Legal forms of business and ownership rules in UAE
All you need to know – Part2
By Naveed Kashif, Director, Corporate Services, Biznet
In this two-series article, you will find all the Legal Forms of Business and Ownership Rules in the United Arab Emirates. In the first , we discussed the legal form of business and ownership for Sole Establishments, Civil Companies, LLCs, Private Shareholding Companies as well as Public Shareholding Companies. So what are the legal forms of business and ownership rules in the UAE for other types of business?
SIMPLE LIMITED PARTNERSHIP
A Simple Limited Partnership is formed between a minimum of two partners – one general partner and one limited partner. The general partners are liable for the company’s liabilities to the extent of all their personal and business assets; the limited partners are liable for a share of company liabilities equal to their share of the company capital.
Each general partner and limited partner can own any share of the business. There is no minimum or maximum ownership level for any partner.
A limited partner may not intervene in management or administrative issues related to the other partners. If he or she does so, that limited partner shall be responsible for all the business’s obligations.
The name of the company should be that of one or more of the general partners, with an addition noting that this is a company name. The company can also have a special trade name. The name of any limited partner should not be mentioned in the name of the company.
A Simple Limited Partnership is a company comprising one or more jointly-associated partners liable for the company’s obligations to the extent of all their assets together with one or more silent partner(s) liable for the company’s obligations only to the extent of their respective shares in the capital.
- All joint partners in a Simple Limited Partnership must be U.A.E nationals.
- The firm-name of a Simple Limited Partnership shall be composed of the names of the joint partners in addition to an indication showing the existence of the company. Moreover, a special trade name may be added to the foregoing.
- A silent partner’s name may not be incorporated in the name of the company. If knowingly incorporated, such silent partner shall, with regard to bona fide third parties, be deemed a joint partner.
- A Simple Limited Partnership shall be deemed a general partnership with regard to joint partners, and the provisions governing general partnerships shall equally apply to Simple Limited Partnership.
- Silent partners shall be liable for the company’s obligations only to the extent of their respective shares in the capital.
- Notwithstanding an authorization thereto, a silent partner may not interfere in the management’s affairs when such affairs are related to third parties.
- A silent partner who violates this restriction shall be liable to the extent of all his assets for obligations arising from actions carried out thereby.
A Simple Limited Partnership must have UAE Nationals as general partners; Nationals of other countries can be limited partners.
A Partnership Company is a single business where two or more people share ownership. Each partner contributes to all aspects of the business and must administer the company unless a contract assigns administration to one partner or to another party.
The owners of the partnership company are jointly and severally responsible for the company’s liabilities. This means that if the business is unable to pay its debts with the proceeds of its operations, the personal and business assets of one or all of the partners can be used to pay creditors. No agreement to the contrary can be made against third parties.
The name of the business must contain the name of one or more of the partners, with the addition of a word signifying that it is the name of a business. If a non-partner is named in the business name, with his or her knowledge, that individual is jointly responsible for the business’s debts. The business can also have a commercial name.
A general partnership is a company compression two or more partners jointly liable for the company-obligations to the full extent of all their assets.
- The firm-name of general partnership shall be composed of the names of all the partners or of the name of one or more partners together with what may show the existence of company. In addition to the foregoing, it may have a special trade name of its own.
- Where a name of an individual, who is not a partner therein, is knowingly embodied in the name of the corporation, such person shall be jointly liable for the company’s obligations.
- All partners in a general partnership must be state nationals.
- Shares may not be made in the form of negotiable instruments.
- All partners shall be jointly liable for the company’s obligations to the full extent of all their assets. Any agreement to the contrary may not be invoked against others.
- A partner who joins a general partnership shall together with the other partners, be jointly liable to the extent of all his assets for the company obligation preceding and preceding his membership therein. Any agreement between the partners to the contrary shall be inadmissible against others.
Management of a Partnership shall be carried out by all the partners unless such management, by virtue of the Memorandum of Association or an independent contract, is vested in one or more partners or in a manager who is not a partner.
A Partnership Company’s shares must be 100% owned by UAE Nationals and cannot be offered to the public or represented in negotiable certificates.
BRANCH OF A FOREIGN COMPANY BRANCH OR REPRESENTATIVE OFFICE
A Branch of a Foreign Company must have a manager to represent the company and to open the branch, appointed by the Board of Directors.
The branch will become the company’s Dubai headquarters, and its business shall be subject to the provisions of the laws of Dubai and the UAE.
The branch can conduct selected commercial and professional activities, but cannot import goods into Dubai; this will be managed by a local trade or commercial agency (The registered trade or commercial agencies must be UAE Nationals, or companies 100% owned by UAE Nationals and will receive a commission or profit on sales.). The branch office must have an independent budget, its own profit/loss statements and must appoint a UAE-accredited auditor. A Branch of Foreign Company also requires a Local Service Agent (LSA), who can be a UAE National or a company owned by one or more UAE Nationals.
A Representative Office for Commercial Activities is not a business structure in its own right but it is a business activity that a branch can conduct. It has its own criteria, which includes the authorization to promote and market the parent company’s business – but not conduct business operations. A Representative Office requires a Local Service Agent (LSA), who can be a UAE National or a company owned by one or more UAE Nationals.
Except for foreign companies operating under special licenses within duty-free areas in the State, foreign companies shall not practice their main activities or establish offices or branches thereof in the State until permit to this effect be obtained from the Ministry after prior approval of the Concerned Authority had been obtained.
- The issued permit shall specify the activity which a company is authorized to carry out. Such permit shall be issued if the company engages an agent to be a natural person holding the state nationality or a company fully owned by natural citizens, and whose entire partners are nationals too.
- The Agent’s responsibilities towards the company and third parties shall be limited to rendering necessary services to the company without his hbearing any financial liabilities or obligations related to the company or its branches and offices inside and outside the State.
- Foreign Companies licensed to operate within the state, under the preceding para, shall not start their business except after registration at the Ministry in the Foreign Companies Commercial Register. Entries in the said Commercial Register as well as control of same Foreign Companies’ accounts & balance-sheets shall be regularized vide a ministerial decision to be issued in this respect.
- The Foreign Company’s office or branches shall be governed by the laws applied within the State.
- A foreign company or its offices or branches shall not commence their activities in the State except after entry in the Register of commerce.
A Branch of a Foreign Company or a Representative Office is 100% owned by the parent company. It must operate under the same name, conduct the same business as the managing firm, and must have operated at least two years in order to open a branch in Dubai.
BRANCH OF A DUBAI-BASED COMPANY
A Branch of a Dubai-based Company must undertake one or all of the activities included in the main company license. For a company with multiple branches, each branch can undertake different activities as long as they were all included in the original license for the main company.
A Branch Of A Dubai-Based Company must be 100% owned by the parent company
BRANCH OF A UAE-BASED COMPANY
A Branch of a UAE-based Company must undertake one or all of the activities included in the main company licence. For a company with multiple branches, each branch can undertake different activities, as long as they were all included in the original license for the main company.
A branch of a UAE-Based Company must be 100% owned by the parent company
BRANCH OF A GCC-BASED COMPANY
A Branch of a GCC-based Company must undertake one or all of the activities included in the main company licence. For a company with multiple branches, each branch can undertake different activities, as long as they were all included in the original license for the main company.
While other GCC countries may follow different rules in terms of combining activities, for Dubai branch licenses, only activities of the same group will be accepted, even if other activities are registered in the GCC main company.
A Branch of a GCC-based Company must be 100% owned by the parent company.
BRANCH OF A FREEZONE COMPANY
A Branch of a Freezone Company can carry out commercial, industrial and professional business as long as the activity of the main company is authorized in mainland Dubai. If you have a company whose main license was issued in a UAE freezone, (not as a branch of a foreign company), you can obtain a branch license from DED to expand your operations to mainland Dubai.
For a Branch of Freezone Company, if there is no local shareholder in the main company, or the local shareholder in the main company owns less than 51% of the shares, you will need a Local Service Agent. A local service agent is not required if the branch performs professional activities.
INTALAQ – HOME-BASED BUSINESS FOR UAE NATIONALS
An Intalaq License Company can only be set up by UAE Nationals. It is a home-based business that can conduct almost any type of professional, trade or artisan business. The business must be reasonable for operation in a residential environment. The business must not harm the environment or the health of any person, and should not generate noise or other irritants that could negatively impact neighbors. It can take the following legal forms: Sole Establishment, LLC, Civil Company and Partnership. Intalaq license holders cannot sponsor employees.
Each person can have only one trade or professional Intelaq license but can operate more than one related activity under this license. An Intelaq license does not allow the business owner to hire staff but may engage contractors.
100% UAE National owned.
An SME license can be given to businesses owned 100% by UAE Nationals and can take any legal form. The licence is valid for three years and allows the owners to sponsor employees.
100% UAE National owned.
About the author
Naveed Kashif is Director, Corporate Services at Biznet Consulting advising clients on corporate services and Government affairs.
His expertise in building relationships with government officials and giving advices on all legal forms of businesses includes; structuring and re-structuring of legal entities, holding companies, branches, and local establishments, and helping companies to incorporate in the UAE by assisting them to get license from the relevant regulatory authorities.
Naveed is specialized in Free Zone, Offshore, and Mainland company formation and has developed a detailed knowledge of the Federal Commercial, Free Zone, Offshore and, Labor laws related to establishing and managing companies, visas, labor disputes and work permits, the in UAE.
Naveed can be contacted at: firstname.lastname@example.org