In Dubai, as in the rest of the United Arab Emirates, foreign business owners have the option to setup and register a business as an LLC (limited liability company) as a mainland/onshore company or in a free zone.
Not all Dubai free zones allow for LLCs, which are designated as FZ LLC. Instead, they may only accept businesses identified as Free Zone Companies (FZ Co) or Free Zone Establishments (FZE). There are differences in the structures of these companies and particularly with the number of shareholders and their citizenship.
For purposes of this discussion, the focus will be on an LLC business setup as a mainland/onshore company. This allows the business to be located anywhere in Dubai and for any commercial purposes without the restriction of staying within the Free Zone. This also allows the business to sell products or provide services domestically and to hold government contracts, something not possible for free zone businesses.
For a mainland LLC, those not in the free zones, the foreign business owner can retain 49% of the shares of the business. The other 51% of the shares will be owned by a national, typically a business professional who agrees to become a sponsor or a partner in the company.
This agreement will need to be formalized in a Memorandum of Association, which sets out the roles of the sponsor as well as the fees that will be paid by the company for these services. These fees may be a flat rate, or they can be an annual percentage of revenue from the business.
Except in very specific situations, the sponsor is not the same as a partner in the Western business sense. The sponsor is more of a shareholder in that they are not responsible for any debts of the company and are typically not involved in the day to day operations, business management or in business decisions. The sponsor is also not a financial partner in the company and will not contribute money to the company start-up or ongoing operation.
Instead, the sponsor will work for and on behalf of the foreign company owner in working directly with the government agencies to register the business as well as in obtaining the necessary approvals for the business, including work visas and immigration verifications and approvals.
It will be important for the foreign business owner to find a sponsor or a service agent that is knowledgeable and has the experience and expertise to provide the support and advisory role necessary.
To setup an LLC in Dubai, there are several basic requirements that have to be met by the company prior to approval. With the LLC designation, the company must have a minimum of two shareholders. However, the company cannot have more than 50 shareholders to be approved.
The company must also have one and five managers named to the company. This is an important consideration as there may be the need for visas for these individuals if they are from another company. The advantage of an LLC as an onshore company means that space issues for these individuals are not as challenging as it can be in the free zones. In these areas, specifically named individuals in a company must have office space, which can create problems with large numbers of managers and limited free zone office space at a reasonable rate for a startup business.
The capital required to start up an LLC is also based on a different formula than other business entities in Dubai. In the case of the LLC, the shareholders will determine the required amount of working capital or minimum share capital. However, once this has been established the Department of Economic Development will complete what is known as a sufficient capital test. This is not a flat rate but rather a look at the cost of doing business for the LLC.
As long as the capital on hand meets or exceeds this sufficient capital amount it will be approved by the Department of Economic Development (DED).
You will also need to find a trade name for the company. This is not always an easy process in the UAE as there are specific requirements for naming a company of any type. The name of the company has to be directly related to the service provided or the nature of the business and also to the license type. It also cannot include specific terms that include religious words or images or anything deemed as offensive, indecent or obscene. This is subjective in nature, and different cultural issues can easily cause a trade name to be rejected. It is also important to understand that in Dubai a trade name can only include a personal name if he or she is a partner or owner in the business and it must include the first name and family name.
There are significant numbers of regulations regarding trade names in the UAE. It will be important to review the guidelines and to follow them completely when choosing a trade name for the LLC.
With all documentation in place, the owners can then apply for an initial approval certificate. This is granted through the DED and is often processed through your legal representative. While a formality and not yet final approval to start operations, it is an important step as this will ensure that the company name and format has been accepted and approved.
This process is typically very quick. Working with a legal firm that has experience in helping set up LLCs in Dubai will be essential. They will make sure all documentation and information required are available, and all forms are complete and accurate. As with all information provided to the government agencies in the country, this will be in Arabic.
At this point, if not completed prior, the Memorandum and Articles of Association will need to be drafted as well as notarized. This is an important document for your business and should be completed by an experienced attorney in LLC setups for mainland businesses.
These documents will need to include several specific elements as discussed earlier. Failing to include these issues in the agreement can lead to complications at a later point in time and if there is ever a problem or disagreement between the sponsor and the foreign business owner. Think of it as a silent partnership agreement with the importance of having a clear understanding of the roles, fees, and responsibilities.
With the pre-approval from the DED and the trade license, you will then be able to find a business location. This will need to be formalized with a tenancy contract that you will sign with the landlord of the commercial property.
This tenancy contract, the initial approval certificate and the correct application to the Real Estate Regulatory Authority (RERA). It is important to note that there is a minimum space of 200 square feet required for each business license using the same physical address.
Final Application Step
Once this is completed, all forms that are related to the process are once again provided to the DED. This will include the business license application form. This application is reviewed and approved; then you will be provided with the payment voucher.
The payment for the trade license has to be complete within 30 days or receiving the voucher. Even before the payment is complete, the LLC can begin doing business as per the license stipulations. Contact STA Law Firm for more information.