The Six Business Incorporation Types in UAE

The procedures involved in setting up a company in Dubai are quite similar to those applied when establishing a new business or nonprofit firm anywhere else in the United Arab Emirates (UAE).

To begin with, the prospective entrepreneurs have to choose from among the different business incorporation types in UAE.

There are basically six business incorporation types in UAE:

1. General Partnership – This type of business incorporation is available to UAE nationals only. It is established by two or more partners who are responsible for the company’s “profit-and-loss” performance, and, more specifically, are liable (in common and separately) for the debts of the company.

The actual partners’ names are the only ones allowed for inclusion in the company name.

A partner’s interest can be conveyed in either of two ways: by approval of the other partner/all partners or as expressly indicated in the partnership agreement.

The individuals comprising the management must all be UAE nationals. Said managers may either be partners or not.

Any one of these four conditions may cause a partnership to be dissolved: withdrawal of a partner; bankruptcy; insanity of a partner; or death of a partner.

The partnership may, however, be continued in the event the rest of the partners unanimously decide on it. Such decision, in this case, must be duly entered in the Commercial Register.

2. Limited Partnership – This type of business incorporation is also known by another term – Partnership in Commendam. It is made up of two types of partners: general and limited. The general partners, who must be UAE nationals, are liable for the partnership’s debts.

The limited partner, on the other hand, is liable for its debts only up to the value of his contribution in the capital. Furthermore, the limited partner can neither be part of the management nor have his name be included in the partnership’s name.

3. Public Shareholding Company – This is one of the business incorporation types in UAE that allow for the most number of participants or shareholders.

In fact, it is required that a public shareholding company must have no less than 10 founders. The exception here is when a government entity is involved, in which case the required number of founders may be less than ten.

The minimum number of directors that must compose the Board of Directors of a public shareholding company is 3, while the maximum is 12. The Chairman and majority of the directors must be UAE nationals.

At least 55 percent of the shares must be made available to the public. Of the AED 10 million required as minimum amount of capital, 25 percent are required to be paid on subscription.

The liability of a shareholder is limited to a value approximate to the value of his capital contribution. All shares, which have equal rights, are entered in a share registry. Issuance of shares is guided by the nominal value – that is, the nominal value is pegged as the minimum price.

In case of considerable financial loss, such as when a company loses 50 percent or more of its capital, a general meeting of shareholders must be called by the board of directors.

Said meeting is aimed at tackling the pressing issue of whether to continue with the company or dissolve it altogether.

Failure of the board of directors to call a meeting or failure of the shareholders to arrive at a decision in the meeting is enough ground for an interested party to file a case before a competent court to seek the company’s dissolution.

4. Private Shareholding Company - Similar to a public shareholding company, a private shareholding company is required to have no less than 3 shareholders. Its minimum capital is set at AED 2 million.

Obviously in this setup, shares are not to be offered to the general public. This is the reason why it is required that the incorporating papers of a private shareholding company expressly rule out in advance any offering of shares to the public.

5. Limited Liability Company – Of the different business incorporation types in UAE, the limited liability company is considered the most common. It can be set up by at least 2 but not more than 50 persons.

A shareholder’s liability is hedged against the value of his shares. In Dubai, the required minimum capital for this setup is AED 300 thousand (elsewhere in UAE, it is AED 150 thousand).

Foreign ownership of shares is allowed, which must not be more than 49 percent of the company’s capital. Also, a limited liability company is allowed to undertake any licit activity except banking, insurance, and such other activities involving money investment on behalf of other parties or entities.

6. Joint Venture – This is the last of six business incorporation types in UAE. Also sometimes referred to as “consortium”, a joint venture is formed by two or more legal entities or natural persons.

Its terms and objectives are governed by a contract, which may either be orally or in writing (may not be notarized, in case of the latter). Also, registration of the agreement in the Commercial Register is not required.

The carrying out of a joint venture may be done only under the private name of one of the partners, who must be a UAE national.

It must be stated here that in any of these six business incorporation types in UAE, participation of UAE nationals must never go below 51 percent

The important thing for those planning to put up a company in UAE is to carefully consider the advantages and disadvantages of each of the business incorporation types in UAE and go for the one they think will best suit their business needs.

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