Over the course of 53 years, the United Arab Emirates (UAE), and particularly Dubai, has grown into a major international business centre. It displays a strong economy, an attractive setting, and excellent business prospects. While there are many opportunities for business owners and investors in this region, selecting the right organisational framework for your firm and navigating the legal system can be challenging. In this blog post on navigating the business environment of the UAE, we will look at factors to keep in mind when selecting a legal structure for a business in Dubai.
Types of Business Structures in Dubai Mainland
1. Sole Proprietorship
In the UAE, a proprietorship is held by one individual who manages all the business affairs. For foreign proprietors, this is the most straightforward and common corporate structure in the UAE.
Key Features:
- An individual can own a professional sole proprietorship.
- Only UAE and GCC nationals can own 100% sole proprietorships companies in the commercial or industrial sectors.
- No minimum capital requirement.
2. Partnership Company
A partnership company in the UAE is owned by two or more partners who share profits and losses according to an agreed ratio. There are two main types:
1. General Partnership
2. Limited Partnership
Key Features:
- In a limited partnership, UAE nationals must be the general partners, while foreign nationals can be limited partners.
- There are no restrictions on the ownership of shares for general or limited partners.
- Limited partners must not manage or intervene in administrative issues; doing so makes them liable for all business obligations.
3. Limited Liability Company (LLC)
An LLC is the most popular business structure in the UAE. Partners’ liability is limited to their investment in the company, and LLCs can engage in any commercial or industrial activities.
Key Features:
- Can conduct any activity except banking, insurance, or investment
- Requires a UAE-accredited auditor
- Can have between 2 and 50 shareholders
- Certain activities require a local partner to obtain the license
4. Private Joint Stock Company
Private Joint Stock Company, also known as a Private Shareholding Company, this business type in the UAE requires a minimum of three investors to form. It is suitable for various commercial and industrial activities except for professional business.
Key Features:
- Must appoint one manager
- Minimum of three investors
- A GCC national can own 100% of the shares
- Shares cannot be offered to the public
- Minimum capital requirement of AED 2 million
- Can have multiple branches, each conducting activities under the main business license
5. Public Joint Stock Company (PJSC)
Public Joint Stock Company (PJSC), also known as a Public Shareholding Company, is a legal entity in the UAE that must have a unique trade name during incorporation, except in specific cases like patented names or names associated with a shareholder’s property.
Key Features:
- Partners can engage in industrial, commercial, or professional activities in line with DED regulations.
- Requires at least 10 founding members who are UAE nationals, owning between 30% and 70% of the capital shares.
- Governed by 3–15 individuals as the board of directors.
- Minimum capital requirement of AED 10 million.
- Can have multiple branches, each conducting activities under the main business license.
6. Civil Company
In the UAE, recognised professionals like doctors, engineers, lawyers, accountants etc. can establish a civil company. Partners can own 100% of the shares, and the company’s activities are limited to professional services.
Key Features:
- A local sponsor is not required.
- A limited number of managers can be appointed.
- Requires two or more professionals with qualifications in their expertise to setup a civil company.
- Foreign companies investing in a civil company must be in the same business activity.
7. Branch of a Foreign Company
A branch office is a dedicated outlet of a company in another country, but it is not a separate legal entity. It helps expand the company’s presence and increase sales and revenue in new regions.
Key Features:
- Can perform the same commercial activities as the parent company, except for trading.
- The foreign parent company is fully liable for the branch’s actions.
- Revenue from the branch is taxable as income of the foreign parent company.
- No minimum capital requirement, but a bank guarantee of AED 50,000 is required, which cannot be used as working capital.
- 100% foreign ownership is allowed.
8. Holding Company
A holding company owns assets and subsidiary companies, offering tax benefits and limited liability. It acts as a parent company, controlling subsidiaries and assets without directly managing their operations. Holding companies focus on ownership, not working or making decisions for their subsidiaries.
Key Features:
- Holding companies control and own shares of other companies, which are commonly referred to as subsidiaries. This makes it possible to regulate and oversee a collection of enterprises simultaneously.
- Limited liability is an important advantage. The controlling company’s assets are protected from its subsidiaries’ obligations and liabilities. This safeguards the financial stability of the parent firm even when a subsidiary has challenges.
Types of Business Structures in Dubai Free Zones
1. Free Zone Establishment (FZE)
An FZE is an excellent choice for a single entrepreneur looking for a simple and cost-effective way to establish a business in a Dubai Free Zone and benefit from limited liability protection.
Key Features:
- An FZE allows the sole owner to have complete control over the business’s direction and decision-making.
- The formation process is designed for ease and efficiency, with minimal paperwork and capital requirements, allowing the company to get up and running quickly.
- FZEs are a budget-friendly option, perfect for startups or those with limited initial investment.
- An FZE offers peace of mind by separating your personal assets from the company’s finances. If the business encounters debts, your personal possessions are shielded from liability.
- Should have at least two directors and a secretary.
- Allows an unlimited number of shareholders.
2. Free Zone Company (FZCO)
This structure is a haven for partnerships and companies with multiple investors, fostering collaboration and growth.
Key Features:
- Partners can share ownership and the profits of work with each other when they start an FZCO. This makes it possible for you to add more knowledge, assets, and varied viewpoints, which will advance the company.
- FZCOs provide greater flexibility in terms of ownership and management structure than FZEs do. To best serve their interests, the partners can establish profit-sharing percentages, assign each shareholder a specific job, and modify the corporate governance.
- Should have at least two directors and a secretary.
3. Branch of a Foreign Company
This structure is a strategic move for existing foreign businesses seeking to expand their horizons and tap into the lucrative Dubai market.
Key Features:
- Establishing a branch office is frequently a quicker and more cost-effective choice than starting a whole new business inside the free zone.
- The assets of your parent firm are shielded from any liabilities arising from the free zone activity by the branch structure. This guarantees that your parent company’s finances will be protected even in the event that the branch has unexpected challenges.
- It is essential to understand that a branch office’s operations may be limited by some free zones. These limitations could restrict the branch to only those business categories that correspond with the zone’s assigned focus.
Considerations for structuring a company in the UAE
- Legal framework: Several business structure types are available. Regulations, ownership restrictions, and liability implications differ depending on the type.
- Industry guidelines: Certain rules and specifications may apply to a given industry. Businesses in industries such as healthcare, education, and finance, for example, may need to follow strict regulations and obtain specialised licenses.
- Financial incentives and taxes: Significant tax benefits, like exemptions from income and corporate taxes, are offered by free zones. Access to the local market is advantageous for mainland businesses, although there may be differences in their tax duties, particularly with the implementation of corporate tax and VAT systems.
- Operational issues: Consider the type of business you operate. Free zones offer great infrastructure and support services for businesses in the logistics, media, and technology sectors. A mainland arrangement might be better suited for businesses that target local consumers, such as retail or service-oriented enterprises.
- Ownership and authority: Consider the ownership based on the needs of the business.
Conclusion
Because of the UAE’s accommodating business environment, you can customise your corporate structure to meet your unique requirements. You can make an informed choice that puts your UAE business on the road towards achievement by being aware of the different kinds of structures that are available and giving the previously listed factors a thought.
At Gatestone Group, we can assist you in making the right decision and setting up your business in compliance with the UAE guidelines and legalities. Setup a free consultation with our expert team of consultants via email at [email protected] or call for a consultation at +971 4 450 1023.
