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Ras Al Khaimah: Types of Company

Introduction

The draft commercial companies law (CCL) is at the time of writing being considered by the Committee on Financial Affairs at the Federal National Council. The new law is designed to enable the UAE to keep pace with domestic and global economic issues.

Under the new law, the UAE cabinet will be able to issue decrees to allow for a more than 49% foreign ownership in certain companies. The draft law further proposes to allow companies currently operating in UAE Free Zones to carry out business activities outside of the Free Zone Area.

The draft law further proposes that founders of a Public Joint Stock Company must subscribe to a minimum 30% of issued capital. (Current rules require a minimum of 20%).

The remainder of this section deals with the aspects of the current commercial companies law:

Under the UAE law, nationals must have at least 51% shareholding in joint or foreign ventures established outside free zones. Foreign companies or individuals wanting to do business in the UAE must at least have a sponsor or service agent and obtain a trade license. The RAK Investment Authority may choose to partner with investors on request and where the project meets the overall objectives of the emirate. There are several ways of establishing a business presence in the UAE, most of which have varying degrees of compulsory local participation. The most commonly used methods by which foreign businesses establish a presence in the UAE are:

  • Appointing a commercial agent
  • Incorporating a limited liability company in the UAE
  • Establishing a branch or representative office of a foreign company
  • Establishing a professional partnership or professional sole proprietorship
  • Incorporating an international business company in one of the free zones.

Generally a foreign business operating in the private sector can supply products to its customers directly in the UAE and therefore does not need to appoint an agent. However this method of operation may not be appropriate where no client base has been established or a potentially high volume of business is to be conducted. In addition, foreign companies may be required to appoint a commercial agent in order to tender for projects in the UAE (examples include government projects such as oil and gas supply services).

The UAE Agency Law provides that only UAE nationals or 100% UAE-owned companies may be registered as commercial agents. Registered agency agreements must be formally notarised before being registered with the Federal Ministry of Economy & Commerce. Registered commercial agents are given substantial protection under the UAE Agency Law, including the exclusive right to market and sell a specified product in at least one Emirate. Where the principal or another agent sells such products in the same Emirate, the registered agent will be entitled to commission payable on these transactions regardless of whether the registered agent contributed to them.

It is possible to enter into an agency agreement that is not capable of registration with the Federal Ministry of Economy & Commerce. The UAE Agency Law does not apply to unregistered agency agreements and therefore the difficulties associated with exclusivity and terminating registered commercial agents generally should not arise. However the practical protection afforded to unregistered commercial agents varies from emirate to emirate. Strictly speaking, a foreign business that supplies products to its agent pursuant to an unregistered agreement may be precluded from enforcing payment for such products through the courts. However, claims can be heard under the provisions of the UAE Civil Code. It is nonetheless advisable to insist on a guaranteed method of payment or alternatively enter into a separate side agreement with the agent that details the required method of payment. In all cases, commercial agency agreements should be carefully drafted and it is advisable to seek competent legal advice before entering into one.

Companies wishing to operate in Ras Al Khaimah must obtain a suitable license, renewable annually, from RAK Investment Authority and enter into a pro-forma lease agreement for land. Long-term leasing of land is possible with 25 years renewable to similar periods. Various corporate documents similar to those required for the setting up of LLCs or branch offices must be also submitted.

 

 

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