Federal law in the UAE sets out the legal forms of an onshore company that can be established
This applies across all the emirates and is outlined in the Commercial Company Law of 1984. Separate rules apply for free zones.
There are 11 different types of companies that can be established, but according to UAE business consultant PKF, the government does not encourage the formation of partnerships limited by shares or partnerships-en-commandite.
Foreign companies setting up onshore tend to favour the limited liability company (LLC) structure, although many firms choose to operate as branches of foreign entities. An LLC requires a local sponsor that owns 51 per cent of the share capital. However, agreements can be drawn up to establish equitable distribution of profit and ownership. The Dubai Department for Economic Development applies the following definition to an LLC:
An LLC is a company with limited liability, where the number of partners may not exceed 50 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 LLC shall be taken from its purpose or from one or more of the names of partners, the structure limited liability company shall be added to the firm’s name, stating its capital.
Other than insurance, banking, and investment businesses for others, the LLC is entitled to practice any legal business.
The company may not resort to a share sale 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.
The minimum share capital shall be AED300,000 ($81,677), divided into equal shares with a minimum face value of AED1,000 a share.
Shares may not be divided and if several people own it, they shall choose one to be an individual owner against the company.
Losses and profits shall be divided equally among shares unless otherwise stated.
The share of each partner shall be transferred to his heirs and the ones mentioned in the will shall be treated as heirs.
An LLC 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 agreed, 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.
Public and private shareholding companies tend not to be favoured by international investors as the majority of shareholders and the chairman must be UAE nationals. Both structures also require a large minimum capital reserve of up to $2.7m. However, under UAE law, financial service companies, banks and insurance firms must operate as a public partnership. International banks must open as branch offices.
On a project by project basis, many international companies opt for the joint venture structure.
In the words of PKF, a joint venture is a contractual agreement between a foreign party and a local party licensed to engage in the desired activity. The local equity participation in the joint venture must be at least 51 per cent, but the profit and loss distribution can be prescribed. There is no need to licence the joint venture or publish the agreement. The foreign partner deals with third parties under the name of the local partner, who – unless the agreement is publicised – bears all liability.
Another popular form of company structure among international companies is the foreign branch office arrangement. The company remains 100 per cent owned by the international organisation and so carries the same name. However, companies that take this route must employ a local service agent to liaise with government departments and assist in obtaining licences and visas and so on.
Foreign companies can also form representative offices, but these are limited in the activities that can be undertaken as they can only promote the activities of the parent, effectively acting as a marketing office.
Finally, professional service companies can also open as sole proprietorships and retain 100 per cent ownership. Once again an agent must be appointed.
1 Limited liability company
2 General partnership company (UAE nationals only)
3 Limited partnership company (UAE nationals only)
4 Joint venture
5 Sole proprietorship
6 Branch of a foreign company
7 Representative office of a foreign company
8 Public shareholding company
9 Private shareholding company
10 Partnership limited by shares