In my previous post “Guide To Business Setup in Dubai Mainland“, you need to match your business activity with the legal form of business. Here you will find all the Legal Forms of Business and Ownership Rules In UAE.
What are the legal forms of business and ownership rules In UAE?
A Sole establishment is a business owned by an individual, not a company. This person will own 100% of the business, control all of its operations and keep 100% of any profits. He or she will also be 100% responsible for business debts and any other financial obligations.
A business owned by a natural person to practice economic activity in the emirate of Dubai, inseparable of its owner personality and financial standing, being fully responsible for all financial liabilities against others.
- A sole proprietorship can only be owned by an individual, not a company. This person will own 100% of the business control all of its operations and keep 100% of any profits. He or she will also be 100% responsible for business debts and any other financial obligations.
- A professional-type sole proprietorship can be owned by an individual of any nationality.
- A sole proprietorship that is industrial or commercial can be owned only by UAE Nationals or GCC Nationals.
- A sole proprietorship that is a commercial or industrial business must be owned 100% by a UAE National.
- A sole proprietorship requires a Local Service Agent (LSA) if the owner is not a UAE-National.
A professional-type Sole Proprietorship can be owned by an individual of any nationality. If the owner is a National of a country other than the UAE or GCC, they require a Local Service Agent.
A Local Service Agent (LSA) is a UAE National who manages licensing requirements and other government-related matters for your business, in exchange for an annual fee. The LSA has no responsibility and financial obligations to the business; they also have no legal interest in the management, business, profits or assets of the branch.
A Local Service Agent Agreement explains the relationship and the obligations of the owner and the LSA. This agreement must be authenticated by a Notary Public/Court within the UAE.
A Local Service Agent Agreement explains the relationship and the obligations of the owner and the LSA. This agreement must be authenticated by a Notary Public/Court within the UAE.
A Civil Company is a business partnership for professionals in recognized fields such as doctors, lawyers, engineers and accountants. A Civil Company can only practice professional business and is 100% owned by professional partners.
An activity practiced by a natural person or more, involving the use of the individual’s physical or intellectual powers and effort and/or using tools/instruments with a limited capital.
- A civil company can only practice professional business and is 100% owned by the professional partners, whatever their nationalities.
- A civil company for engineering must have one partner who is a UAE National, who owns no less than 51% of the business and must be an engineer of the same type as the business’s activity.
- A foreign company can be a partner in a civil company, as long as the foreign company is in the same profession as the civil company.
- Most civil companies require a Local Service Agent (LSA) if there is no UAE-National partner in the business. The local service agent is a UAE National who manages licensing requirements and other government-related matters for your business, in exchange for an annual fee. The LSA has no responsibility for your business and no financial commitment to the business or its activities in Dubai or elsewhere.
A Civil Company can be owned by professional partners of any nationality. If the owner is a National of a country other than the UAE or GCC, they require a Local Service Agent (LSA).
A foreign company can be a partner in a Civil Company, as long as the foreign company is in the same profession as the civil company.
An engineering Civil Company must have one partner who is a UAE National, who owns no less than 51% of the business and who must be an engineer of the same business activity. A Civil Company that offers legal services does not require a local service agent.
LIMITED LIABILITY COMPANY
A Limited Liability Company (LLC) is a flexible form of enterprise that blends elements of partnership and corporate structures. An LLC must have between 2 – 50 shareholders, each of whom is liable only to the extent of his or her share in the capital of the company.
LLCs can conduct any industrial or commercial business, but not professional – except banking, insurance or investment. LLCs cannot practice law, auditing, accountancy or any other type of consulting service.
The business name should be the same as the trade name or contain the names of one or more of its partners. The phrase “Limited Liability Company” must also be added to the business name. LLCs must appoint between 1 – 5 managers for the business. The managers may be selected from the partners. Unless the Memorandum of Association states otherwise, the manager has full powers of administration. Within the scope of his or her powers, the manager’s actions and commitments are binding to the business.
LLCs must appoint a UAE-accredited auditor. In case of the death of any partner, his or her shares are transferred to the heirs mentioned in the will.
A limited liability company is an association of a maximum number of fifty and minimum of two partners. Each of them shall be liable only to the extent of his share in the capital, and the partners shares are not made in the form of negotiable instruments.
- A limited liability company shall have a name derived from its objectives or from the name of one or more partners.
- The term “with limited liability” shall be annexed to the company’s name and so shall the amount of its capital.
- With the exception of insurance, banking and investment of funds for the account of others, a limited-liability company may practice any legal activity.
- The Limited-Liability company will have sufficient capital to achieve its objects. The shareholders will also have the right to determine the par value of the shares. A share shall be indivisible.
- Profit and loss shall be divided equally between shareholders.
- The management of the limited liability shall be assumed by one or more manager(s). They shall be selected either from the partners or from other provided that their number does not exceed five.
- The managers shall be appointed under the company Memorandum of Association or a separate contract for a limited or an unlimited period. They shall be appointed by the Partner’s General Assembly.
- Unless the powers of the manger are fixed in the company Memorandum of Association, the company manager shall have full powers to carry out management affairs of the company, and his actions shall be binding on the company, provided that they are substantiated by the capacity under which he acts.
- In the event of more than one manager, the Memorandum of Association may provide for the formation of a penal of managers.
- Should there be more than seven partners there; supervision shall be vested in a board comprising at least three partners.
- A company with limited liability shall have a general meeting comprised of all the partners.
- Unless otherwise stipulated in the Memorandum of Association, the General Meeting resolutions shall be valid only if adopted by a number of votes representing at least one half of the capital.
- It is not permissible to amend the company Memorandum nor to increase or decrease its capital, save by the approval of a number of partners representing three quarters of the capital.
At least 51% of LLCs must be owned by UAE Nationals, and can be owed by GCC nationals by up to 100%. The Memorandum of Association can distribute profits in a different ratio.
Shares of an LLC cannot be offered to the public. The company may not resort to public subscription to establish or increase its capital or secure loans, and it may not issue any negotiable stocks or shares.
PRIVATE SHAREHOLDING COMPANY
A Private Shareholding Company (Private Joint-Stock Company) is a partnership of at least three individuals. The partners must invest a minimum capital of AED 2,000,000 in the business. A Private Joint-Stock Company can be created for any commercial or industrial type of business. Professional activities are not allowed under this legal form. The company must have an appointed manager.
A number of founders, not less than three, may, among themselves, establish a private joint-stock company whose shares are not offered for public subscription and they may subscribe to the full amount of the capital which not be less than two million dirhams.
All provisions contained herein with regard to public joint-stock shall apply to private joint-stock shall apply to private joint stock companies.
At least 51% of a Private Shareholding Company (Private Joint-Stock Company) must be owned by UAE Nationals, and can be owed by GCC nationals by up to 100%.
While the shares of a Private Shareholding Company (Private Joint-Stock Company) cannot be offered to the public, the business can be converted to a public company two years or more after its creation, given certain conditions.
- The nominal value of the issued shares is fully paid up
- A period of not less than two financial years has expired
- During the two years preceding the application for conversion, the company achieved net profits distributable to the shareholders, the average value of which is not less than 10% of the capital
- A resolution of the extraordinary assembly for the conversion of the company is adopted by a majority of shareholders representing at least three quarters of the company’s capital
PUBLIC SHAREHOLDING COMPANY
A Public Share Holding Company is a company whose capital is divided into transferable shares of equal value. It must have a minimum capital of AED 10,000,000.
The business name cannot include the name of any of the shareholders, with the exception of patents registered in the name of a shareholder or if the business uses a store that has the name of a shareholder. The phrase “Public Shareholding Company” must be included in the business name.
Any company whose capital is divided into negotiable shares of equal value shall be considered a public joint-stock company and a partner therein shall be liable only to the extent of his capital share.
- A public joint-stock company shall derive its firm-name from its company is intended for the investment of a patent of invention registered in the name of the said person, or it has, upon incorporation or thereafter, acquired a premises and has adopted that premises; name as its own.
- In all cases, the term “Public Joint Stock” should be appended to the name of the company. It is not permissible, however, for a public joint-stock to adopt the name of another company or a name similar thereto. The latter company may otherwise plead to the administration name to change it.
- The company capital must adequately achieve the objectives of its incorporation, and in all cases may not be less than ten million dirhams.
- He shall be deemed a founder anyone who signs the initial Memorandum and Articles of the Association with the intent to assume the liability arising therefrom. Incorporation of the company may be permitted only if the number of founders is not less than ten.
- However, the Federal Government or the Governments of the respective member-Emirate may independently establish a company, and may involve a number of capital subscribers less than that reserved in the preceding sub-clause.
- The founders shall elect a panel inter se comprising a minimum of three and a maximum of five members to finalize establishment formalities with the concerned authorities.
- Founders shall subscribe to a minimum of 20% and a maximum of 40% of Association’s Capital.
- The management of a company shall be vested in a board of directors comprised in accordance with the Articles of Association which shall also state the number of the Directors and their term of office, provided that their number is not less than three, and not more than twelve directors and their term of office does not exceed three years. A Director may be elected for more than one term.
- The chairman of the board of directors as well as the majority of the directors must be UAE nationals.
- The Board of Directors shall assume all the powers necessary to execute the businesses required in satisfaction of the company objectives, save such powers as may be vested by the law or the company Articles of Association in the General Assembly.
- The General Assembly may, even if it is otherwise stipulated in the company Articles of Association, discharge all or part of the Board members.
- Stocks issued by the company are shares and debentures.
- It is not permissible to create founders’ shares or to grant the founders or others any particular preferences. It is further not permissible for the company to issue preference shares of any kind.
- The company capital shall comprise equal shares. The nominal value of each share shall be not less than one dirham and not more than one hundred dirhams. Upon incorporation of the company it is not permitted to issue shares at a lower or higher price than the nominal value plus issue charges.
- All company shares shall maintain equal rights and obligations.
- Shares issued shall be nominative and negotiable. It is not permitted to cause their issue to bearer. A share is indivisible.
- No increase in the company capital may be effected except after the principal capital was fully paid-up.
Capital increase shall be affected by either of the following methods:
- Issue of new shares,
- Merger of reserves into the capital, or
- Conversion of debentures into shares.
Subject to the Ministry’s approval, capital shall not be decreased except under a resolution adopted during an Extra-ordinary General Meeting and after the Auditor’s report is heard, such decrease may be made in either of the following two cases: (1) If the capital exceeds the company’s needs; (2) If the company sustains loss which may not likely be recovered from future profits.
A Public Share Holding Company must have at least ten founding members who are UAE Nationals, owning between 20% and 40% of the capital shares.
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 h\bearing 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.
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