Business or an enterprise is created for the purpose of trade and commerce. To commence with the business, the first and foremost part is its formation. United Arab Emirates is country that believes in promoting of business to flourish diversified forms of business in the country. Its motive is to enhance working environment and to promote the development of the country economically. A company is a contract between two or more persons that intend to participate in economic enterprise with an objective to gain profit by contributing a share in the capital. These enterprises may include all types of agricultural, commercial, industrial, financial, real estate and all other kinds of financial activities. The individual or group of individuals sharing the basic interest in formation of a company can initiate their business or company but they are required to comply with the existing laws of the formation of the company, for the commencement of any business. The country offers two different operating and working environment to do business in the country which may include Companies in Mainland and the Companies in Free Zone.
Companies in Mainland:
The mainland companies are the onshore companies which are licensed by DED (Department of Economic Development). The mainland or onshore companies largely conduct their business activities within the local market in UAE. These companies may only be formed with a UAE National who is a local service agent or a shareholder in the company. Mainland companies are completely exempted from paying corporate tax. The license for such companies is provided without any long tiring processes and no capital is required for the same.
Types of Mainland Companies:
- Sole Proprietorship/ Establishment- It is a business establishment which is owned by an individual and not a company. He is fully liable and in charge of the business and can enjoy 100% of its profits earned. These businesses may include commercial as well as professional activities. Sole proprietorship is a type of business that can be established by UAE Nationals complying with the existing laws to carry out commercial activities. Other than this, expatriates can form sole proprietorship to conduct professional activities such as medical services, legal consultancies etc.
- Commercial Companies- These companies carry commercial activities in the local market. These companies comply with the Federal Law no. 2 of 2015 on Commercial Companies and according to this law there are different forms of commercial companies defined in article 9 which are:
- Joint Liability Company– agreement between two or more partners where both are equally liable.
- Simple Limited Company– formed between minimum two partners which are liable to the extent of their assets.
- Limited Liability Company– must have minimum 2 and maximum 50 investors. 51% of its shares belong to UAE national.
- Public Joint Stock Company– minimum share capital of 10,000,000 having 25% settled in subscription, 55% of the total shares can be offered to the general public, should have at least ten founding members for its establishment.
- Private Joint Stock Company– minimum share capital is 2,000,000 AED, shares can’t be offered to general public, can be incorporated by only three founder members.
- Civil Companies- It is an association where two or more persons carry out professional works that are liable to the third parties after the payment of consideration. This company is basically a business partnership with professionals such as doctors, lawyers, engineers, consultants. These companies can be owned 100% by the foreigners in accordance to certain conditions and only local agent shall be appointed.
- Brach and representative Office: Branch and local office can be established by both foreign and local companies. A branch office can perform similar kind of business as the parent company and representative office can only deal with the marketing, promotion of goods and services; other such activities of the parent company.
Formation of Company in Mainland:
The formation of the company should comply with the laws and regulations that is provided in Federal Law no. 2 of 2015.
- Selection of type of Business- The first and foremost step is to determine the type of business that is to be established. The main business types in Mainland are:
- Commercial Business
- Professional Business
- Industrial Business
- Determining the legal form of Business- There are different legal forms of business that can be set up in Mainland which are given in article 9 of Federal Law no. 2 of 2015.
- Joint Liability Company
- Simple Commandite Company
- Limited Liability Company (LLC)
- Public Joint Stock Company (PJSC)
- Private Joint Stock Company (PrJSC)
- Trade Name Registration- The Company has to have a trade name and for that a suitable name should be choose considering the form of business as the name reflects the nature of the company. The name should be approved by Department of Economic Development (DED) so, it must comply with the following regulations:
- The name shall not violate the country’s public order or the public morals
- The name must be followed by its legal form for example LLC, EST, PJSC, etc.
- The name must be new and should not already exist in registered name.
- The names should not contain the name of any religion or government authority.
- Getting initial approval- Once the above mentioned are determined an approval is required by the authority and once the approval is sanctioned only then the further procedure for the formation of company can be resumed.
- Location of the Business- All the business shall have a physical address and for that the applicants must mention the address where the business will be established. The rent agreement (MoU) can be presented of the business location that must be registered with Ejari for attestation.
- Obtaining approvals of relevant authorities- The approvals of other authorities is also required to establish a business or a company which are;
- Ministry of Economy
- Ministry of interior
- Ministry of Justice
- Civil Defence
- RTA (Road and transport Authority)
- Ministry of Health
- TRA (Telecom Regulatory Authority)
- Getting Business License- After completion of all the documentation to DED and finalisation of due payments, the license for the company will be issued.
- Chamber Membership- The final step before the commencement of the business is to become a member of the chamber of commerce with the business activity and after that the operations of the business can be initiated.
Companies in Free Zone:
Business activities and be established and commenced in free zone or outside UAE. There are about 44 free zones in UAE that attract most of the foreign direct investments that plays an important part in contributing GDP growth. These companies are formed to mainly concern with imports and exports activities. In comparison to the mainland companies, here the license can be owned completely by expat partner and has no requirement for a UAE National. The free zone companies are governed by the specific laws depending upon the type of business. Such companies carry its activities in particular free zone inside of the country or outside of the country but cannot provide its services in the mainland.
Commencing business in free zone brings many advantages such as:
- It gives 100% foreign ownership.
- There is n foreign exchange control on transfer of funds and other activities.
- The workforce is not expensive and recruitment is easy.
- Government policies are liberal.
- Operations can be executed 24/7.
- Three year residence visa to carryout business.
- Freed from corporate, personal and income taxes.
Types of Entities setup in Free Zones:
Commencement of business in free zones is easy and smooth and does not require any troublesome procedure for the same. The main types of entities that can establish their businesses in free zones are-
- A branch of any foreign or a local company can setup its business or company in free zone.
- Free Zone Establishment (FZE), having one shareholder.
- Free Zone Company (FZC), having two to five shareholders.
Formation of Company in Free Zone:
- Determining the type of business- The very first step for the incorporation of the company is to first determining the kind of business that a person is interested in and if it requires any special approvals from the competent authority or not. This also helps in determining the commencement of business shall in which free zone of the country.
- Name selection- The next step is to choose a trade name for the company. The name should be unique and should not be already registered. The name shall be verified by the free zone authority to check if it is already taken or not.
- Business License- Once the trade name is decided and registered in the free zone authority portal then the person are entitled to apply for a business license to get the official permission of commencing business in the given free zone. Different business license are issued by different free zone authorities and along with that proper documents are to be submitted, such as documents signed by shareholders, while applying for license. Some of the business licenses given are general trading license, service license, industrial license, warehousing license, etc. without procuring a business license, a company cannot be formed.
- Choosing Office Space- Free zone authorities support start-ups and for that they provide office spaces. The office spaces can be bought or taken on lease according to the individual’s requirement. Office requirements generally depend on the number of employees working in the company and the type of business.
- Get pre- approval, register the business and get the license- the formation of a company is completed only after getting an approval from the free zone authority where the business is planned to be established and the registration is to be done on the given portal to get the license. The process will take approximately 2-4 weeks and all the formalities will be done after that and once the license is issued then the business can be initiated.
Important Documents for the Formation:
- Duly filed the application of the license form
- The business card of the person containing the contact information of an individual.
- A copy of the business plan shall be submitted along with the other documents.
- Memorandum of Association (MOA) and Article of Association (AOA) shall be notarised and attested to help understanding the structure and basis of the company.
- The copies of the passports of all the partners and business managers of the company.
Trade and commerce in a country regulates the economy and increases the GDP rate and that require commencement of different types of business and in this article we observed that UAE provides different environment followed by different law codes to help in formation of various countries in the country to flourish its trade and commerce and business relations.