Different Types of Company Formations in UAE - IBG Consulting Dubai

Different Types of Company Formations in UAE

February 13, 2018by admin

UAE has been buzzing in the news recently with its latest milestone now ranking it among the most desired locations to work, invest and live. With timely strategized economic diversification projects, increasing FDI inflows, accelerating GDP and internationally accredited business-friendly company setup laws, UAE has become the talk of every foreign investor today. As a business powerhouse abundant with investment opportunities and world-class facilities, UAE fosters distinct business activities within in its specialized jurisdictions. Since every business needs a unique structure to incorporate, UAE facilitates different legal forms to help companies establish, grow and prosper.

Sole Proprietorship

A sole proprietorship is an entity owned 100% by an individual, has control over all its operations and holds 100% shares to any profits. Similarly, any debts or financial duties will be liable to its owner. Although such legal forms are open to most business activities, some general rules must be obeyed before a sole proprietorship can proceed.

  • An individual of any nationality can own a professional-type sole proprietorship
  • Only UAE and GCC Nationals can own a sole proprietorship that is commercial or industrial, which must be owned 100%
  • If the owner is not a UAE national, an LSA or Local Service Agent is appointed for opening a sole proprietorship
  • The LSA will overlook license requirements and other government-related matters for the business
  • The agreement between the owner of the sole proprietorship and the LSA must be attested and certified by a Notary Public/Court within the UAE

Civil Company

Recognized professions such as surgeons, doctors, accountants, engineers and lawyers can open a Civil Company in UAE. As the company can have partners owning 100% shares, the activities allowed for the civil company can only be from professional businesses. More specifically, such activities are narrated as physical or intellectual, practiced by one or more natural persons under a defined capital. To open a civil company some rules must be followed for successful incorporation

  • Civil company does not involve any restriction on nationality of the owners, however, a civil company for engineering must include an Emirati National owning a minimum of 51% shares who also must be an engineer qualified in the same type of business activity.
  • If a foreign company invests as a partner in a civil company, it must be from the same type of business activity
  • Like in the case of a sole proprietorship, an LSA is required for company incorporation process if the owner is a foreign national.

Limited Liability Company

LLC is one of the most popular forms of company registration in UAE, where minimum of 2 or maximum of 50 shareholders can invest-in and become liable only to extent of their shares individually – profit and loss is divided equally between parties. Aside from professional businesses and banking sector, LLCs can conduct any commercial or industrial business activity in the jurisdiction.

  • A minimum of 51% shares must be owned by a UAE National with the rest 49% reserved for the foreign investor. Rest of GCC Nationals can however have 100% ownership of their LLC business in UAE.
  • Shares cannot be distributed as public stocks for securing loans or increasing capital.
  • During the incorporation process, a trade name must be decided which should either be the same trade name as of the business, represent its objectives or contain the names of one or more of its shareholders.
  • The law also requires the name “Limited Liability Company” added as abbreviation in the trade name.
  • As an operational business structure, LLCs must appoint one to five managers which can also be elected from the legal partners. The managers can practice full discretion on company administration affairs unless the MOA states otherwise.
  • A UAE accredited auditor must also be appointed to oversee financials and the transference of shares to the rightful heir.
  • In case of more than 7 partners, a board comprising of 3 shareholders will be erected for supervision
  • A general meeting will be comprised of all the company partners. Should a resolution be proposed, its validity will be endorsed through a successful number of votes representing more than half of the capital – unless stated in the MOA.

Private Shareholding Company

Private Shareholding Firm, also known as Private Joint-Stock Company is formed through a minimum partnership of AED 2,000,000 from at least 3 investors. Such legal structures are compatible with all sorts of commercial and industrial activities besides professional businesses.

  • The Private Joint-Stock company requires an appointed manager to oversee operations and financial affairs
  • A minimum of 51% shares must be owned by a UAE National or 100% by GCC National.
  • Given certain conditions, the venture can be converted to a public company after a minimum time of 2 years, however, the stocks of the business cannot be opened for public.

Public Shareholding Company

Public Share Holding company is defined as a legal entity whose capital is a minimum of AED 10,000,000 with transferable shares of equal value with each shareholder liable only to the extent of their capital. During the company incorporation process, the trade name must not be from any partnering investors, except if the name is a patent of a shareholder or if the name is entitled to store belonging to the shareholder. This also means applying “Public Shareholding Company” in its trade name and corporate identity.

  • Although the minimum number of investors required is 10, the respective authority of the jurisdiction can independently allow investors less than 10.
  • Any investor will be deemed a founder who assumes liability by signing the Memorandum and Articles of the Association
  • To finalize establishment formalities with the government authorities, a panel will be elected comprising of minimum 3 to a maximum of 5 members
  • Articles of Association will decide the number of Directors, their designations and term of service
  • The majority of board directors including the chairman must be UAE Nationals. Through the General Assembly, all or part of Board Directors can be discharged of duty.
  • Founders shall subscribe to a minimum of 20% and a maximum of 40% of Association’s Capital.
  • With the company capital comprised of equal shares, each share will be no less than AED 1, maintaining equal rights and obligations.

Branch Office- Definition / Ownership Rules

In simple terms a branch office is a dedicated outlet of a company. Though physically apart, branch office does not constitute as a separate legal entity. As a functional means to expand and grow business reach across countries, branch offices serve as an operational vessel to establish company presence in new regions and enhance prospects of sale and revenue.

  • A branch office is incorporated by filing an application with the help of local service agent through Ministry of Economic and Commerce
  • An approval must be secured from the respective authority after permit letter is issued regarding business activity from Ministry of Economic and Commerce
  • The local Economic Department will register the branch office after which business license will be handed to company

Types of Branch Offices

Foreign Company Branch

A Foreign company branch office is can be established in UAE with 100% ownership of the parent company. The branch office will operate as its headquarters in the region, however, import of goods is only permissible through a local trading firm.

UAE Company Branch

A UAE company branch is a basically an extension of a UAE–based company that expands it parameters by establishing a branch within UAE which undertakes one or more than one activities legislated in the main company license. Companies with multiple branches in UAE can carry out different business activities if complies with main company license.

Free zone Company Branch

A free zone company branch originates from UAE’s free zone jurisdiction with the purpose to expand operations in other zones across UAE. A free zone company branch office can be opened in mainland by acquiring license from DED, given the owner has an Emirati shareholder. Companies who cannot produce a local shareholder can get approval from Ministry of Economy and avail the services of a Local Service Agent.

GCC Company Branch

Much like UAE company branch, a branch of a GCC-based company is allowed to undertake one or more than one activities as legislated in the main company license. Companies with multiple branches can register for different business activities as permitted in their main company license.

Free zone Company

Free Zone company is a multi-shareholder legal structure comprising of 2 to 5 stakeholders. Free zones are incorporated under geographically defined jurisdictions spread all across the UAE. With exclusive benefits, specialized incentives and pro trading policies, UAE is currently world’s most top-ranked markets for business setup, especially in Dubai free zones.

  • There should be at least 2 Directors and a Secretary for a free zone establishment
  • The offices of Director and Secretary may be held jointly by a single person.
  • While Free Zone trading companies can import and export goods internationally, these companies cannot trade directly within UAE market directly. To conduct business operations within the UAE zones, locally appointed distributors must be hired.

How can IBG Help?

IBG Consulting Middle East is a 360° business consultancy solution with a successful track record of establishing world recognized companies in UAE. We offer A-Z incorporation services for all types of business structures, legal entities and company jurisdictions in UAE. Our competitively priced premier services have helped over 300 companies, across jurisdictions and company types in UAE with impeccable results that we pride ourselves with. Please take a tour of our website to learn more about our affordable UAE company formation packages at ibgme.ae

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