Formation Of Business In Abu Dhabi Company

Discuss about the Formation of Business in Abu Dhabi company.

In order to create a business in Abu Dhabi, a least expensive and simple legal form of company should be selected. In relation to this and for the purpose of this report, a limited liability company should be selected which is generally the best type of company that suits to be formed in Abu Dhabi. Two to Fifty shareholders forms a limited liability company. Each of the shareholders is accountable to the extent of their shares in the organization. Regarding this, it is significant to observe that a limited liability company can be instituted with multiple shareholders (Desislava and Keith 2016). In this recent case study it is required that in order to form a computer repair company along with a home delivery service with three friends. It is the best decision is a Limited Liability Company. Therefore, no consultancy form of activities can be conducted in such kind of company but there are exceptional cases of banking and insurance. Limited liability companies can conduct any commercial or industrial activity. 

• Limited Liability Company is better than the other prevailing options – In the present times, limited liability companies have been considered as one of the best option in attracting small kind of businesses (Aljifri et al. 2014). However, such kind of businesses has plenty of owners. In UAE, there are other kinds of business entities that exists for instance, limited partnership business, sole proprietorship business, general partnership business and non-profit corporation. In relation to the companies above mentioned, the owners are liable for the debts. In relation to the case of the Limited Liability Company, the owners are not chargeable or liable personally for the debts incurred since profits and losses are distributed to ownership interests in a different manner. In the companies mentioned above, the owners were personally accountable for the debts of the company. According to the case study, it is significant to mention that although 300,00 AED has been elevated. All the shareholders will be equally liable for it. If taking a personal loan is required for covering 2 million AED then all the shareholders will be held liable. Therefore, in case of a Limited Liability Company, all the shareholders will be equally liable for the debts incurred in the course of business. However, the business of a limited liability company can be compared to a joint venture business and a free zone company (Gomtsian 2016). A Limited liability company can be compared to the joint venture to the extent of a foreign company. In Dubai, personal loans are majorly extended for self-employed professionals and salaried class. The banks of Abu Dhabi provide personal loans and takes into account the required information about the income and the repayment capacity of the individual. The accelerating credits will be given to these individuals.   In such foreign companies a member enters into a contract or business relationship with a national UAE  or any company owned by one or more UAE nationals to carry out the duties of a business (French 2014). In such situations, an individual of a foreign company is entitled to own it legally by 49% of the business with the Local Partner of UAE who legally holds 51%  

In major cases, the business of a limited liability company is established along with a local partner, where the local partner is salaried a considerable fee each year under an agreement (Khan and Kenneth 2017). The agreement states that in consideration of the fee, the local partner will be legally benefitted for holding 51% share of the company. However, the foreign company will be beneficially entitled to hold 100% of the share capital of the limited liability company. In the recent times, the foreign companies become convenient with the application of such agreements even though their enforceability in these cases have not been tested in the court of law. It has been a casual option for foreign companies to ascertain business in one of the various free zones in UAE (Hassan and Naser 2013). In the free zones of UAE, there have been a successful fascinating large number of foreign companies and making way for foreign direct investment in the country. In the presence of a civil company in UAE, offshore company and Free Zone Company is recommended where the purpose of the entity is to enhance sales within the region.

• Other forms of company creation would not be permissible to legal entities – Having a limited liability can prove to be beneficial since the profits and losses can be changed to different ownership other than interests. The main law that governs the formation of companies in UAE is the Commercial Companies Law Act, 2015. Article 22 of the Act, needs the local majority ownership of at least 51% of the shares and the share capital is however, some business activities that requires a percentage ownership, which is even higher. The allocation of profits and losses differ in certain cases. Regarding this, various other benefits are enjoyed by a limited liability company in UAE that can be emphasized. The UAE companies majorly enjoys tax free profits and hence it can be stated that the limited liability companies also enjoys tax free profits (Majdalany and Henderson 2013). The shareholders of the limited companies are limited to the unpaid capital investments and a minimum of two shareholders are required in relation to form a business of Limited Liability Company. According to research, the foreign countries can only have 49% share of a limited liability (Majdalany and Henderson 2013).

In relation to this, it is essential to observe and mention that the formation of a business with Limited Liability Company, which requires application of separate legal entity, due to the reason that the formation of limited liability companies is different for different states (Molk 2016). However, in case of the partnership companies and sole proprietorship it is not permissible for separate legal entities. State laws govern partnerships and the legal entities of such state laws that may vary hugely. Therefore, sole proprietorship has no separate legal entity (Shayah and Qifeng 2014). Due to lack of separate legal entity, the owners are personally liable and responsible towards the business because in such cases the business ends. The creditors are at the authority to consider the personal assets of the owners. As the Limited Liability Company possesses a separate legal entity that is, quite different from others and in such case the members shall not be personally liable for the debts incurred by the Limited Liability Company (Hassan and Naser 2013). Due to the presence of separate entity, the limited Liability Company is entitled to get a tax identification number of its own and thereby can open a bank account and proceed with the business under its own name.

• Government and procedures along with DED in opening a business in UAE - The UAE is set up under the UAE jurisdiction where Islamic Sharia Law has been regarded as the main source of legislation under Article 7 of the Constitution of UAE (Gomtsian 2016). Since time the rules and regulations of Islamic jurisprudence rely upon the understanding, construction as well as the evaluation of the provisions of the Civil Code (Khan and Kenneth 2017). In addition to the provisions of Article 75 of Federal Law No. 10 of 1973, the Supreme Court should administer the provisions of Sharia law, federal laws and other rules of custom and principles of natural law accordingly (Aljifri et al. 2014). The UAE is a federal state and therefore the laws are promoted at various levels in which all the laws may canvas the same issue or topic with different aspects. In some cases federal laws overrides various laws of the land, which has been passed by the seven Emirates within the territories of the Union.

Procedures for Forming a Limited Liability Company (LLC)

In relation to this, the legal and government procedures along with the procedures of Department of Economic Development (DED) can be emphasized in order to start a new business in Abu Dhabi (Shayah and Qifeng 2014). Any sale of shares in a limited liability company situated in United Arab Emirates (UAE) requires certain documentary and procedural requirements. According to the provisions of Article 22 of the UAE Commercial Companies Law, the companies registered under UAE laws must have majority of local individuals holding at least 51 per cent of their share capital (Kerr et al. 2013). However, any transmission of shares in this regard must adhere to the restrictions of foreign ownership. For starting a computer, repairing company along with three friends the necessary steps should be followed. However, the requirements will be same if the individual wants to open a company with a physical retail shop with a fleet of ten delivery cars. 

• Name of the Company –To create a computer repair company with a home delivery service with three partners, it is necessary for the company to select a trade name that does not resemble the name of any other legal entity in UAE. In the next process, it is required that the applicant fills out a trade name reservation form with the Dubai Department of Economic Development (DED) in order to get a valid trade name (Nadal 2013). Therefore, in relation to this, it can be stated that the computer repairing company should end its name with either Limited Liability Company or its abbreviation LLC.
• Registration - The procedure of application starts with the DED by filing a trade name application form and a licensing application form (Molk 2016). There shall be a Power of Attorney in order to authorize a person to act on behalf of the shareholders while forming the computer repairing company or a physical retail shop. In addition to this, copies of passports of the shareholders along with the proposed general manager and directors will be required. Then an initial approval will be issued by the DED. Therefore, depending upon the proposed activities of the computer repairing company or a physical retail shop that has been created to form of a Limited Liability Company additional approvals may be required. In this regard the Licensing Law of 2011 which is officially known as called Law of the Organization of Economic Activities Practice in the Emirate of Dubai that contoured the process of licensing where approvals has been obtained from the required ministries and departments by the DED (French 2014). After the initial approval from the required ministries and department the holder of the Power of Attorney will sign a Contract of Establishment of the LLC and such contract must be written in Arabic and should contain another copy written in English.
• Issuing of Commercial License - After the Contract of Establishment has been signed, notarized and filed, the Limited Liability Company or as depicted in the case study as a computer repairing company or a business comprising of a physical retail shop is at the authority to open a local bank account and obtain a Bank Certificate verifying the deposit of share capital. Obtaining a lease of an office, publishing the Contract of Establishment in the Companies Gazette that has been issued by the Ministry of Economy. The shareholders or the persons mentioned in such case study shall appoint an Auditor in order to file a copy of the auditor’s confirmation of appointment along with the auditor’s license (Hassan and Naser 2013). After the completion of the above steps, a Commercial License must be obtained by the LLC from the DED. Finally after the issuance of Commercial License by the DED it is required that the LLC must register with the local Chamber of Commerce depending upon the emirate in which the LLC’s office is located. 

Conclusion

Lastly, it can be stated that in order to set up a viable business plan in growing markets Abu Dhabi and can be considered to be the right decision. It can therefore be stated in the case of a limited liability company the shareholders as well as the partners are equally liable for the debts incurred in the course of business. In the present case study, to cover the estimated expenses of 2 million AED all the shareholders in the business is equally liable and shall equally contribute in clearing the debts.  In most of the cases, it takes only a few days to complete the procedure of registration and other formalities along with the fulfillment of requirements of the relevant authorities. Whereas, in order to start a business in Abu Dhabi it is significant to know that the legal and government requirements should be understood in order to reduce the risks involved. 

References:

Aljifri, K., Alzarouni, A., Ng, C. and Tahir, M.I., 2014. The association between firm characteristics and corporate financial disclosures: evidence from UAE companies.

Desislava D. & Keith B., (2016) “International Establishment Mode Choice: Past, Present and Future”, Management International Review (MIR), Vol. 56 Issue 4, p489-530.

French, R., 2014. A Public Law Perspective on Intellectual Property. The Journal of World Intellectual Property, 17(3-4), pp.61-80.

Gomtsian, S., 2016. Private Ordering of Exit in Limited Liability Companies: Theory and Evidence from Business Organization Contracts. American Business Law Journal, 53(4), pp.677-744.

Hassan, Y. and Naser, K., 2013. Determinants of audit fees: Evidence from an emerging economy.

Kerr, M., Ryburn, D., McLaren, B. and Dentons, Z., 2013. Construction and projects in United Arab Emirates: overview. Multi-Jurisdictional Guide, 14, pp.1-12.

Khan, Y. and Kenneth, E.S., 2017. Corporate governance and the legal environment: some theoretical insights and related UAE evidence. Ushus-Journal of Business Management, 13(3), pp.1-25.

Majdalany, G. and Henderson, J., 2013. Voluntary Disclosure of Intellectual Assets and Intellectual Liabilities: Impact on Financial Performance in Publicly Listed Firms in the United Arab Emirates. Electronic Journal of Knowledge Management, 11(4).

Molk, P., 2016. How Do LLC Owners Contract Around Default Statutory Protections?.

Nadal, n.i.c.k., 2013. Corporate governance post ‘Arab spring’in the Middle East and North Africa. Law in Transition, 6, pp.52-61.

Naser, k.a.m.a.l., nuseibeh, r.a.n.a. And Al-Hadeya, a.h.m.e.d., 2013. Factors influencing Corporate working capital management: Evidence from an Emerging Economy. Journal of Contemporary Issues in Business Research, 2(1), pp.11-30.

Shayah, M.H. and Qifeng, Y., 2014, October. Development of free zones in United Arab Emirates. In First Middle East Conference on Global Business, Economics, Finance and Banking, Dubai.