Registration of company in Dubai – which organizational-legal form to choose?

In the territory of the UAE several dozens of free economic zones are established. Registration of a company in the UAE can be made either in a free zone or outside any free zones. A company registered in a free zone is called a free zone company (establishment), while a company registered outside free zones is called a “local” company.

In this article we consider main issues related to registration of a “local” company in the UAE. As most frequently “local” companies are registered in the emirate of Dubai, we will examine registration of a company particularly in Dubai.

Registration of a “local” company in Dubai is made in the “Department of Economic Development of Dubai” (DED). For operation of a company it is necessary that DED issued a business license for performing certain activity by a company.

When selecting organizational-legal form of a company in Dubai, type of business, business activity, number and citizenship of owners, and options of ownership of a company should be considered.

During registration of a “local” company in Dubai, you may choose between different variants of organizational-legal forms; still, it should be remembered that not every certain form of a company will suit certain types of activities.

Registration of a company in Dubai в форме «Sole Proprietorship»

A form of a company “Sole Proprietorship” is a business owned by a natural person, not by a company. Such person will own 100% of a business, control all its operations and receive 100% of any profit. He also bears 100% responsibility for debts of a business and any other financial obligations.

Types of activities:

• Industrial or commercial business of a type “Sole Proprietorship” may only be owned by citizens of the UAE or citizens of countries GCC.
• An owner of “Sole Proprietorship” dealing with consulting activities should have qualification in the sphere of his activities.
• Some types of activities that can be performed through this organizational-legal form of business can only be performed by citizens of the UAE.

Owner / owners:

• Professional business of type “Sole Proprietorship” may be owned by a person with any citizenship. If an owner is not a citizen of the UAE or countries GCC, then a Local Service Agent (LSA) must be attracted. “Sole Proprietorship” may not be owned by a legal entity.

Manager / managers:

• For “Sole Proprietorship” only one manager can be assigned according to rules of business regulation of DED.

Capital:

• Capital is not required for “Sole Proprietorship”.

Trade name:

• Trade name should be related to commercial activity of a company.

Branches:

• “Sole Proprietorship” may have one or more branches; each branch may perform several types of activities included in one main business license.
• “Sole Proprietorship” may not have branches outside Dubai.

Transfer of license:

• “Sole Proprietorship” and/or its branches can be sold and reassigned to any part or company. An owner / owners also can change their organizational-legal form according to procedures of DED.
• Industrial or commercial type of “Sole Proprietorship” may only be sold to a citizen of the UAE. If a local owner / partner changes the activity to professional, then “Sole Proprietorship” may be sold to a non-resident, but this will require assignment of a Local Service Agent (LSA).

Registration of a company in Dubai in the form of limited liability company with one owner

“Limited Liability Company” (LLC) with one owner is owned by either natural person or one legal entity. This organizational-legal form of a company is different from other ones that require presence of at least two parties for signing of an agreement.

LLC with one owner has only one participant. Such company is similar to “Sole Proprietorship”, but differs in some aspects, most important of which is that responsibility of such company is limited by cost of shares of a sole partner, while in “Sole Proprietorship” responsibility is not limited.

Owner / owners:

• Citizen of the UAE or citizen of country GCC, or company-resident of the UAE or company from country GCC, can establish and own a “Limited Liability Company” with one owner.
• Owner can be a natural person (citizen of the UAE, or citizen of country GCC, or other specially permitted person).
• Owner can be a legal entity (company from the UAE our country GCC, which is 100% owned by citizens of the UAE or citizens of country GCC).

Manager / managers:

• In license of a company, 1 to 11 managers should be assigned.
• Manager can have any citizenship.
• Owner of a license and a manager can be the same person.
• Number of managers may not exceed 11.
• Company must notify the corresponding body on termination of manager’s service within 30 from the date of termination. During this period, a company must assign a new manager.

Capital:

• Capital of a company is only defined in a Memorandum (Articles of Association).

Trade name:

Trade name can be formed in two ways:

• Name of a shareholder, plus type of activity, plus organizational-legal form, plus LLC. For example, “Mohammad Ahmad general trading one person co L.L.C”,
• or trade name, plus name of a shareholder, plus type of activity, plus organizational-legal form, plus LLC. For example, “Golden sun owned by Mohammad Ahmad general trading one person co L.L.C”.

It should be noted that

• Trade name must coincide with the name of its owner, followed by “one person”, after that “LLC” must be stated.
• Name of a shareholder in a trade name can comprise minimum two parts, e.g. first name of a person and last name, or can comprise a pseudonym of at least two words.
• If a trade name starts not with a shareholder’s name, then a phrase “owned by” should be added.
• Organizational-legal form should be stated in full “one person co.”.

Memorandum (Constitutive agreement):

• Constitutive agreement of a company is issued and certified by a notary.

Liquidation and suspension of activity of a company:

• Company is liquidated in case of death of an owner-natural person, or in case of liquidation of an owner-legal entity. Nevertheless, a company should not be liquidated in death of a natural person, if successors wish that a company further existed. Then, within six months from the date of death, a status of a company should be brought in line with the legislation and somebody must be assigned for managing a company in the name of successors.
• If an owner of considered company liquidates it with malicious intent, or terminates its activity before expiration of term, or before reaching the goals stated in the Memorandum, then he bears personal responsibility upon obligations of a company.

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Registration of company in Dubai in the form “Civil Company”

“Civil Company” — is business partnership for professionals in recognized spheres, such as doctors, lawyers, engineers, and bookkeepers.

Types of activities:

• Partners with any citizenship can perform professional activities according to rules of DED.

Owner / owners:

• “Civil Company” can be owned by professional partners with any citizenship. If an owner is not a citizen of the UAE or country GCC, then a Local Service Agent (LSA) is necessary.
• Other company may not be a partner in a “Civil Company”.
• “Civil Company” for engineering activity should have a partner-citizen of the UAE, who must own at least 51% of business, and must be an engineer in the same sphere that business activities belong to.
• “Civil Company” can deal with consulting activity, but it must be 100% owned by professional partners-specialists in the same sphere that activity belongs to.

Manager / managers:

• “Civil Company” can assign only one manager.

Capital:

• There are no requirements to capital, but it must be stated in the Memorandum.

Trade name:

• Trade name must reflect the commercial activity of the company.

Branches:

• “Civil Company” may have one or more branches. Every branch may perform one or more types of activity included in the main business license.

Transfer of license:

• “Civil Company” and/or its branches can also be sold or reassigned to any party or company. Owner / owners can also change their organizational-legal form according to procedures of DED.

Registration of company in Dubai in the form “Limited Liability Company”

 “Limited Liability Company” (LLC) is a flexible form of entity that combines elements of partnership and corporate structures. LLC should have 2 to 50 shareholders, each of whom bears responsibility only within the scope of his share in capital of a company. LLC can be transformed into any other organizational-legal form of a company.

Types of activity:

• LLC can deal with any industrial, commercial, professional or tourist activity. Some types of professional activity are not regulated by DED, while other require permission from bodies that regulate these types of activity.

Owner / owners:

• At least 51% of LLC must be owned by citizens of the UAE. In case with citizens of countries GCC — up to 100% of a company can be owned by citizens of countries GCC.
• LLC may have partners with any citizenship. Legal entities can buy shares of LLC.

Let us bring for example the table that illustrates rules and requirements regarding citizenship of owners of LLC.

Manager / managers:

• LLC should assign 1 to 11 managers. Managers can be assigned from the number of partners. If a Memorandum does not provide otherwise, a manager has all administrative powers.
• At termination of manager’s service, a company should send a notice to the corresponding body within not more than 30 days from the date of termination. In the same term, other manager must be assigned.

LLC should assign an accredited auditor. An auditor must notify DED on termination of cooperation with a company.

Capital:

• Capital is not defined but should be stated in a Memorandum.
• Shares of LLC may not participate in public offer. A company may not use public offer to form or increase its capital. Company may not issue any shares of free circulation.

Trade name:

• LLC should have a trade name reflecting its activity, or name of one or more partners.
• In the end of the trade name, limited liability of the company must be stated.

Branches:

• LLC may have one or more branches. Each branch may perform one or more types of activity included in the main business license.

Transfer of license:

• Branches of LLC can be sold or reassigned to any party or company. Owner / owners may also change the organizational-legal form of the company according to procedures of DED.

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Registration of company in Dubai in the form of private shareholder company “Private Shareholding Company” (“Private Joint-Stock Company”)

Registration of a private shareholding company in Dubai allows establishing a partnership with 2 to 200 participants. Partners must invest in business capital not less than 5,000,000 dirham (1,363,000 dollars).

Types of activity:

• “Private Shareholding Company” can be established for any commercial or industrial business. Professional activity is not allowed within this organizational-legal form of a company.
• For registration of a company, it is necessary to obtain the approval of the Ministry of Economy UAE.

Owner / owners:

• ‘”Private Shareholding Company” may have partners with any citizenship. A legal entity may establish and own a private shareholding company. A name of a company must include a phrase “Private Shareholding Company”.
• At least 51% of “Private Shareholding Company” must be owned by citizens of the UAE. In case with citizens GCC, they may have a share up to 100% of a company.

Manager / managers:

• A company should have a manager assigned according to rules of DED.

Capital:

• Minimum capital of a company — 5,000,000 dirham (1,363,000 dollars).
• Although shares of “Private Shareholding Company” may not participate in a public offer; business may be transformed into a public company after two years or after registration of a company. At that, the following conditions must be fulfilled:
  • Nominal value of issued shares is fully paid.
  • Period of at least two financial years has passed.
  • For two years preceding submission of an application for transformation a company had reached a net profit distributed among shareholders, with an average value of at least 10% of a capital.
  • Decision of an extraordinary meeting on transformation of a company is taken by majority of shareholders presenting at least three fourths of a company capital.

Trade name:

• Trade name should correspond to commercial activity of a company. A name of a company should be identical to a trade name; both names should include names of one or more partners and end with a phrase “Private Shareholding Company”.

Branches:

• Company may have one or more branches. Each branch may perform one or more types of activity included in the main business license.

Transfer of license:

• Branches of a “Private Shareholding Company” can be sold or reassigned to any party or company. Owner / owners can also change the organizational-legal form of the company according to procedures of DED.

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Registration of company in Dubai in the form “Public Shareholding Company”

Registration of a public shareholding company in Dubai (“Public Shareholding Company”) allows establishing a company which capital is distributed into transfer shares of equal value.

Types of activity:

• Partners can perform any industrial, commercial or professional activity.

Owner / owners:

• “Public Shareholding Company” may have partners with any citizenship.
• Legal entities may own shares of a “Public Shareholding Company”.
• Company should have at least 5 funders who are citizens of the UAE and who own 30% to 70% of an authorized capital.

Manager / managers:

• Company may have maximum 5 assigned managers.

Capital:

• Minimum capital of a “Public Shareholding Company” makes 30 million dirham (8.2 million dollars).

Trade name:

• Business name may not contain a name of any shareholders, except cases with available patents registered in the name of the shareholder, or where a business uses a shop bearing the name of the shareholder. A business name should include the phrase “Public Shareholding Company”.

Branches:

• Company may have one or more branches. Each branch may perform one or more types of activity included in the main business license.

Transfer of license:

• Branches of a ”Private Shareholding Company” can be sold or reassigned to any party or company. Owner / owners can also change the organizational-legal form of the company according to procedures of DED.

Registration of company in Dubai in the form “Simple Limited Partnership”

“Simple Limited Partnership” is established between at least two partners, one director general and one partner with limited responsibility. General partners are liable upon obligations of a company within all their personal assets. Partners with limited responsibility are liable upon obligations of a company within their shares in an authorized capital.

Types of activity:

• Company may only perform commercial or industrial activity.

Owner / owners:

• “Simple Limited Partnership” may have citizens of the UAE as general partners. Citizens of other countries can be partners with limited responsibility.
• Any general partner or partner with limited responsibility may own any shares of business. There are no minimum or maximum levels of ownership for any partners.
• Partner with limited responsibility may not interfere in managerial or administrative issues related to other partners. If he does so, then this partner with limited responsibility is liable upon all obligations of business.

Trade name:

• Trade name of a company should include the name of one general partner or names of several general partners. The name should also state that this is the name of the company. A company can also have a special trade name. A name of any partner with limited responsibility may not be mentioned in a company name.

Branches:

• Company may have one or more branches. Each branch may perform one or more types of activity included in the main business license.

Registration of company in Dubai in the form “Partnership Company”

“Partnership Company” is the only business where two or more persons share the right of ownership between themselves. Each partner makes his contribution in all aspects of business, and must manage a company, except cases where one partner or other party should do the managing upon agreement.

Types of activity:

• Company may only perform commercial or industrial types of activity.

Owner / owners:

• Shares of “Partnership Company” must be 100% owned by citizens of the UAE, and may not participate in a public offer, as well as may not be presented in negotiable certificates.
• “Partnership Company” may not be owned by citizens of countries GCC and/or any legal entity.
• Owners of a ”Partnership Company” bear solidary responsibility upon obligations of a company. This means that if business fails to pay its debts at account of profit from its activity, then both personal and business assets of one or more partners can be used to pay creditors. Meanwhile, an agreement providing otherwise may not be concluded for protection against the third parties.

Trade name:

• Business name should include a name of one or more partners. A name should also include a word denoting that this is a business name. If there is a person in a business name who is not a partner (without knowledge), then such person will bear solidary responsibility for business debts. Business may also have a commercial name.

Manager / managers:

• “Partnership Company” may assign only one manager.

Branches:

• “Partnership Company” may have one or more branches. Each branch may perform one or more types of activity included in the main business license.

Transfer of license:

• Branches of “Partnership Company” can be sold or reassigned to any party or company. Owner / owners can also change the organizational-legal form of the company according to procedures of DED.

Registration of company in Dubai in the form “Intelaq License Company”

“Intelaq License Company” may only be established by citizens of the UAE. This is a home business. Any type of professional, trade or craft activity may be performed. Within a reasonable scope, business should correspond to working in residential premises. Activities should not bring harm to environment or health of any person, produce noise or anyhow disturb neighbors. Such business may be of the following organizational-legal forms: “Sole Establishment”, LLC, “Civil Company” and partnership. An owner of “Intelaq” license may not issue UAE visas for employees.

Types of activity:

• Each person may only have one commercial or professional license “Intelaq”, but may perform more than one activity under this license.

Owner / owners:

• Business must be 100% owned by citizens of the UAE. A license “Intelaq” does not permit an owner of business hiring personnel, but allows attracting subcontractors.

Making business in Dubai under license “SME”

A license “SME” can be provided to entities that are 100% owned by citizens of the UAE, while the organizational-legal form can be different. A license is valid for three years and allows owners issuing UAE visas for employees.

Owner / owners:

• Business must be 100% owned by citizens of the UAE.