Entrepreneurs and investors looking for lucrative opportunities in the Middle East are largely attracted to Dubai, a booming city and business centre of the United Arab Emirates (UAE). Dubai appears to be a strong choice for the formation of companies, as it is strategically situated and has world class infrastructure and an atmosphere conducive to entrepreneurship. The Government is offering a number of types of company registrations to meet the different requirements of entrepreneurs, which have been designed in such a way as to satisfy their particular needs. We shall look at the various types of company registration available in Dubai in this article.
Entrepreneurs who wish to start companies in Dubai must be aware that the requirements for a specific form of business vary depending on where their company is situated – whether in Mainland Dubai or in one of its Free zones.
A mainland company is an onshore company. The Department of Economic Development (DED) of the respective emirate issues the license to establish the business entity in Mainland Dubai. In both the local market in the UAE as well as outside it, mainland businesses may operate free of any restrictions. The various types of licences issued on the mainland are professional, commercial, industrial, tourism, occupational and agricultural license.,
Legal forms of businesses in the UAE Mainland can be categorized as below:
- Sole establishment
A sole proprietorship in Dubai is a legal entity owned and operated by a single person, known as the sole proprietor with a business licence issued in his or her name. The sole proprietorship is controlled by one person who exercises total control of all its activities and holds 100% shares in any profits. The sole proprietor will be responsible for all its debts or financial obligations.
UAE nationals, the nationals of Gulf Cooperation Council & Foreign nationals can set up a sole proprietorship in Dubai. However, a foreign national must obtain a residence permit to establish a sole proprietorship in Dubai
The business is controlled and ownership is shared between two or more partners in this type of business entity. Also, the profits and losses derived from such business is distributed between the partners as per the pre-determined ratio. There are three main types of partnership in Dubai:
- General Partnership
It is an arrangement between two or more UAE nationals (referred to as Partners), whereby each of the partners is jointly and severally liable to the extent of all their assets for the company’s liabilities. The company’s name must include only the names of its partners, additionally it is allowed to have a special commercial name.
- Simple Limited Partnership
A limited partnership is constituted by of one or more general partners (UAE nationals) who are jointly and severally liable for all of its liabilities, and one or more limited partners who are liable for the limited partnership’s liabilities to the extent of their capital contribution. A limited partner shall not be involved in management. His name shall not be included in the name of partnership.
- Partnership Limited by Shares
This type of partnership is composed by general partners whose liability is unlimited and the participating partners, whose liability is limited to the extent of their share of capital. The general partners shall be nationals of the United Arab Emirates, while the participating partners may not be nationals of the United Arab Emirates. The capital shall be at least DH 500,000 and shall consist of negotiable shares of equal value. A partnership limited by shares shall also be subject to certain formalities that is applicable to Joint Stock company.
- Private joint stock company
A minimum of three shareholders are required to establish Private Joint Stock Company. The minimum capital requirement to set up this form of company is AED 2 million. Public cannot be offered any shares for subscription. The UAE must hold at least 51% of the shareholding. The remaining 49% of the shares may be owned by foreign investors.
- Limited liability company
A minimum of two and a maximum of fifty persons may form a limited liability company. The shareholders’ liability shall be limited to the value of the shares held in the company’s capital. In Dubai, the Minimum capital needed for formation of a limited liability company shall be AED 300,000
LLCs can engage in any commercial, industrial business or profession except for the business of insurance, banking or investment of funds and cannot seek public subscription at creation or at any later stage
- Public Joint Stock Company
The public must be offered minimum of 55 % of shareholding in a Public Shareholding Company. The minimum share capital of such joint stock company shall amount to AED 10 million, of which at least 25 % must be paid in subscription. The shareholder’s liability shall be limited to the face value of their shares in the company’s capital. The PSC shall have a minimum of ten shareholders, unless the government entity is involved, in which case its numbers may be lower. There must be minimum three directors and maximum of twelve in the Board. The majority of the Board should be UAE nationals.
- Branch or Representative office of a foreign company
The foreign companies are allowed to set up a Representative Office or Branch Office in the UAE subject to certain conditions. There is no separate legal entity for the branch office of a foreign company in UAE. It carries on the same business of its parent. It is allowed to promote and market the parent’s products and take part in transactions and provide customers with services under its name.
Conversely, the representative office shall be restricted to promotion of its parent company’s activities such as collecting information or seeking orders and projects that may be carried out by the Parent company. No commercial activity other than the above or any transaction may be carried out by it. To set up a branch or representative office in the UAE, Foreign company should appoint a registered service agent who is a UAE national.
Free Zone Company
Dubai offers numerous Free Zones, which are designated areas with business-friendly regulations and incentives. Setting up a Free Zone Company allows 100% foreign ownership, full repatriation of profits, exemption from import and export duties, and zero corporate and income taxes. Companies in Free Zones can conduct business internationally and benefit from simplified customs procedures. However, they are restricted from conducting business directly in the local UAE market.
UAE free zones offer several types of business licenses such as commercial trade, consultancy services, industrial, educational, media, e-commerce, offshore, freelancer, warehousing, manufacturing, innovation and other licenses to investors and entrepreneurs based on the nature of business.
There are 2 legal forms of businesses in UAE free zone:
- Free Zone Company (FZ Co. or LLC)
The Free Zone Company must operate within the free zone’s borders. It shall have at least two or more shareholders, both individuals and companies are entitled to do so. It is a limited liability entity. The FZC shall submit its audited financial statements to the Free Zone Authority every year, within three months from the end of the fiscal year. The Free Zone Company shall have at least two directors.
- Free Zone Establishment (FZE LLC)
A Free Zone establishment is a single shareholder company within the free zones. The rules and regulations implemented by such FZE are equivalent to its Memorandum and Articles of Association.
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