Introduction
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:
| 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. |
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:
| Founders |
20% or
above but less than 35% Certificate
from the bank to be provided.
|
| Subscription of Money |
25% of
the commercial value. Balance
75% within a period of maximum
5 years. However, subject to
companies contract.
|
| Period of Subscription |
10 – 90 days |
| 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.
|
- Department
of Economic Development:
License Authority in the Emirate of Dubai.
- Economic
Development Department:
Licensing Authority in the Emirate of Sharjah.
- Municipality/Chamber
of Commerce:
Licensing Authority in other Emirates.
|
