Legal Structures for Business
Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 - the Commercial Companies Law - and its by-laws govern the operations of foreign business. In broad terms the provisions of these regulations are as follows:
The Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organisation, which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. The seven categories of business organisation defined by the Law are:
- General partnership company
- Joint venture company
- Public shareholding company
- Private shareholding company
- Limited liability company
- Share partnership company
General partnership companies are limited to UAE nationals only. The Dubai government does not presently encourage the establishment of partnership-en-commendam and share partnership companies.
A joint venture is a contractual agreement between a foreign party and a local party licensed to engage in the desired activity. The local equity participation in the joint venture must be at least 51%, but the profit and loss distribution can be mutually agreed. Joint ventures are suitable for companies working together on specific projects.
PUBLIC AND PRIVATE SHREHOLDING COMPANIES
The Law stipulates that companies engaging in banking, insurance, or financial activities should be run as public shareholding companies. Foreign banks, insurance and financial companies, however, can establish a presence in Dubai by opening a branch or representative office.
Shareholding companies are suitable primarily for large projects or operations, since the minimum capital required is Dh. 10 million (US$ 2.725 million) for a public company, and Dh. 2 million (US$ 0.545 million) for a private shareholding company. The chairman and majority of directors must be UAE nationals and there is less flexibility of profit distribution than is permissible in the case of limited liability companies.
LIMITED LIABILITY COMPANIES
A limited liability company 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 form of company.
In Dubai, the minimum capital is currently Dh. 300,000 (US$ 82,000), contributed in cash. While foreign equity in the company may not exceed 49%, profit and loss distribution can be mutually agreed. Responsibility for the management of a limited liability company can be vested in the foreign or national partners or a third party