December 2003
Background to LLC Formation
In the United Arab Emirates, the “company with limited liability” (or “LLC”) corporate unit is among the most popular forms of trading entity, for businesses of various types and sizes. The procedures for forming an LLC are relatively straightforward and well-established. However, there are many procedures to be addressed and foreign business executives, entrepreneurs and lawyers will be disappointed if they expect to complete LLC formations as quickly and easily as in western (and offshore) jurisdictions.
As a rough guide, the incorporation process often takes up to two months, and legal costs may reach Dhs. 40,000 (US$ 10,800), depending upon the circumstances. In particular, if the partners in the new company are to be corporate entities, rather than private individuals, a considerable number of additional supporting documents will need to be prepared, legalised and submitted.
It is also important to mention, at this stage, the main restrictions which UAE law imposes on the freedom to incorporate LLCs. In all cases, the maximum total registered share interest which non-UAE nationals (or any entity which is not 100% locally owned) may hold in an LLC is 49%. The remainder must be held by UAE nationals or UAE entities wholly owned by UAE nationals. It is also the rule that LLCs may not be formed to conduct banking or insurance business or investment activities on behalf of third parties. Moreover, LLCs cannot be formed as public companies and there are restrictions on the transfer of LLC shares.
Legislative Framework
The legislative framework for LLCs is contained in the Commercial Companies Law, Federal Law No. 8 of 1984 (the “Companies Law”), which provides a federal scheme for the formation of public and private companies. However, as the Companies Law envisages, the mechanics of incorporation are under the control of the commercial registration authority in each individual emirate (e.g., in the case of Dubai, the Government of Dubai Department of Economic Development or “DED”). This gives each emirate the scope to impose on company promoters more stringent LLC formation requirements than those provided for in the Companies Law.
As an example, although the Companies Law stipulates that an LLC must have a capital of at least Dhs. 150,000 (US$ 41,000), the minimum capitalization applying in Dubai is Dhs. 300,000 (US$ 82,000). In Abu Dhabi, Sharjah and the remaining emirates, on the other hand, a minimum share capital of Dhs. 150,000, as stipulated in the Companies Law, is regarded as sufficient.
It should be added, at this point, that in each emirate, the supervising federal ministry – the Ministry of Economy & Commerce – maintains a separate list of all LLCs incorporated in the UAE. However, it is the local registration authority, in the emirate where the LLC is to be incorporated, which controls the registration and licensing process and is the agency with which the promoters and their advisers will be engaged throughout the registration process.
Despite a divergence of policies on certain matters (e.g. minimum capitalization, as noted above), generally speaking, LLC formation procedures do not differ greatly from emirate to emirate. For this reason, the rules applying in Dubai (where, as already mentioned, the DED is the company registration authority) will be used as the model for the purposes of this article.
Company Name and Activities
The first step in the incorporation process is to obtain initial approval from the DED for the chosen company name and its proposed activities. In regard to choice of name, the general rule was previously that the name of the company should be derived from either the objects for which the company is being established or from the name of one or more of the partners. More recently, however, the DED has adopted a more flexible approach with respect to selection and approval of name.
Once the proposed corporate name and activities have been approved, the company promoters must commence the preparation of a constitutive document for the company (i.e. articles of incorporation or memorandum of association – referred to below as “company memorandum”).
Preparation and Signature of Company Memorandum
The Companies Law lays down minimum requirements as to the provisions which every company memorandum must contain. Based on the Companies Law requirements, the DED has formulated a standard draft memorandum, which is a useful document in so far as it contains all the essential provisions insisted on by the Companies Law. However, many company promoters, in consultation with legal counsel, tailor the new company’s constitution to suit their own particular needs and preferences.
Once the company memorandum has been agreed between the promoters and a final version prepared, the partners in the new company, or their duly authorised attorneys, must sign the company memorandum before a public notary in the UAE.
If any of the partners in the new company is a foreign corporate entity, a number of supporting documents will need to be produced to the notary public, in particular: a certificate of incorporation or “good standing”; a copy of the foreign company’s memorandum and articles of association, board resolutions empowering the company to participate as a partner in the new LLC company and authorizing a named individual to act as the representative of the company in connection with the formation of the LLC; and a power of attorney setting out the specific powers granted to the company representative for this purpose.
If any of the partners in the new LLC is a local company, the notary public will require documentary proof that the proposed signatory on behalf of the local company has been duly authorised. The notary will also request copies of the local company’s licence, memorandum and other corporate documents.
The “package” of foreign company documents will need to be “legalised” in usual fashion, i.e. by the process of notarization, followed by Foreign Ministry certification and UAE Embassy counter-certification, in the country of origin. All such documents, if they are in a language other than Arabic, will (upon arrival in the UAE) need to be translated into Arabic by an official translator registered with the Ministry of Justice.
Once the signed and authenticated text of the new LLC’s company memorandum has been submitted to the DED together with supporting documents, the DED’s legal officers will conduct a thorough review of the documentation, in the course of which they may ask for supplementary documents and additional information or explanations with regard to the application.
On completion of their review, the legal officers will pass their report to the DED’s Trade Licence & Commercial Registration Department, with a recommendation that the application be either accepted or rejected. The DED is not required to give any reasons for rejecting an application and, if it does so, there is generally no right of appeal against the determination.
In this connection, it is worth observing that (as indicated above) applications for the formation of an LLC must not only meet Companies Law requirements but also conform with the DED’s guidelines.
Completion of DED Registration Process
Once the application for registration has been approved in principle, the promoters must then submit a full set of documentation to the Trade Licence & Commercial Registration Department within the DED, in order to finalise the registration process and obtain a “trade licence” for the new company. This documentary package will include the original application form signed by the partners and the designated manager(s) of the new company; the signed and authenticated company memorandum (plus copy); a certificate issued by the new company’s designated manager(s) and the auditors selected for the new company, to the effect that: all shares have been fully paid for; and in the case of cash shares, the relevant amount has been deposited with the new company’s bank (or, in the case of shares paid for in kind, that the relevant assets have been valued and the value credited to its account): the original letter from the DED approving the company’s name; a letter from the firm of accountants appointed to act as auditors of the new company; and the relevant registration fee.
Publication in Companies Bulletin
If the officials in the DED Commercial Registry consider that the documentation is in order, they will enter the name of the company into the Register and will then, three days from the date of registration, hand over, to a representative of the company, a sealed envelope. The envelope will contain the following documents: on original copy of the notarized memorandum; an original copy of the manager’s certificate, marked with the number and date of the new company’s registration; a copy of the relevant bank certificate and/or auditor’s certificate (as referred to above); and extract of the entry of the company’s name in the Commercial Register.
The next step in the LLC formation process is the gazetting of the new company in the Companies Bulletin issued by the Ministry of Economy & Commerce. Accordingly, upon receipt of the documents contained in the envelope and payment of the requisite fee, the Ministry will arrange for the company’s details (as per the details contained in the company’s Commercial Register entry) to be published in the Bulletin. After publication of the company details has taken place, the Ministry will issue an “approval” letter.
Completion of Registration
The end of the registration journey is now in sight. However, before the new company can commence operations, the promoters must apply for and obtain a company trade licence. Together with a completed DED trade licence application form, various supporting documents need to be submitted, including: a DED standard form showing the company’s name in both Arabic and English, a certified copy of the lease agreement relating to the company’s chosen office premises and an application for Dubai Municipality “clearance” as to the suitability of the office premises.
Once the office premises have been checked by the Dubai Municipality Building Department, the manager must arrange for a company sign-board, in English and Arabic characters, to be fixed outside the office. The next step is for the premises to be inspected by the Fire and Civil Defence Departments and by the DED’s own Licensing Department. After these inspections have been carried out, officials in the DED’s Licensing Department will compute the amount of the trade licence fee payable by the company (upon registration and annually thereafter). The principal components of the fee are an ad valorem element calculated as 5% of the annual rentals payable under the company office lease and the general manager’s residential tenancy agreement. In addition, there is a further fixed fee element for each person employed by the company. When the registration fee has been assessed and paid, the DED registration department will issue the company with a trade licence, and the company can commence business.
Dubai Chamber of Commerce Membership
Before the promoters can close their company formation files there is, however, a final procedure to be attended to, namely, the registration of the company with the Dubai Chamber of Commerce & Industry (the “DCCI”). Although the DCCI is an independent non-governmental organization, membership is regarded by the Dubai authorities as mandatory for all commercial concerns operating in the Emirate. In fact, the DCCI performs valuable services of the kind which all entities trading in Dubai are likely to need from time to time, including certification of signatures, authentication of documents and issue of certificates of origin.
Note: in this article, the word “partner(s)” (Arabic, “sharik” pl. “shuraka’”) is used in preference to the word "shareholder” (Arabic, “musahim” pl. “musahimun”), to reflect the terminology used in the Companies Law.
Background to LLC Formation
In the United Arab Emirates, the “company with limited liability” (or “LLC”) corporate unit is among the most popular forms of trading entity, for businesses of various types and sizes. The procedures for forming an LLC are relatively straightforward and well-established. However, there are many procedures to be addressed and foreign business executives, entrepreneurs and lawyers will be disappointed if they expect to complete LLC formations as quickly and easily as in western (and offshore) jurisdictions.
As a rough guide, the incorporation process often takes up to two months, and legal costs may reach Dhs. 40,000 (US$ 10,800), depending upon the circumstances. In particular, if the partners in the new company are to be corporate entities, rather than private individuals, a considerable number of additional supporting documents will need to be prepared, legalised and submitted.
It is also important to mention, at this stage, the main restrictions which UAE law imposes on the freedom to incorporate LLCs. In all cases, the maximum total registered share interest which non-UAE nationals (or any entity which is not 100% locally owned) may hold in an LLC is 49%. The remainder must be held by UAE nationals or UAE entities wholly owned by UAE nationals. It is also the rule that LLCs may not be formed to conduct banking or insurance business or investment activities on behalf of third parties. Moreover, LLCs cannot be formed as public companies and there are restrictions on the transfer of LLC shares.
Legislative Framework
The legislative framework for LLCs is contained in the Commercial Companies Law, Federal Law No. 8 of 1984 (the “Companies Law”), which provides a federal scheme for the formation of public and private companies. However, as the Companies Law envisages, the mechanics of incorporation are under the control of the commercial registration authority in each individual emirate (e.g., in the case of Dubai, the Government of Dubai Department of Economic Development or “DED”). This gives each emirate the scope to impose on company promoters more stringent LLC formation requirements than those provided for in the Companies Law.
As an example, although the Companies Law stipulates that an LLC must have a capital of at least Dhs. 150,000 (US$ 41,000), the minimum capitalization applying in Dubai is Dhs. 300,000 (US$ 82,000). In Abu Dhabi, Sharjah and the remaining emirates, on the other hand, a minimum share capital of Dhs. 150,000, as stipulated in the Companies Law, is regarded as sufficient.
It should be added, at this point, that in each emirate, the supervising federal ministry – the Ministry of Economy & Commerce – maintains a separate list of all LLCs incorporated in the UAE. However, it is the local registration authority, in the emirate where the LLC is to be incorporated, which controls the registration and licensing process and is the agency with which the promoters and their advisers will be engaged throughout the registration process.
Despite a divergence of policies on certain matters (e.g. minimum capitalization, as noted above), generally speaking, LLC formation procedures do not differ greatly from emirate to emirate. For this reason, the rules applying in Dubai (where, as already mentioned, the DED is the company registration authority) will be used as the model for the purposes of this article.
Company Name and Activities
The first step in the incorporation process is to obtain initial approval from the DED for the chosen company name and its proposed activities. In regard to choice of name, the general rule was previously that the name of the company should be derived from either the objects for which the company is being established or from the name of one or more of the partners. More recently, however, the DED has adopted a more flexible approach with respect to selection and approval of name.
Once the proposed corporate name and activities have been approved, the company promoters must commence the preparation of a constitutive document for the company (i.e. articles of incorporation or memorandum of association – referred to below as “company memorandum”).
Preparation and Signature of Company Memorandum
The Companies Law lays down minimum requirements as to the provisions which every company memorandum must contain. Based on the Companies Law requirements, the DED has formulated a standard draft memorandum, which is a useful document in so far as it contains all the essential provisions insisted on by the Companies Law. However, many company promoters, in consultation with legal counsel, tailor the new company’s constitution to suit their own particular needs and preferences.
Once the company memorandum has been agreed between the promoters and a final version prepared, the partners in the new company, or their duly authorised attorneys, must sign the company memorandum before a public notary in the UAE.
If any of the partners in the new company is a foreign corporate entity, a number of supporting documents will need to be produced to the notary public, in particular: a certificate of incorporation or “good standing”; a copy of the foreign company’s memorandum and articles of association, board resolutions empowering the company to participate as a partner in the new LLC company and authorizing a named individual to act as the representative of the company in connection with the formation of the LLC; and a power of attorney setting out the specific powers granted to the company representative for this purpose.
If any of the partners in the new LLC is a local company, the notary public will require documentary proof that the proposed signatory on behalf of the local company has been duly authorised. The notary will also request copies of the local company’s licence, memorandum and other corporate documents.
The “package” of foreign company documents will need to be “legalised” in usual fashion, i.e. by the process of notarization, followed by Foreign Ministry certification and UAE Embassy counter-certification, in the country of origin. All such documents, if they are in a language other than Arabic, will (upon arrival in the UAE) need to be translated into Arabic by an official translator registered with the Ministry of Justice.
Once the signed and authenticated text of the new LLC’s company memorandum has been submitted to the DED together with supporting documents, the DED’s legal officers will conduct a thorough review of the documentation, in the course of which they may ask for supplementary documents and additional information or explanations with regard to the application.
On completion of their review, the legal officers will pass their report to the DED’s Trade Licence & Commercial Registration Department, with a recommendation that the application be either accepted or rejected. The DED is not required to give any reasons for rejecting an application and, if it does so, there is generally no right of appeal against the determination.
In this connection, it is worth observing that (as indicated above) applications for the formation of an LLC must not only meet Companies Law requirements but also conform with the DED’s guidelines.
Completion of DED Registration Process
Once the application for registration has been approved in principle, the promoters must then submit a full set of documentation to the Trade Licence & Commercial Registration Department within the DED, in order to finalise the registration process and obtain a “trade licence” for the new company. This documentary package will include the original application form signed by the partners and the designated manager(s) of the new company; the signed and authenticated company memorandum (plus copy); a certificate issued by the new company’s designated manager(s) and the auditors selected for the new company, to the effect that: all shares have been fully paid for; and in the case of cash shares, the relevant amount has been deposited with the new company’s bank (or, in the case of shares paid for in kind, that the relevant assets have been valued and the value credited to its account): the original letter from the DED approving the company’s name; a letter from the firm of accountants appointed to act as auditors of the new company; and the relevant registration fee.
Publication in Companies Bulletin
If the officials in the DED Commercial Registry consider that the documentation is in order, they will enter the name of the company into the Register and will then, three days from the date of registration, hand over, to a representative of the company, a sealed envelope. The envelope will contain the following documents: on original copy of the notarized memorandum; an original copy of the manager’s certificate, marked with the number and date of the new company’s registration; a copy of the relevant bank certificate and/or auditor’s certificate (as referred to above); and extract of the entry of the company’s name in the Commercial Register.
The next step in the LLC formation process is the gazetting of the new company in the Companies Bulletin issued by the Ministry of Economy & Commerce. Accordingly, upon receipt of the documents contained in the envelope and payment of the requisite fee, the Ministry will arrange for the company’s details (as per the details contained in the company’s Commercial Register entry) to be published in the Bulletin. After publication of the company details has taken place, the Ministry will issue an “approval” letter.
Completion of Registration
The end of the registration journey is now in sight. However, before the new company can commence operations, the promoters must apply for and obtain a company trade licence. Together with a completed DED trade licence application form, various supporting documents need to be submitted, including: a DED standard form showing the company’s name in both Arabic and English, a certified copy of the lease agreement relating to the company’s chosen office premises and an application for Dubai Municipality “clearance” as to the suitability of the office premises.
Once the office premises have been checked by the Dubai Municipality Building Department, the manager must arrange for a company sign-board, in English and Arabic characters, to be fixed outside the office. The next step is for the premises to be inspected by the Fire and Civil Defence Departments and by the DED’s own Licensing Department. After these inspections have been carried out, officials in the DED’s Licensing Department will compute the amount of the trade licence fee payable by the company (upon registration and annually thereafter). The principal components of the fee are an ad valorem element calculated as 5% of the annual rentals payable under the company office lease and the general manager’s residential tenancy agreement. In addition, there is a further fixed fee element for each person employed by the company. When the registration fee has been assessed and paid, the DED registration department will issue the company with a trade licence, and the company can commence business.
Dubai Chamber of Commerce Membership
Before the promoters can close their company formation files there is, however, a final procedure to be attended to, namely, the registration of the company with the Dubai Chamber of Commerce & Industry (the “DCCI”). Although the DCCI is an independent non-governmental organization, membership is regarded by the Dubai authorities as mandatory for all commercial concerns operating in the Emirate. In fact, the DCCI performs valuable services of the kind which all entities trading in Dubai are likely to need from time to time, including certification of signatures, authentication of documents and issue of certificates of origin.
Note: in this article, the word “partner(s)” (Arabic, “sharik” pl. “shuraka’”) is used in preference to the word "shareholder” (Arabic, “musahim” pl. “musahimun”), to reflect the terminology used in the Companies Law.
Alex McGeoch
© Al Tamimi & Company 2004
