Setting up an LLC in Dubai
Contributed by Sovereign Group
12 November, 2012
Contributed by Sovereign Group [SovereignGroup.com]
What type of company can I set up in Dubai?
The Federal Law defines seven categories of business organization which can be established in Dubai. The most popular of these among foreign nationals is the Limited Liability Company (LLC)
How many shareholders are permitted for an LLC?
A Limited Liability Company can be formed by a minimum of two and a maximum of fifty persons whose liability is limited to their shares in the Company's capital. Most companies with expatriate partners have opted for this Limited Liability Company, due to the fact that this is the only option which will give maximum legal ownership i.e. 49% to the expatriates for a trading license.
Is it true that with an LLC, as a foreigner I will not be permitted to own 100% of the company?
Yes, in theory, the Federal law of Dubai stipulates that the foreign equity of the company may not exceed 49% which means that 51% of the company will be owned by an Emirati national. There is the option of owning 100% of a local company however, this can only be done in a free zone where certain restrictions apply. For more about free zones speak to one of our consultants.
If I have to give 51% of my company to a local Emirati then what is the point in opening a company in Dubai?
The local authorities understand that this is not a very attractive proposal for someone looking to incorporate a company in Dubai so in practice, a local sponsor is employed and paid a nominal fee and then an agreement is put in place between the local and the foreign party to say that the foreign party has full enjoyment of the profits of the company/ full control of the company/ full control of the bank account etc.
Is this agreement legally binding?
Yes and no. There have been a number of cases where the foreign entity has gone to court over a dispute and won however this is still up to the courts to decide and is not 100% watertight.
How can I protect myself against any future claim over the assets by the local sponsor?
We recommend that all foreigners incorporating such a company in Dubai transfer their 49% shareholding into an offshore company. By doing this you will be protecting your business from any future claims by the local sponsor in the event that the relationship between the two parties breaks down. A simple BVI company will suffice and is the most cost effective option.
Can I set up a bank account to go alongside the offshore company?
Yes, we recommend that you open a company bank account over which you will have total control as the sole signatory. In the event that the local sponsor makes a claim over the LLC, all profits from the business will be safely protected in the bank account and untouchable. Only day-to-day running expenses should be deposited in the LLC bank account.
Apart from protection against future claims, why else would I use an offshore company to hold the shares of the LLC?
There are a number of good reasons why the use of Offshore Company has become so popular when holding the shares of an LLC. The most obvious reason would be the avoidance of complicated inheritance procedures. A company does not die. If your property is held in a low cost offshore company, you (and your partner or partners) can own the shares of the company as you see fit. So rather than have your individual names on the trade license of the LLC, you have a company name. This is a very easy method for joint investment, for confidentiality, and for organizing ones assets under a manageable structure (and in many cases, in a Common Law structure).
written by Nicholas Cully of Sovereign Corporate Services
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