Dubai: Types of Company

On this Page:

- Dubai Introduction
- Dubai Joint Venture Company
- Dubai Public and Private Shareholding Company
- Dubai Limited Liability Company
- Dubai Branches and Representative Offices
- Dubai Branches and Representative Offices of Foreign Professional Companies
- Dubai Sole Proprietorships

Dubai Introduction

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

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:

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 brought the listing threshold down from 55% to 25%.

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.

On December 4, 2011, the UAE cabinet approved the draft of a new companies law which is expected to come into force during 2012. Under the new law, companies in certain sectors may be incorporated with one foreign shareholder. At the same time the new law will abolish the 49% maximum shareholding by foreigners. The minimum capital requirement for small private ventures of DH150,000 (USD40,838) will also be abolished.

In February 2008, the DIFC Authority (DIFCA) released for public consultation the Exempt Companies Regulations, a new set of regulations proposed under the Companies Law of 2006 and the Insolvency Law of 2004.

The new regulations are designed to assist financial institutions to carry out, among other things, securitisation transactions using the existing DIFC legal and regulatory framework.

Commenting on the imminent adoption of these regulations, Dr Omar Bin Sulaiman, Governor of the DIFC, noted: "With the increasing number and growing sophistication of transactions taking place in the Dubai International Financial Centre, the DIFC has again proved its commitment to international best practices - this time in the area of securitisation and other structured finance transactions."

"Through the adoption of these regulations, the DIFC demonstrates its willingness to support key players in their sectors of activity and respond to their requirements in a flexible manner while remaining faithful to its founding principles of integrity, transparency and efficiency."

"The simplicity of these new regulations also demonstrates the robustness of the existing legislative system, where it is now possible to introduce new areas of activity with relatively minor changes to our existing framework."

Nasser Al Shaali, CEO of the DIFC Authority added:

"As the DIFC continues its emergence as a leading international financial centre we are committed to providing the most mature, sophisticated infrastructure and legal framework to promote the development of a highly prosperous financial industry. By proposing the new regulations we aim to encourage securitisation transactions at the centre and cater and encourage the expansion of the products and services available at the DIFC."

Both Islamic finance and conventional finance transactions in the region often require the use of special purpose vehicles (SPVs). These SPVs, otherwise known as transaction-specific companies, are usually incorporated with the intention of being restricted in their operations, with no employees other than special directors.

The use of SPVs in the DIFC under the new regulations is simply for the purpose of facilitating sophisticated financing activity. This is likely to have a favourable impact on the region's increasing demand for SPVs, in both conventional and Sharia-compliant products.

In September 2009, Prime Minister of the UAE and Ruler of Dubai, Sheikh Mohammed Bin Rashid Al Maktoum enacted updates to the Dubai International Financial Centre’s (DIFC) Companies Law and Insolvency Law.

The updates in the Companies Law cover certain registration requirements specified by the DIFC Registrar of Companies while the updates to the Insolvency Law incorporate changes in applications and procedures for winding up Protected Cell Companies (PCCs). PCCs are self-insurance structures that provide a simple and cost-effective solution to companies wishing to establish a captive insurance company.

The updates to the Companies Law include the abolition of the procedure for approval of a company’s Articles of Association by the DIFC Registrar of Companies and the requirements for recognised companies to file an annual return. It also provides clarifications on the right of shareholders and directors to participate in shareholder or directors meetings. The Insolvency Law has been updated to include minor amendments arising from the introduction of the proposed updates to the Companies Law and the amended Insolvency Regulations of 2009.

Omar Bin Sulaiman, Governor of the Dubai International Financial Centre said: “The updates to the two laws form part of DIFC’s efforts to constantly update its legal framework to meet the changing needs of the industry and to stimulate the growth of new sectors and niche areas in the financial services industry.”

DIFC also issued new regulations that incorporate the updates to the Companies Law and Insolvency Law. The new regulations will help the insurance industry in offering innovative new products and services out of the financial district.

The enactment of the laws comes following the completion of a public consultation process, as part of which DIFC invited public comments on proposed updates in the laws.

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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.

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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 AED 10 million (USD 2.725 million) for a public company, AED 40 million for banks and AED 25 million for insurance and investment companies, and AED 2 million (USD 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 25% of the shares of a Public Shareholding Company must be offered to the general public.

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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.

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.

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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.

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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.

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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.

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