3.1.The Federal Company Law prescribes a total local equity of not less than 51% in any commercial company and defines seven categories of business organization, which can be established in the UAE:
3.1.1 General Partnership - formed by two or more partners who will be jointly liable to the extent of all their assets for the company liabilities.
3.1.2 Simple Limited Partnership - formed by one or more general partners liable for the company liabilities to the extent of all their assets, and one or more limited partners liable for the company liabilities to the extent of their respective shares in the capital only.
3.1.3 Joint Venture - a company concluded between two or more partners to share the profits or losses of one or more commercial businesses being performed by one of the partners in his own name. Local equity participation must be at least 51%.
3.1.4 Public Joint Stock - any company whose capital is divided into equal value negotiable shares shall be considered a public join stock company and a partner therein shall only be liable to the extent of his share in the capital.
3.1.5 Private Joint Stock - a number of not less than three founder members may incorporate amongst them a private joint stock company whose shares are not offered for public subscription.
3.1.6 Share Partnerships - a company formed by general partners who are jointly liable to the extent of all their assets for the company liabilities and participating partners who are liable only to the extent of their shares in the capital.
3.1.7 Limited Liability Company (LLC) can be formed by a minimum of two and a maximum of 50 persons whose liability is limited to their shares in the Company’s capital. Most Companies with expatriate partners have opted for this LLC, due to the fact that this is the only option which will give maximum legal ownership.
In general, as we have mentioned above, all mainland companies are governed by the Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 the ‘Commercial Companies Law’ and its bylaws. This law stipulates that a total equity of not less than 51% should be held by a U.A.E. national in any commercial company except in the following:
- Where the law requires 100% local ownership
- Businesses set up in the Free Zone
- for the 100% ownership by GCC
- for GCC companies in partnership with U.A.E. nationals
- for branches or a representative office *
- In professional companies *
*U.A.E. national service agent is required
Local partner is one of the core issues to start your business through the mainland company in the UAE.
In general the local partner has no rights on the business management, turnover or profits. However, you have to pay an ongoing fee to the partner. Sometimes, an individual local partner of your company may demand a percentage of the profit in addition to the fee. Plus the signatures which you may require from the local partner, for example, to register the company’s new employees or to receive some additional permission to start business and, when such signature is missing as you cannot reach you local partner physically, can complicate your business. That is why we suggest to have a proper agreement with a local partner and to mention all the necessary authorizations in the power of attorney in order to avoid such consequences in the future.
From the other side in terms of the corporate partnership when the local company is your partner it will be basically much easier to proceed with the formalities. The probability that the company will interfere in your business requesting the percentage of the profit instead of the stable agreed amount will be minimized. One of the most important attribute of a corporate shareholder/partner is that it has continuous life. A legal entity does not expire upon the death of its shareholders, directors or officers.
With regards to the mentioned above, we always recommend to evaluate your preferences before you decide to sign the MOA with your local partner.