Dubai Forms of Company

Dubai Introduction

The basic requirement for all business activity in Dubai is one of the following three categories of licence:

Commercial licences covering all kinds of trading activity;
Professional licences covering professions, services, craftsmen and artisans;
Industrial licences for establishing industrial or manufacturing activity.

These licences are all issued by the Dubai Economic Department. However, licences for some categories of business require approval from certain ministries and other authorities: for example, banks and financial institutions from the Central Bank of the UAE; insurance companies and related agencies from the Ministry of Economy and Commerce; manufacturing from the Ministry of Finance and Industry; and pharmaceutical and medical products from the Ministry of Health.

More detailed procedures apply to businesses engaged in oil or gas production and related industries.

Practising some trade activities (e.g. jewellery and insurance) requires the submission of a financial guarantee issued by a bank operating in Dubai.

In general, all commercial and industrial businesses in Dubai should be registered with the Dubai Chamber of Commerce and Industry.

Fifty-one per cent participation by UAE nationals is the general requirement for all Dubai-established companies except:

Where the law requires 100% local ownership;
In the Jebel Ali Free Zone, Dubai Internet City, Dubai Airport Free Zone, Dubai Media City or the Dubai International Financial Centre;
In activities open to 100% AGCC (Gulf Cooperation Council) ownership;
Where wholly owned AGCC companies enter into partnership with UAE nationals;
In respect of foreign companies registering branches or a representative office in Dubai;
In professional or artisan companies where 100% foreign ownership is permitted.

However, speaking in October 2004, following a visit by then US Trade Representative Robert Zoellick to the United Arab Emirates, Mohammed Al Muzakki, undersecretary with the UAE Ministry of Economy and Trade revealed that the government may consider allowing 95% foreign ownership of companies in sectors seen as beneficial to the regional economy.

Al Muzakki explained that:

"We are studying this law and might change it. Foreign ownership might increase to 95 percent of the project. But this will depend on a case-by-case basis, and the company's ability to transfer technology and its services to the country."

In the past, each emirate followed its own procedures governing the operations of foreign business interests. In practice, however, Dubai and the other emirates followed the same general system, whereby foreign companies operated in one of three ways: with a local sponsor, through a partnership with a UAE national or company, or through a private limited company or public shareholding company incorporated by Ruler's decree.

In September 2005, Khalaf Al Habtoor, member of the Dubai Economic Council, revealed that the UAE's Ministry of Finance and Industry was putting the finishing touches to new company laws.

The legislation being finalised by the UAE authorities will amend partnership rules, foreign ownership thresholds and IPO rules.

Under current rules, when a firm decides to float on the stock market, it must list at least 55% of its shares, leaving its former owners holding a minority stake. This has led many family-owned enterprises to avoid listing.

However, the proposed legislation would bring the listing threshold as low as 25%.

Al Habtoor, who consulted on the law during its development phase, confirmed that:

"The federal government is revising the company law which will bring down the listing ceiling, making it flexible for us...A change in this, offering flexibility, will help the UAE's family businesses to go public."

Since 1984, steps have been taken to introduce a codified companies law applicable throughout the UAE. Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 - the "Commercial Companies Law" - and its by-laws have been issued. In broad terms the provisions of the Law are as follows:

The Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organisation which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. It further lays down provisions governing conversion, merger and dissolution of companies.

The categories of business organisation defined by the law are:

General partnership company
Partnership-en-commandite
Joint venture company
Public shareholding company
Private shareholding company
Limited liability company
Share partnership company
Partnerships

Partnership companies are limited to UAE nationals only. The Dubai government does not presently encourage the establishment of partnerships-en-commandite or share partnership companies.

Dubai Joint Venture Company

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%, but the profit and loss distribution can be prescribed. There is no need to license 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.

In practice, joint ventures are seen as offering a suitable structure for companies working together on specific projects.

Dubai Public and Private Shareholding companies

The law stipulates that companies engaging in banking, insurance, or financial activities should be run as public shareholding companies. Foreign banks, insurance and financial companies, however, can establish a presence in Dubai by opening a branch or representative office.

Shareholding companies are suitable primarily for large projects or operations, since the minimum capital required is Dh. 10 million (US$ 2.725 million) for a public company, 40 million for banks and 25 million for insurance and investment companies, and Dh. 2 million (US$ 0.545 million) for a private shareholding company. The chairman and a majority of directors must be UAE nationals and there is less flexibility of profit distribution than is permissible in the case of limited liability companies.

A minimum of 55% of the shares of a Public Shareholding Company must be offered to the general public, but this may soon change (see above.)

Dubai Limited Liability Company

A limited liability company can be formed by a minimum of two and a maximum of 50 persons whose liability is limited to their shares in the company's capital. Such companies are recognised as offering a suitable structure for organisations interested in developing a long term relationship in the local market.

Companies Law stipulates that an LLC may engage in any lawful activity except for insurance, banking and the investment of money for others.

In Dubai, the minimum capital is currently Dh. 300,000 (US$ 82,000), contributed in cash or in kind. While foreign equity in the company may not exceed 49%, profit and loss distribution can be prescribed. Responsibility for the management of a limited liability company can be vested in the foreign or national partners or a third party.

The following steps are required in establishing a limited liability company in Dubai:

Select a commercial name for the company and have it approved by the Licensing Department of the Economic Department;
Draw up the company's Memorandum of Association and have it notarised by a Notary Public in the Dubai Courts;
Seek approval from the Economic Department and apply for entry in the Commercial Register;
Once approval is granted, the company will be entered in the Commercial Register and have its Memorandum of Association published in the Ministry of Economy and Commerce's Bulletin;
The licence will then be issued by the Economic Department;
The company should then be registered with the Dubai Chamber of Commerce and Industry.

Dubai Branches and Representative Offices

The Commercial Companies Law also covers the formation and regulation of branches and representative offices of foreign companies in the UAE and stipulates that they may be 100% foreign owned, provided a local agent is appointed.

Only UAE nationals or companies 100% owned by UAE nationals may be appointed as local agents (which should not be confused with the term "commercial agent"). Local agents -- also sometimes referred to as sponsors -- are not involved in the operations of the company but assist in obtaining visas, labour cards, etc and are paid a lump sum and/or a percentage of profits or turnover. In general, branches and offices of foreign commercial companies are not licensed to engage in importing activity except for re-export or in the case of products of a highly technical nature.

To establish a branch or representative office outside of the free zones in Dubai, a foreign commercial company should proceed as follows:

Apply for a licence from the Ministry of Economy and Commerce, submitting an agency agreement with a UAE national or 100% UAE owned company.
Before issuing the licence, the Ministry will forward the application to the Economic Department to obtain the approval of the Dubai government and will forward the application specifying the activity that the office or branch will be authorised to undertake in the UAE, to the Federal Foreign Companies Committee for approval;
Once this has been done, the Ministry of Economy and Commerce will issue the required Ministerial licence specifying the activity to be practised by the foreign company;
The branch or office should be entered in the Economic Department's Commercial Register, and the required licence will be issued;
The branch or office should also be entered in the Foreign Companies Register of the Ministry of Economy and Commerce;
Finally the branch or office should be registered with the Dubai Chamber of Commerce and Industry.

Dubai Branches and Representative Offices of Foreign Professional Companies

Branches and representative offices of foreign professional firms may be 100% foreign owned provided UAE nationals or 100% UAE owned companies are appointed as local agents. As mentioned previously, such agents are not involved in the operations of the firm but assist in obtaining visas, labour cards etc and are paid a lump sum as remuneration. The Economic Department is the authority in charge of licensing such branches or representational offices.

Dubai Sole Proprietorships

In setting up a professional firm, 100% foreign ownership, sole proprietorships or civil companies are permitted. Such firms may engage in professional or artisan activities but the number of staff members that may be employed is limited. A UAE national must be appointed as local service agent, but he has no direct involvement in the business and is paid a lump sum and/or percentage of profits or turnover.