MAINLAND BUSINESS SETUP
LIMITED LIABILITY COMPANY (L.L.C)
A Limited Liability Company can be formed by a minimum of two and a maximum of fifty shareholders whose liability is limited to their shares in the company’s capital.
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 % equity ownership in UAE companies, whereas 51 % of the equity must be owned by UAE National(s). Such companies are recognised as offering a suitable structure for foreign individuals or organisations interested in developing a long term relationship with the local business community.
The Limited Liability Company or LLC is the most popular method of establishing a commercial company in the UAE, unless the business involves banking, insurance and investment activities conducted on behalf of third parties where a Public Joint Stock Company is required. Articles 218 to 255 of the CCL (inclusive) regulate the establishment of limited liability companies. While Article 227 of the Companies Law (which applies throughout the UAE) stipulates that the minimum share capital of the company is AED 150,000; the minimum share capital required by the Dubai authorities for the Limited Liability Company engaged in business activity other than general trading is currently Dirhams 300,000. For general trading activity, the minimum capital requirement is Dirhams 3,000,000. Individual shares should have a minimum face value of AED 1,000. The shares need to be “equal shares”.
An LLC may not conduct the business of insurance, banking or the investment of money on behalf of third parties.
Management of the LLC is vested in the ‘managers’ (up to five natural persons) who may or may not be UAE nationals.
Although the maximum foreign equity participation in a Limited Liability Company is 49%, profits can be distributed in different proportions as agreed by the promoters/shareholders of the company. With the approval of the UAE National Shareholder(s), the entire business operations of the company may be entrusted to the foreign shareholder(s). The foreign shareholder(s) can, therefore, claim a higher share of profit in case such shareholder(s) provides exclusive management and/or any special services or facilities to the company. As far as the protection of the minority shareholder(s) interest is concerned, this can be done by way of shareholders resolutions and certain related security documents.
Although the rules and regulations for establishing the Limited Liability Companies are generally similar in all the seven Emirates of UAE, the requirement of minimum capital and costs involved for registering the company may vary from one Emirate to the other.
In setting up a professional firm, 100% foreign ownership is generally permitted; however certain sectors and activities are restricted to either UAE nationals or have a UAE national shareholding requirement.
Professional firms may be in the form of a sole proprietorship or a civil company. Such firms may engage in professional or artisan activities but the number of persons that may be employed by such firms is limited. A UAE national must be appointed as local partner for sole proprietorship, but s/he has no direct involvement in the business and is paid a lump sum and/or percentage of profits or turnover. The role of the local partner is, among other things, to assist in obtaining licenses, visas and labour cards.
Where there are two or more partners, the legal structure is a Civil Works Company whereby there must be a UAE national shareholding of minimum 20%.There is a requirement that all the individuals involved have relevant University level qualifications in the relevant field of business.
BRANCH & REPRESENTATIVE OFFICES OF FOREIGN COMPANIES
Under Articles 313 to 316 (inclusive) of the CCL, foreign companies are permitted to establish wholly owned branch and representative offices in the UAE. This business structure reduces the need for national participation.
A branch office, legally regarded as part of its parent company, is a full-fledged business, permitted to perform contracts or conduct other activities as specified in its license. A branch office may only be engaged in activities similar to those of its parent company and it is not permitted to carry on the business of importing the products of its parent company, a function reserved for local trade agents.
A representative office, on the other hand, is limited to promoting its parent company’s activities, i.e. to gathering information and soliciting orders and projects to be performed by the company’s head office. Representative offices are also restricted as to the number of employees they can sponsor and as a result, representative offices tend to act as administrative and marketing centers for their foreign parent company’s head office.
Provided that approval is received from the Ministry of Economy and the DED, and the appropriate trade license is obtained, a company may establish a branch or representative office in the UAE. The office must be registered on the Registry of Foreign Companies at the Ministry of Economy before it commences trading.
A UAE national must be appointed as a ‘service agent’ for the branch or representative office. A service agent is not the same as a commercial agent. The former is not permitted to own equity in or participate in the substantive management of the representative or branch office. In practice, a foreign entity typically contracts with the service agent to provide specific services such as assisting in communications with government departments or undertaking other administrative matters. The fees paid to the service agent are a contractual matter between the service agent and the foreign company, frequently quantified by the turnover of the branch or representative office.