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Legal Business Structure: 5 Types of Company Formation in Dubai
Establishing a company in Dubai can be challenging, especially for expatriates or foreign investors. The Department of Economic Development (DED) Dubai lays out the rules for establishing companies in Dubai and determining their legal structures. The rules and regulations for each types of company formation in dubai vary, and the categorization is based on the firm’s ownership.
Types of Company Formation in Dubai
The following are the 5 most common types of company formation in Dubai:
A legal entity owned and operated by a single individual. Being in complete control of operations and profits, the owner is 100% liable for debts or other financial obligations. The noteworthy points for this type of legal structure are:
- commercial or industrial type sole proprietorship can be owned only by the UAE nationals or GCC nationals
- owner of a consultancy type of sole Proprietorship should have a scientific qualification or degree for the activity selected
- sole proprietorship firm can have only one manager
- sole proprietorship has no minimum requirement for business capital
- the trade name should be related to the activity
- sole proprietorship can have branches, which can perform all activities included in the license of the parent firm
- firms and their branches can be sold, but the industrial or commercial type of firm can only be sold to UAE nationals or GCC nationals
A limited liability firm owned by an individual or a corporate body is called a one-person company. The difference between a sole proprietorship and this legal form is that the liability is limited to the shares held by the owning entity. The delicate points about this legal structure that one should consider are:
- A UAE national or GCC national can set up and own this legal form of firm.
- A corporate body that is 100% owned by UAE or GCC nationals can own a firm with a one-person company legal structure.
- The owner is a shareholder, and her/his liability is limited to the value of the shares she/he holds.
- Share capital is as recorded in the Memorandum of Association (MoA)
- The trade name should include the owner’s name, legal form (one person co.) and end with LLC (further information can be found on the DED website directly)
This legal form consists of a partnership for professionals in recognized fields such as doctors, lawyers, engineers, and accountants. There are some points to consider regarding this legal structure:
- Partners of any nationality can be involved in this legal form of firm.
- If the partners do not include any UAE or GCC nationals, the firms need a local service agent.
- If the company is involved in consultancy activities, the firm must be owned by professional partners practicing the same activity.
Limited Liability Company (LLC)
This is the most popular legal form of company in Dubai. An LLC has 2 to 50 shareholders, each of whom is liable only to the extent of his or her share in the company. The delicacies of this legal structure are:
- No professional or consultancy activities can be conducted by this form of the company except banking, insurance, or investment
- An LLC can conduct any industrial or commercial activity
- LLCs require a UAE-accredited auditor
The ownership is shared by two or more partners who fall into the general or limited partner category. This can be explained more explicitly by considering the points below:
- UAE nationals must be general partners in a simple limited partnership. Partners of other nationalities must be limited partners.
- no restriction on the share of ownership of general or limited partners
- Limited partners should not intervene in the management or administrative issues of general partners. However, if they do so, they can become liable for all of the business obligations.
The above are the most common types of company formation in Dubai. The following are the other legal structures available in Dubai which are more suitable for branches of businesses rather than establishing a company:
- Branch of a Foreign Company: A company registered abroad can have a branch in Dubai and under the business jurisdiction of Dubai and UAE. No import of goods is allowed by the branch, which should be done through a local trading firm. The branch is owned 100% by the parent company.
- Representative Office: This is not a complete structure business and is an activity that a branch of a foreign company can do. A representative office can promote and market the parent company’s business but cannot engage in business operations. It should be noted that branches must have a local service agent (LSA). The LSA is a UAE national and does not have any civil responsibility or financial obligations to the business. He must ensure the branch can continue its business in Dubai but shall not have any legal interest in the branch’s management, business, profits, or assets.
- Branch of a Dubai-based, GCC-based, or UAE-based Company: A branch of a Dubai-based (or GCC-based / UAE-based) company must undertake one or all of the activities included in the main company license. Each branch can undertake different activities for a company with multiple branches as long as they were all included in the original license for the main company.
- Branch of the Free Zone Company: For a company whose primary license was issued in a UAE free zone, obtaining a branch license from DED for expanding operations to mainland Dubai is possible. Approval from the Ministry of Economy and having a local service agent are necessary to establish a branch of the free zone company.
- SME License: An SME license is issued for businesses owned 100% by UAE Nationals and can take any legal form.
Dubai Mainland License Cost
Starting a company in Dubai Mainland costs from AED 14,500. You can enjoy 100% company ownership of various commercial and industrial activities and avail free business support services when you set up your company with Choose UAE.
Choose UAE‘s Company Formation Specialists can provide professional business setup guidance and assist you in your decision-making by providing well-informed options from the suitable business activity and the right license option.
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