Dubai is the leading business hub for investors and entrepreneurs participating from around the globe to set up their businesses in UAE because UAE is known for providing best infrastructure, facilities, security, and trust to its investors. Many Investors and Entrepreneurs from all around the globe prefer Dubai as their first choice for setting up their business in UAE. This is because of the leverage the Government of Dubai provides to ease of doing business by imposing No Tax on income for Economic Development. However, recently Corporate Tax has been introduced by the Government of UAE which is only taxable at the rate of 9% per annum and is applicable upon the corporations or establishments earning more than AED 375,000 annually as their Net Profit. Thus, despite introducing the Corporate Tax in UAE, it is considered as the world’s lowest Corporate Tax ever imposed or introduced.
This article, in general, will deal with the procedure of setting up companies in UAE, whether it is related to Dubai Freezone company setup, Dubai mainland company setup, or offshore company formation in Dubai. Moreover, details related to the types, nature, and meaning of the Company’s existing in Dubai is also included in this article. Thus, for a better understanding about mainland company formation, this article is written in question-answer form so that answers to relevant questions may be provided to the reader.
This Legal Article is dealing with topics mentioned below in question-and-answer form for better understanding of the reader:
- FORMS OF COMPANIES
- LIABILITIES OF SHAREHOLDERS IN COMPANIES
- BEST OPTION FOR THE INVESTOR
- IMPORTANCE OF LICENSE ACTIVITY
- PERMISSION REQUIRED FOR SETTING UP BUSINESS
- DEFINITION AND LIBALITIES OF LLC COMPANY
- SOLE PROPRIETORSHIP LLC UAE
- FREEZONE LLC COMPANIES
- REPRESENTATIVE OFFICE OF FREEZONE COMPANY IN MAINLAND
- BASIC LEGAL STRUCTURE OF LLC COMPANY
- ROLE AND RESPONSIBILITIES OF A COMPANY MANAGER
- ACCOUNTABILITY OF A COMPANY
IMPORTANCE OF COMPANY VALUATION AND RESTRUCTURING hall be held jointly and severally liable for the obligations arising out from such agreements.
How many forms of companies are there in UAE?
Our company formation lawyer states that Federal Decree By-Law No. 32 of 2021 regulates the company law in UAE. Article 9 of the said law displays the forms of companies that can be constituted in UAE. The said companies are mentioned below:
- General Partnership
- Limited Partnership
- Limited Liability Company
- Public Joint Stock Company
- Private Joint Stock Company
Thus, if the investor or entrepreneur wants to constitute company in UAE and does not adopt any of the abovementioned forms, then that Company is considered null and void. Moreover, the persons executing or concluding contracts in its name shall be held jointly and severally liable for the obligations arising out from such agreements.
What are the liabilities of Shareholders as per company law in UAE?
The answer to this question must be known to all the Investors and Businessmen who wants to invest in United Arab Emirates. The liability of the Shareholders in different forms of Companies are mentioned below in the table:
The above-mentioned table depicts the Liability of the shareholders and capital requirement for setting up of the company. Therefore, it is very important for the Entrepreneur or Investor to wisely select the type or nature of the company, so that legal liability can be ascertained at the earliest stage and appropriate measures can be taken when any dispute arises.
We always advice Investors and Businessmen to conduct proper due diligence about laws and required procedure before conducting any business as precaution is better than cure.
Which Company should be the best choice for a businessman or entrepreneur investing in Dubai?
Our Business Lawyer in Dubai suggests that:
All the forms of companies stipulated under Article 9 of the law are best for any businessman or entrepreneur who wants to invest in Dubai. However, it depends upon the choice of the businessmen and the kind of activity that a businessman or investor wants to perform in UAE, as Public Joint Stock Companies are only allowed to conduct banking and insurance activities in UAE. It is also important to note here that as the forms of Companies are different from each other and their liabilities stipulated under the governing law are also different. The meaning and liabilities arising out of each form of the companies will be dealt with in details in the next article.
Why your License Activity is important to conduct business in Dubai, United Arab Emirates?
The License Activity is an activity which is mentioned upon the Trade License of a particular business. Generally, three to four business activities are allowed on one Trade License. If investor wants to increase his/her business activity than certain amount of fees is to be submitted with Authority (including Freezone and Mainland). However, it is pertinent to mention here that Mainland Authority allows only one Business Activity on a Trade License and prescribed fees is to be paid per activity. Therefore, to understand the scenario in a convenient manner, kindly have a perusal to the diagram mentioned below:
The above-mentioned diagram is an attempt to define the procedure for issuance of Trade License, without Trade License none of the Business Investor or Entrepreneur can conduct business in United Arab Emirates. It is also important to mention here that only Business Activity which is defined in the Trade License can only be conducted. In other words, if X (Establishment/Company) has Trade License of the activity (Information Technology) then the said Company is barred from conducting Business Activities in relation to Import/Export or General Trading. Otherwise, fine and permanent seizure of Business Bank Account can be imposed upon such violating Companies.
What are the permissions required for Business setup in Dubai?
Our Business Lawyer in Dubai suggests that:
If you want Mainland Business setup, then permission from Department of Economic Development is required to be obtained to secure Dubai mainland license and it also depends upon the nature of business activities which required initial approval from concern ministries and Departments belonging to UAE Government. On the other hand, if foreign investor wants to pursue with the formation of freezone companies then they require permission from the concern free zones authorities to obtain trade license.
It is pertinent to mention here that freezones and mainland authorities in United Arab Emirates provides 100 foreign ownerships to the foreign entrepreneurs. Thus, the requirement of having a UAE National as a shareholder in company has been abolished to some extent for Mainland Companies.
Some of the Business Activities which require Special or Prior Approvals:
- Legal Consultancy Services
- Law Firm
- Education Institutions
- Manufacturing of goods and services
- Importing Food and drinking products
- And many more
What is the definition of a Limited Liability Company, and what are the liabilities of the said Company?
Our Business Lawyer in Dubai states that:
As per Article 71 of the law governing Companies regulations in UAE, Limited Liability Company is a company whose number of partners is at least two and does not exceed fifty. More importantly, the partner in LLC shall only be considered liable to the extent of his Capital Contribution, which means no personal liability of any LLC Company partner can arise until and unless any act while is criminal in nature has been committed by such shareholder.
Whether it is permissible to constitute a Sole Proprietorship LLC UAE?
Yes, forming a Sole Proprietorship LLC UAE is permissible under Clause (2) of Article 71 of the governing company law, which allows a single natural or legal person to incorporate its own sole establishment in Dubai. However as per Article 72 of the said law the Sole Proprietorship LLC UAE is required to add “Limited Liability One Person Company (OPC)” at the end of its trade name.
How to form an LLC Company in Dubai or Mainland Company formation in Dubai?
Our Business Lawyer in Dubai states that:
To form an LLC Company in Dubai, a person must select the activity of the Company and Zone for conducting such activity. Generally, there are three types of Zones are available which are Mainland, Freezone and Offshore. So, the investor or businessmen must select the zone first and then to start with the process of company formation by submitting MOA (Memorandum of Association), AOA (Articles of Association) and other additional required documents which differs as per the requirement of Free Zone or Mainland Authority.
What are FZ LLC Companies in Dubai?
Our Business Lawyer in Dubai advises that:
FZ LLC Companies in Dubai are known as Limited Liability Company llc these companies are formed or incorporated in a particular Freezone. There are more than 40 Free Zone in Dubai which provides flexible and catena choices for investors and businesspeople in setting up their businesses.
Thus, it is mandatory for the Companies constituted under Freezones to comply with the requirement of putting FZ LLC Company after their trade name.
Whether FZ LLC Companies in Dubai are allowed to have Representative Office in Mainland?
Our Company Formation Lawyer states that:
Freezones Authorities in United Arab Emirates provides No Objection Certificates to the Companies operating in freezone so that representative office outside the Freezone can be opened. If a freezone company wants to open office in Mainland, then the NOC (No Objection Certificate) provided by the Freezone Authority will enable the said company to open its office. It is important to mention here that such Companies which have obtained certificate can only act in B2B relationship with the Mainland Companies and are barred to conduct B2C activities.
What is the Legal Structure of a Company formed in Dubai, United Arab Emirates?
As we have already discussed above in this article about the forms of companies in United Arab Emirates. It is clear that every company has their different structure based on the type of company. But, for understanding the nominal structure of any company an example of LLC Company with the help of diagram is mentioned below:
The above-mentioned diagram is an illustration of the Company Structure of LLC Company wherein one shareholder is the owner of company and must appoint Manager to deal with the daily operations of company. The role, duties and power of the Manager are specified in MOA (Memorandum of Association) of the company which includes the power assigned to the Manager such as signing all the contracts, agreements, bank signatory and other major decision powers. Therefore, the detailed discussion about the role and responsibility of the Manager is being discussed below in this article.
What are the role and responsibility of a Company Manager?
Our Company Formation Lawyer states that:
Manager of the company holds a significant position and in relation to the roles and responsibilities of the Manager a separate chapter is mentioned under the Federal Decree By-Law No. 32 of 2021 on Commercial Companies and the relevant provisions of the law are mentioned herein below:
“Article 84 Liability of Company’s Managers
- Every manager of the Limited Liability Company shall be held liable vis-à-vis the Company, the partners and third parties for any fraudulent acts committed by such manager. He shall also be liable for any losses or expenses incurred by the company due to improper exercise of the powers or violation of the provisions of any law in force, the MOA of the Company or the appointment contract of the manager or for any gross error committed by the manager. Any provision in the MOA or the appointment contract of the manager in conflict with the provisions of this Clause shall be null and void.
- Subject to the provisions on Limited Liability Companies set out in this Decree Law, the provisions that apply to the Directors of Joint Stock Companies as set forth in this Decree Law shall also apply to the managers of Limited Liability Companies.
The above-mentioned clause stipulates the liability on the Manager in case if any fraudulent is committed by him. Therefore, if the Manager of any company has committed any fraudulent act, he will be liable for such acts and for any losses or expenses incurred by the company due to improper exercise of the powers or violation of the provisions of any law in force.
Article 86 Manager’s Engagement in Competing Activities
The manager may not, without the consent of the General Assembly of the Company, manage a competing company or a company with objects similar to those of the Company or make, for his own benefit or for the benefit of third parties, deals in any business that competes with or is similar to the business of the Company, otherwise, the manager may be dismissed and required to pay compensation.
Article 87 Responsibility for Preparing Accounts
The manager of the Company shall prepare the annual balance sheet and profit and loss account, shall also prepare an annual report on the activities and financial position of the Company, and shall provide his recommendations on the distribution of the profits to the General Assembly, within  months of the end of the fiscal year.”
Therefore, keeping in view the provisions of the law mentioned above. It is important for the Shareholders and Managers to have a trust upon each other as the relationship between them works upon trust. The Manager holds significant position for the company and also bears liability in case where any act or dispute arises against the company due to the actions of committed by any agent or employee of the company and if any fraudulent or error act is committed by him.
Whether for the actions of any authorize person or agent and or an employee the Company can be held accountable?
The governing law i.e., Federal Decree By-Law No. 32 of 2021 on Commercial Companies, imposes liability upon the company in case any act or thing carried out by the person authorized to manage the Company and or also for the acts of any of its employees or agents. The relevant provision is mentioned below for:
Article 23: Liability of Company for Acts of its Authorized Manager
“The Company shall be bound by any act or thing carried out by the person authorized to manage the Company in the ordinary course of such management. The Company shall also be bound by any act of any of its employees or agents who are authorized to act on behalf of the Company, where such authority has been relied on by a third party dealing with the Company”.
It is clear from the provision mentioned above that any act committed by authorized manager or by any agent or employee of the company. Then in such scenario the liability of company will arise and not of the shareholders.
The personal or limited liability of the shareholders depends upon the nature of company they have involved into.
How can Company Valuation and Restructuring may help you?
Generally, Investors and Entrepreneur does not pay attention to the Company Valuation and Restructuring and at the later stage they face issues. But it is important for all the investor and entrepreneurs to understand the importance and benefits for this procedure. It provides the below mentioned benefits:
- Ease in doing Business.
- Group Tax Benefits.
- Ease in operating functions and affairs of the company.
- Reduces Legal Liability.
- Strengthen the Legal Structure of a company.
- Pre evaluation of Legal Risk.
- Helps in avoiding any Legal Trouble.
- Reduces Cost.
- Helps in reviving of Dormant Companies.
The term Company Valuation and Restructuring is the perfect legal solution for your company and business as it provides security as well as legal solutions to secure the profits for your Company in a legalized manner.
This process will help in securing the best possible way to secure your interest and to claim the benefit of Double Tax or Group Tax benefits if you are owing more than one company. Our team of corporate lawyers are highly qualified and experienced in conducting Valuation and Restructuring services.
Nour Attorneys Law Firm is your legal partner for commercial and business affairs. Our law firm consist team of highly qualified and experienced company formation lawyer and business lawyer in Dubai.
Our law firm ensures that investors and businesspeople set up companies succeed in a time-bound manner. Thus, our law firm services are not limited to setting up companies for investors but also to assist in bank account opening services, company valuation and restructuring, mergers and acquisitions and assisting in forming corporate governance frameworks.
Our team of Business Consultants have successfully assisted clients in Mainland Company Formation in Dubai, Dubai Free Zone Company Setup, Offshore Companies in UAE, Corporate Bank Account opening services, Trademark registration UAE, Commercial Due Diligence Services and Corporate Valuation and Restructuring Services.
For more information about the guidelines for setting up Business in UAE. Click the link below to access the video. Our law firm is your legal partner for commercial and business affairs.
- Effectively provides Dubai Freezone company setup.
- Dubai Mainland Company Setup.
- Mainland Company Formation in Dubai.
- Offshore company formation in Dubai.
- Advice in Business Setup by our Company Formation Lawyer.
- Bank Account Opening Services.
- Corporate Valuation and Restructuring
- Mergers and Acquisitions
- Corporate Governance Framework
- Employment Contracts
- Legal Advice
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Yuvraj Singh (Legal Consultant At Nour Attorneys and Legal Consultants)
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