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Business Practices to Invest in a Limited Liability Company in the UAE.
If you want to start an investment in the UAE, one of the best options is to have a Limited Liability Company in Mainland. However, this comes along with some legal requirements, one of them is that several business activities require a UAE National Partner to own a minimum 51% of the Company’s shares which will grant him control of 51% votes in the General Assembly meetings of the Company. The challenge that the Foreign Investor will encounter is finding a National Partner who is ready and willing to invest and fulfill 51% of the capital requirement of the LLC, as per the existing laws. Not only this, even if the National Partner is available, he may not be willing to invest 51% of the capital of the LLC and the additional capital contribution required by the business operations.
Further, it is pertinent to note that the UAE has introduced a new law to empower Foreign Investor to completely own LLC, however, the exception under this law is that, it is limited to specific business activities with minimum capital, which may not be available to every Foreign Investor.
The major obstacle that the Foreign Investor encounters is the legal structure of the LLC. As per the law, National Partner (if available) shall hold the ownership of 51% of the company shares regardless if these shares may acquire less profit percentage than the partnership ratio, but the National Partner cannot assign or waive his/her voting rights. In other word, the National Partner is in control of company decisions in any voting process during company meetings. The Federal Companies Law does not recognize “share classes” wherein some classes may not hold a vote.
If the Foreign Investor wants to control the company and voting rights, the first solution presented by most advisors and business consultants is to appoint the National Partner as a Trustee and/or Nominee Shareholder through legal arrangements wherein the National Partner declares himself/herself a Trustee or/and a Nominee Shareholder and confirm that the Foreign Investor has the absolute ownership of the shares of the LLC and voting rights and the Foreign Investor is the solo contributor of the company capital, financial contributions, beneficiary of profit and losses with no liability on the National Partner, but this solution, regardless of being common is not the legal.
The aim of this publication is to provide the best legal choice within the ambit of the prevailing laws. The legal structure advised by Nour Attorneys in the Articles falls within ambit of the Federal Companies Law which will provide great opportunity to the foreign investors and businessman to invest in Mainland companies without the fear of liquidation of the company. Following the option provided by us will ensure the asset protection of the investors which in-turn will encourage more investments thereby contributing towards the economy of UAE.
Finally, Nour Attorneys with its ethic corporate responsibility has dedicated adequate time and effort to provide the proper answers to its clients and Foreign Investors to ensure that the community of the UAE benefits from stronger business stability with proper legal guidance.
In the Articles of this publication, the following words and expressions shall have the meaning as ascribed below. The following definitions will provide clarity on the terms referred to in the publication which will help in proper interpretation of the Articles.
“Actual Owner” means the actual owner of the shares or subjects or properties regardless of whom may hold it or appear as an owner on the official document/ register.
“Capital Contribution” means the obligation of the each partner to pay the capital/ amount equal to the value of the shares owned by him/her.
“Federal Companies Law” means the UAE Federal Law No. 2 of 2015 pertaining to the Commercial Companies and the amendments thereof.
“Federal Civil Transaction Law” means the UAE Federal Law No. (5) of 1985 pertaining to the Civil Transactions Law and the amendments thereof.
“Financial Zone” means a specific zone (building, land, area, community) in the UAE, which has its own legal structure for companies and mostly allow 100% foreign ownership and wherein the Federal Companies Laws are not applicable specialized for financial activities.
“Foreign Investor” \ “Foreign Partner” means non-UAE citizens who may own maximum of 49% of the LLC formed in the Mainland of the UAE.
“Free Zone” means a specific zone (building, land, area, community) in the UAE, which has its own legal structure for companies and mostly allow 100% foreign ownership and wherein the Federal Companies Laws are not applicable.
“LLC” means Limited Liability Company i.e. a form of company where the partners liabilities are limited to the capital invested by them in the company without any risk to the partners personal assets or properties. In the UAE, the Law requires the UAE National Partners to own minimum of 51% of the company shares in the Mainland (except for the exempted categories).
“Mainland” means the entire territory of the United Arab Emirates except the special Free Zones and Financial Zones.
“MOA” means the Memorandum Of Association of the company or can be sometimes called “Articles Of Association” of the LLC, which defines the partnership terms.
“National Partner” means the UAE citizen(s) who shall own 51% shares of the LLC formed in the Mainland of the UAE.
“National Partner Ratio” means the law requirement to maintain 51% of the companies’ shares owned by National Partners.
“Nominee Shareholder” means the person who is holding the shares on behalf of the Actual owner or original holder of shares. The Actual Owner may choose to appoint a nominee shareholder because the law does not allow the Actual Owner to own such shares or the Actual Owner does not wish to have the shares registered in its own name.
“Nominee Shareholder Agreement” means the agreement signed between the Nominee Shareholder and Actual Owner, where the Nominee Shareholder admits that he is only a frontier for the Actual Owner of the shares and he shall act only based on his instructions of the Actual Owner and based on his will, in exchange that the Actual Owner admits full liability for any liability that may be acquired by the Nominee Shareholder. It may include annual fees due and payable to the Nominee Shareholder.
“Partnership Contract” means any form of the company contract executed between the parties forming any type of the company including LLCs. Partnership Contracts includes MOA, AOA or any other official document pertaining to the company.
“Shares Certificate” means a certificate issued by the Company to confirm the name of the owner and the number of the shares owned by the shareholder at a specific time including rights put on the share in any form including mortgage and also the name of the representative of the shares.
“Side Agreement” means an agreement that is not part of the official documents executed between the parties. It is an agreement that define the true transaction between the parties as against the terms of the official documents, thereby hiding the true transaction against the official documents. In the side agreement a partner may admit he is only a trustee for someone else, either for shares, properties, vehicle etc. Examples of side agreements are Nominee Shareholder Agreements /Share Assignment Agreements or Sponsorship Agreement etc.
“Trustee” means a person who is acting as a Trustee on an asset belonging to another person who is the Actual Owner. The Trustee does maintain the asset for the benefits of the Actual Owner. Trustee may register the asset under his name but still gives in writing under an agreement executed with the Actual Owner, admitting that the Trustee is only acting as a trustee or a frontier and is not an Actual Owner.
“Trustee Agreement” means the agreement executed between the Trustee and the Actual Owner, where the Trustee admits that he is only a trustee or a frontier for the Actual Owner and does not own the asset even if it is registered under his name.
Lawyer & Legal Consultant
Mr. Mohamed Nouedin