he did not enjoy such capacity before entering the company, all general partners must be nationals.

Highlights

The capital of Partnerships Limited with Shares shall be divided into negotiable equal shares. The company shall be named after the name of one or more of the general partners. Its name may be added to another innovative name or a name derived from its purpose.

The rules related to the incorporation of limited liability partnerships shall apply to Partnerships Limited with Shares, according to the following:

•   All general partners and other founding parties shall sign the MOA and its regulations, and their resolutions shall be as effective and valid as the founders of the limited liability companies.
•   Names of the general partners, their surnames, nationalities, and countries shall be stated in the company contract and its regulations.
•   The minimum share capital requirement for limited partnership is Dhs. 500,000.
•   The documents issued by Partnerships Limited with Shares shall be subject to the same rules of the documents issued by the Limited Liability Partnerships.

Foreign Companies

Highlights

•   Excluding the foreign countries licensed to practice its business in the country free zones, foreign countries may not practice its main business in the state, and may not establish branches unless licensed to do that by the Ministry of Economy after obtaining the approval of the concerned authorities, which license shall specify the business it is licensed to practice, provided that such license may not be issued unless the company has a national agent, and if the agent was a company, it shall hold the state's nationality and all its partners shall be nationals.
•   The obligations of the agent towards his company and third parties shall be limited to rendering the services required for the company without holding any responsibility or financial commitment in respect of his company's branch or office business or activity inside the Emirate or abroad.
•   Foreign companies licensed to work in the state based on the provisions of the above paragraph may not start their business in the state unless they are registered in the Foreign Companies Register in the Ministry of Economy.
•   The offices and branches of the foreign companies shall be the headquarters of its business and its business shall be subject to the provisions of the law.
•   The foreign companies, its offices, and branches shall have an independent budget, independent profit /loss accounts, and shall have an auditor.
•   If the foreign companies, or their offices, or branches practiced their business inside the state without carrying out the abovementioned provisions, the persons practicing such business shall be personally and severally responsible for that.

Establishing Representative or Branch Office in the UAE

A foreign Company sets up a Representative Office or Branch Office in the UAE for many purposes like facilitating marketing activities in the region, sales coordination, customer contact center, etc. There are distinct differences in the functioning and characteristics of a Representative Office and a Branch Office.

Representative Office is an extension of an existing business based in UAE or Outside of UAE. It is important to note that a representative office in the UAE is not allowed to conduct any business activity or transactional work. The transactional activities must be outsourced to the parent company.

However, the Branch Office of a parent company is allowed to conduct business activity in the UAE depending on the business license chosen by the investor. Branch of a Foreign Company is almost like opening a new company in UAE with the same company name to drive local operations and gain profits. To set up and operate a Representative or Branch Office in the UAE there are certain requirements and conditions to be met. The steps in opening a Representative Office and Branch Office for a Foreign Company are almost similar in the UAE.

Steps to Establish a UAE Representative Office for your Foreign Company

Appointing a registered local agent - For a Foreign office to set up a branch or representative office in the UAE, it requires appointing a registered local agent.

Trade Name Reservation - The trade name has to be approved by the Department of Economic Development (DED) of the respective Emirate. The trade name must be the same as the parent company name in the home country.

Initial Approval - After the trade name approval, the passport copies of the manager/shareholders as well as parent company documents are to be submitted to DED. After assessment of the documents, DED will issue the pre-approval to set up the branch office in UAE.

Approval from the Ministry of Economy (MOE) - The MOE approval is required for starting Representative Office / Branch operations in the UAE. The parent company details such as head office address, nature of the business, shareholding agreement, Memorandum of Association, and other company documents, are to be submitted to the MOE.

DED License Issuance - After receiving the approval from the MOE, DED will facilitate the process of setting up the branch/representative office in the UAE.

Documents Required for Branch/ Representative Office of a Foreign Company

•   Trade License or Certificate of Incorporation of the Foreign Company
•   Attested Board Resolution and Power of Attorney (if any)
•   Memorandum of Association (MOA)
•   Articles of Association (AOA)
•   Agreement of Local Agent (Notarized)
•   Government Approval (MOE Approval)
•   Shareholders/Managers Passport Copies

Benefits of Establishing a Representative Office in the UAE

•   Gain tax advantage due to the zero Corporate Tax in the UAE. Also, a Representative Office will have zero tax liabilities as there are no transactional activities undertaken in the UAE.
•   Total setup cost for a Representative Office is low
•   Numerous shareholders can be added while forming the Representative Office.
•   No minimum share capital required
•   Expand business to new geographies and grow business connections through a Representative Office in the UAE.

Cost of Establishing a Representative Office in UAE (Approx. Figures)

Company Setup Cost for Representative Office in Dubai

Additional Cost for setting up a Representative Office in the UAE

•   Service Agent Fees – As agreed with the Local Service Agent & to be paid in full every year (AED 15,000-20,000 Approx.)
•   Typing of MOA/LSA – Typing charges for Document Preparation (Approx. AED 200)
•   Rented Office – Depends on the area, location, office type, landlord chosen, etc.
•   Market Fee 2.5% of Premises Annual Rent to be paid to the Economic Department
•   Refundable Deposit to Ministry of Economy for Approval (MOE) - AED, 50,000

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