THE REAL DEAL

UAE, Dubai 2014 | EXECUTIVE GUIDE | REVIEW: PRACTICING BUSINESS IN DUBAI

While getting set up in Dubai is relatively simple, a little helping hand along the way can make all the difference.

GENERAL INFORMATION ABOUT BUSINESS REGISTRATION

Prior to operating any business in Dubai, the steps outlined below must be undertaken in order to meet the legal requirements of all concerned government authorities and to guarantee maximum commercial benefit for the business owner:

• Determine, in the beginning, the category/categories (commercial, industrial and/or professional) and type of business activity/activities to be practiced. Please determine all related business activities that can be included within each business license, subject to a maximum of 10 activities per license.

• Confirm all the requirements of the license to be issued.

• Determine the trade name of the business.

• Submit an application to the Department of Economic Development (DED) for an initial approval and register the trade name, either by a personal visit to the department offices and its external branches or through the internet services that are available on its website.

• After getting initial approval, you can lease premises and contact the counter of the Planning Department of Dubai Municipality in order to verify that said premises are suitable for the business.

• Prepare all required documents and submit an application to the DED or one of its external branches to pay the required fees to obtain a final license.

• Submit an application to one of the DED's external branches for a signboard permit for a business trade name as required by economic regulations.

TERMS & CONDITIONS ON OPERATING ECONOMIC ACTIVITIES IN THE EMIRATE OF DUBAI–UAE NATIONALS

UAE nationals may operate all commercial, professional, and industrial activities when they fulfill all terms and conditions.

They may carry on activities through any of the following legal forms

• Individual Establishment.

• Limited/Joint Liability Company.

• Private/Public Shareholding Company.

• Civil Business Company.

NATIONALS OF GULF COOPERATION COUNCIL COUNTRIES (GCCC)

GCCC nationals may carry on most commercial, professional, and industrial activities when they fulfill all terms and conditions (except for activities of Hajj and Umrah, trade agencies, houses for disabled and old people, community service, and journals and magazine publishing and printing houses as they are limited only to UAE nationals). They may carry on activities through any of the following legal forms:

• Individual Establishment.

• Limited Liability Company; two or more GCCC nationals may establish a Limited Liability Company to practice a specific commercial activity. However, if there are one or more partners who are not GCCC nationals, in this case one or more UAE national partners are required with a shareholding of no less than 51% of paid-up capital.

• Private/Public Shareholding Company; three or more GCCC nationals may establish a private shareholding company to practice a specific commercial activity. However, if there are one or more partners who are not GCCC nationals, in this case one or more UAE national partners are required, with a shareholding of no less than 51% of the paid-up capital. For example, in the event there are both GCCC and foreign partners, it is a must to have a partner of UAE nationality.

• Civil Business Company; two or more GCCC nationals may establish a Civil Business Company to practice a specific profession without a local services agent. However, if there are one or more partners who are not GCCC nationals, a local services agent who is a UAE national shall be appointed or included as a partner.

NATIONALS OF OTHER COUNTRIES

Nationals of other Arab or foreign countries may carry out economic activities through any of the following forms:

• Individual Establishment; may be established to practice any professional activity only by appointing a local services agent who shall be a UAE national.

• Limited Liability Company; shall be established to carry on any commercial or industrial activity, including one or more UAE partners whose shareholding shall be no less than 51% of the paid-up capital.

• Private Shareholding Company; shall be established to carry on any commercial or industrial activity, including one or more UAE national partners whose shareholding shall be no less than 51% of the paid-up capital.

• Civil Business Company; two or more persons may establish a Civil Business Company to practice a profession, provided that a local services agent, who must be a UAE national, is appointed or included as a partner.

FOREIGN COMPANIES

Any company incorporated outside the UAE may operate any commercial, industrial, or professional activity through one of the following legal forms:

• Branch of a Foreign Company

• Limited Liability Company; this kind of company shall be established to operate any commercial or industrial activity, including one or more UAE national partners whose shareholding shall be no less than 51% of the paid-up capital.

• Private/Public Shareholding Company; this kind of company shall be established to operate any commercial or industrial activity, including one or more UAE national partners whose shareholding shall be no less than 51% of the paid-up capital.

ANNUAL FILINGS

Under the UAE Commercial Companies Law, most companies or branches are required to have their accounts audited locally, and these accounts will then need to be filed with the appropriate Emirate-level authorities on an annual basis as part of the license renewal filing process. There are also annual license renewal fees to be paid, which are based on the type of license, entity, and activities. A similar requirement exists for free trade zone entities, although the requirements and fees vary and need to be considered based on the legal entity set up and its location.

AUDIT & ACCOUNTANCY

Joint Stock and Limited Liability Companies must appoint one or more auditors. All legally incorporated companies have to file their audited financial statements with the Ministry of Economy or relevant authority in order to renew their trade licenses. There are no exceptions available or restrictions on appointment of auditors. Companies generally prepare their accounts on a calendar year basis and banks are specifically required to do so by the Central Bank of the UAE.

Listed companies (including banks) are required to file quarterly reviewed financial statements and annual audited financial statements in both English and Arabic with the Securities and Commodities Authority (SCA), which publishes the quarterly and annual financial statements on its website. Banks, including branches of foreign banks, are also required to file audited annual financial statements and regulatory returns with the Central Bank of the UAE and publish them in a local newspaper. There is no specific language requirement for the purpose of maintaining books and records, although books are generally maintained in English. International Financial Reporting Standards is mandated by the SCA and the Central Bank of the UAE and adopted as the default GAAP by all other companies.

LEGAL BUSINESS STRUCTURES

Individual Establishment

An individual Establishment is an establishment owned by a sole proprietor to operate an economic activity (commercial, professional, industrial, agricultural, or real property). An establishment's financial liability is linked to the proprietor who shall be responsible for all its financial obligations.

Civil Companies

• A Civil Company is each company that directly undertakes a specific profession because its target and partners depend, for their earnings, on the practicing of activities that involve the use or investment of intellectual faculties more than depending on speculation, materials, or others' work.

• Under Dubai Local Order No. 63 of 1991 on licensing professionals and tradesmen in the Emirate of Dubai, a number of normal individuals are allowed to practice a service or professional activity as a distinct commercial form. The business takes the form of a Business Partnership in accordance with the provisions of the rules (from 683 to 690) of the Federal Civil Dealings Law. Professional companies may be 100% foreign owned. However, it is necessary to appoint a local service agent.

• The obligations of the local service agent toward his principal and third parties shall be restricted to render the usual experience in order to enable him to practice professional or craftsmanship work without holding any responsibility or financial commitment in respect of his principle's business or activity inside the Emirate or abroad. The relations between the two parties shall be regulated by an agency agreement.

LEGAL FORMS OF COMMERCIAL COMPANIES

Legal forms of commercial companies, pursuant to Federal Law No. 8 of 1984 as amended, are summarized below.

General Partnership

• A general partnership is an arrangement between two or more partners whereby each of the partners is jointly and severally liable to the extent of all their assets for the company's liabilities.

• Only UAE nationals are allowed to be partners in a general partnership.

• The name of the company shall be made up of the name of all partners, and its name might be limited to the name of one or more partners and the addition of a word to modify the presence of the company. In addition to that, the company may have a special commercial name. If the name of a person other than the partners is mentioned in the name with the said party's consent, that person shall be responsible in partnership for the company's obligations.

• All partners shall be considered a dealer, and the bankruptcy of any partner leads to the bankruptcy of all partners.

• Company shares may not be represented in negotiable certificates.

• Partners are strictly responsible for all of their money and for the company's obligations and any agreement to the contrary might not be made against third parties.

• The company's administration shall be undertaken by all partners unless the company contract or an independent contract assigns the administration to a partner or to a non-partner party.

Simple Limited Partnership

• A Simple Limited Partnership is a company formed by one or more general partners liable for company liabilities to the extent of all their assets, and one or more limited partners liable for the company's liabilities to the extent of their respective shares in the capital only.

• Only UAE nationals are allowed to be general partners.

• The name of the company shall be made up of the name of one or more of the limited partners, adding a word to modify the presence of the company. In addition to that, the company may have a special commercial name.

• The name of the limited partner may not be mentioned in the company name. If it is mentioned with his or her knowledge, he or she shall be considered a partner for third parties in good faith.

• The Simple Limited Partnership shall be a partnership for all partners and shall be subject to all the rules of partnerships, based on the following:

1. The simple liability contract shall include, in addition to the other data, the first name of each limited partner, his surname, nationality, date of birth, country, capital share, and the part paid of it.

2. The limited partner is only liable toward the company's debtors for his capital share.

3. A limited partner may not intervene in company administrative issues associated with others even if authorized, although he or she may rather acquire a copy of the loss/profit accounts and the balance sheet and check the validity of the data by reviewing the company's records and documents alone or via a representative from any of the partners or others provided that this does not harm the company.

4. If the limited partner violates the above-mentioned ban, he shall be responsible in all businesses for all the obligations resulting from his business.

5. The limited partner may be held responsible with all his money and for all company obligations if the business administration he carried out leads others to believe that he is one of the ultimate actual partners, in which case the rules and regulations of the actual partners shall apply to the limited partner.

6. If the limited partners carry out any banned administrative business based upon an explicit or implicit authorization from the partners, such partners shall be held responsible for him or her and for the obligations resulting from such acts.

7. The limited partnership shall issue resolutions in consensus of all partners and limited partners, unless the contract states a majority, and the majority in number shall be considered, unless otherwise stated.

8. Resolutions to amend the company contract shall not be passed unless duly approved in consensus of all partners and limited partners.

Private Joint Stock Company

• A number of founders, no less than three, may establish a Private Joint Stock Company.

• The shares of a Private Joint stock Company cannot be offered to the public or for public subscription.

• The founders must subscribe all capital and the minimum requirement for such capital is AED2 million.

• A Private Joint stock Company is subject to all rules and regulations pertaining Private Joint Stock Companies, except for rules and regulations of public subscription.

• A Private Joint Stock Company may be converted into a Public Joint Stock Company. In order to do so, the following conditions must be satisfied:

1. The nominal value of the issued shares must be fully paid up.

2. A period of no less than two financial years must be expired.

3. During the two years preceding the application for conversion, the company must have achieved net profits distributable to the shareholders with an average of no less than 10% of capital.

4. A resolution of the extraordinary assembly for the conversion of the company must have been adopted by a majority of three-quarters of the company capital.

Limited Liability Company (LLC)

• A Limited Liability Company is one with limited liability, where the number of partners may not exceed 50 and should be no less than two. Each of the partners shall only be liable to the extent of his or her share in the capital. The partners' participation should not be represented by negotiable certificates.

• The name of the Limited Liability Company shall be taken from its purpose or from one or more of the names of partners, the statement of the Limited Liability Company's capital shall be added to the company's name.

• Other than insurance, banking, and investment businesses for others, the Limited Liability Company shall be entitled to practice any legal business.

• The company may not resort to public subscription to make up its capital or to increase it or to acquire the necessary loans, and it may not issue any negotiable stocks or shares.

• The minimum share capital shall be AED300,000 divided into equal shares with a minimum face value of AED1,000 per share.

• Shares may not be divided, and if there are several owners, they shall choose to be an individual owner against the company, and may fix for the share owners a time for such selection, provided that, after that date, the share may be sold to its owners, in which case partners shall enjoy a priority in purchase.

• Losses and profits shall be divided equally among shares unless otherwise stated.

• The share of each partner shall be transferred to his or her heirs and the parties mentioned in the will shall be treated as heirs.

• A Limited Liability Company can be managed by a manager/managers that may be selected from among the partners or any other parties providing that they do not exceed a total of five persons.

• The manager/managers shall be appointed by memorandum of association (MOA) or by a separate management contract for limited/unlimited terms. If the manager/managers are not appointed as stated in the above paragraph, the General Assembly of the partners will appoint them.

• Unless otherwise stated in the MOA, the company manager shall enjoy full powers of administration and his acts shall be binding to the company, provided that they are supported by a statement on the capacity he enjoys.

• The manager's resolution shall be as responsible as that of the company board, and all conditions in the company contract contrary to that shall be invalid.

Partnership Limited with Shares

• A Partnership Limited with Shares is a company formed by general partners who are jointly liable to the extent of all their shares for the company liabilities and participating partners who are liable only to the extent of their shares in the capital.

• For general partners, the company shall be a general partnership, and the general partner shall be a dealer even if he or she did not enjoy such capacity before entering the company. All general partners must be nationals.

• The capital of Partnerships Limited with Shares shall be divided into negotiable equal shares.

• The company shall be named after the name of one or more of the general partners. Its name may be added to another innovative name or a name derived from its purpose.

• The rules related to the incorporation of Limited Liability Partnerships shall apply to Partnerships Limited with Shares, according to the following:

• All general partners and other founding parties shall sign the MOA and its regulations, and their resolutions shall be as effective and valid as the founders of the limited liability companies.

• Names of the general partners, their surnames, nationalities, and countries shall be stated in the company contract and its regulations.

• The minimum share capital requirement for limited partnership is AED500,000.

• The documents issued by Partnerships Limited with Shares shall be subject to the same rules of the documents issued by the Limited Liability Partnerships.

Foreign Companies

• Excluding foreign companies licensed to practice business in the country's free zones, foreign countries may not practice their main business in the state, and may not establish branches unless licensed to do so by the Ministry of Economy after obtaining the approval of the relevant authorities, a license that shall specify the business' practice. Such a license may not be issued unless the company has a national agent, and if the agent is a company, it shall hold the state's nationality and all its partners shall be nationals.

• The obligations of the agent toward his company and third parties shall be limited to rendering the services required for the company without holding any responsibility or financial commitment in respect of his or her company's branch or office business or activity inside the Emirate or abroad.

• Foreign companies licensed to work in the state based on the provisions of the above paragraph may not start their business in the state unless they are registered in the Foreign Companies Register in the Ministry of Economy.

• The offices and branches of the foreign company shall be the headquarters of its business and its business shall be subject to the provisions of the law.

• The foreign companies, its offices, and branches shall have an independent budget, independent profit/loss accounts, and shall have an auditor.

• If the foreign company, or its offices or branches practice business inside the state without carrying out the abovementioned provisions, the persons practicing such business shall be personally and strictly responsible.