According to the Statistics Authority Report, the SME sector in the UAE contributed to approximately 53 percent of the total GDP and the government aims to increase this by 60 percent by the end of 2021.
Increasing FDI workflows, economic diversification, accelerating GDP, and internal business friendly company laws are some of the many reasons why the UAE has become a preferred location for foreign investors to establish their ventures. But every business needs a specific and unique structure and to help incorporate that, UAE facilitates different types of company formations to help businesses launch, grow, and prosper
Here are the different types of company formations in the UAE
Sole Proprietorship
A sole proprietorship is a company which is 100% owned by a single individual, who has complete control over the operations, shares, and profits of the company. The individual is also responsible for any financial duties or debts of the company.
Some of the main general rules for setting up a sole proprietorship company in the UAE include:
- It can be owned by any individual of any nationality
- An industrial or commercial sole proprietorship can only be owned by UAE and GCC nationals
- In case the sole proprietorship owner is not a UAE national, a Local Service Agent (LSA) has to be appointed to open the company. The LSA is responsible for overlooking all the license requirements for the company
- There has to be an agreement set up between the LSA and the sole proprietor which has to be certified and attested by a court in the UAE
Civil company
A civil company is formed in partnership or association of two or more people who are responsible for carrying out professional or consultancy activities.
Professional activities are those which are carried out using industry know-how and acquired information. They majorly include IT consultancy, legal consultancy, management consultancy, medical clinics, training, and other similar services.
Some of the main rules for civil companies in the UAE include:
- Civil companies can be completely owned by foreigners, but some of the professional activities need local partners as well. For instance, a civil company offering engineering services has to have a minimum of 51 percent shares allocated to an Emirati National who has engineering qualifications
- All civil companies are to be licensed and registered by the Department of Economic Development of the respective emirate
- In case there are no UAE nationals present as partners in the civil company, then it needs to appoint a Local Service Agent (LSA) whose main responsibility is to work as a liaison between government departments and the company
Limited Liability Company
A Limited Liability Company or LLC requires a minimum of 2 and a maximum of 50 shareholders who invest in the company and become liable for all its debts and financial responsibilities. In simpler terms, all the profits and losses of the company are divided equally among the shareholders.
LLCs can conduct professional, commercial, and industrial business activities in the UAE. Also, all the companies have to add LLC, the abbreviation of Limited Liability Company at the end of their company’s official trade name.
Here are some of the many rules for these companies in the UAE:
- The shares of the company cannot be distributed as public stocks for increasing capitals or getting loans
- All LLCs need to have 1-5 managers who are responsible for practicing complete discretion in terms of the company administration affairs unless the Memorandum of Association states otherwise
- LLCs also need to appoint an auditor accredited with the UAE to oversee all the company financials and ensure the shares are always transferred to the right heir
- If the LLC has more than 7 partners, a board of three shareholders has to be set up to oversee and supervise all the proceedings
Private Shareholding Company
A private shareholding company needs at least three investors to pool in a minimum of AED 2,000,000. More importantly, its shares cannot be offered to the public. In other words, the company’s stocks cannot be traded publicly.
Here are a few things you should know about private shareholding companies:
- A dedicated manager is needed to oversee all the internal operations and finances
- At least 51 percent shares of the company should be owned by a UAE or GCC national
- While it is possible to convert a private holding company into a public one after two years, the stocks still cannot be opened for the public
Public Shareholding Company
In a public shareholding company, there should be a minimum capital of AED 10,000,000 which is to be divided into equal shares and the liability of the shareholders is only limited to the total number of shares in the company.
Also known as Public Joint Stock Company (PJSC), All the insurance, banking, and other financial companies have to be run as public shareholding companies in the UAE.
Here are some of the top rules that public shareholding companies are expected to follow:
- The founding members of the company can only hold up to 35 percent of the share capital and the remainder has to be offered to the public.
- Chairman and the majority of directors in the company have to be UAE nationals and hold at least 51 percent of the total shares
- It is required for the company to have at least 10 founding members
- There should be a 3-15 board of directors whose official term cannot exceed more than three years.
Finding the right way to establish your business in the UAE
As you can see, there are different types of company formations in the UAE, each with different requirements, advantages, and drawbacks. The right type of company for your business will depend on the industry you are trying to target, your overall capital backing, and the location where you want to establish your business.
All of this can be rather overwhelming to analyze, especially if you are doing this for the first time. Centurion Consulting offers end to end business consulting services in the UAE and helps companies launch, grow, and reinvent themselves in the country. Their services also include market research, entry strategy, corporate structuring, regulatory compliances, and more.
Take a free online or offline consultation session of over 45 mins with Centurion Consulting to know how it can help take your business to new heights
