Understanding the UAE National Majority Shareholders Mandate

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The UAE has extended its 10-year Golden visa framework to encourage expats to make Dubai their home for a longer time period. This will include additional benefits as opposed to holding a standard 2 or 3-year visa. Now Medical Doctors holding a DHA professional...

Corporate vs Individual Sponsorship Company legal Structures: UAE Commercial Companies Law 2015 prohibits foreigners from owning 100% of an LLC, onshore entity and requires a local Emirati individual or corporate to have majority ownership (at least 51%) of the shares…

by | Apr 3, 2021 | 0 comments

Corporate vs Individual Sponsorship

Company legal Structures:

UAE Commercial Companies Law 2015 prohibits foreigners from owning 100% of an LLC, onshore entity and requires a local Emirati individual or corporate to have majority ownership (at least 51%) of the shares and share capital.  This arrangement is also commonly termed as Local Sponsorship.

Profits and losses, however, can be distributed differently.  As per the standard Memorandum of Association, the foreigner can take a maximum of 80% of the profits while the local UAE sponsor takes 20%. 

Compensation arrangements are usually implemented in a separate resolution, where the sponsor accepts a fixed annual remuneration amount in substitute of the 20% profit distribution regardless of the profitability of the entity.

If the business activity of the company is commercial (trading or industrial) the company structure can only be LLC, however for professional activities the company can be set up as an LLC, a Sole Establishment or Civil company.

FDI – Foreign Direct Investment law was brought into effect in September 2018. The FDI Law now layed the framework for up to 100% direct foreign ownership, meaning non-UAE, investment in the UAE, however this is restricted under the regime to a limited category of business activities and requires significant investment.

100% ownership of LLC, the cabinet decision announced in November  2020 has not been implemented as yet and more details are to be released in coming months but again is not expected to apply to all business categories and will have specific terms and conditions.

The Three (3) most commonly incorporated structures available as a new business to foreign investor in UAE onshore mainland Department of Economic development are the following:

  • SOLE ESTABLISHMENT sole owner unlimited liability 100% foreign shareholder
  • CIVIL COMPANY – partnership – unlimited liability 100% foreign shareholders.
  • LLC – LIMITED LIABILITY COMPANY – limited by shares – 51% Emirati Shareholder (Corporate or individual sponsor) 49% for the foreign shareholder.

Corporate sponsorship

This is the preferred and recommended choice of local sponsorship within the UAE.   With this type of sponsorship, the business is sponsored by a company owned by one or more Emirati National.

Individual Sponsorship

Individual sponsorship is a more commonly known type of local sponsorship in Dubai where a UAE national in his/her individual capacity becomes your sponsor.

Individual Sponsorship PROS & CONS:

Pros:

  • Having an individual sponsor can often be a more cost-effective option.
  • There are many individual sponsors available, and it is easier to find, any UAE National who has a family book can act as a sponsor and often look for these opportunities as a supplementary income.

Cons:

  • Individual sponsor early retirement or death may lead to withdrawal and all the business needs would be delayed and stopped until a new sponsor is allocated. Furthermore, Shariah inheritance laws apply, where the court, rather than the deceased, decides upon distribution of assets. The beneficiary inherits the shares, as per the memorandum and does not, by law, need to agree to the previous side agreement.
  • Sponsor’s lack of availability can cause paperwork delays and difficulty in finishing business procedures due to travel.
  • Individual sponsors can often have many companies under their sponsorship.  Often 100 or more.  If contracts are not drawn up efficiently with other shareholders, the UAE National can have liability issues that might affect the other companies under their sponsorship.

Corporate Sponsorship PROS & CONS:

Pros:

  • B2B agreements are easily executed in court.  The corporate entity is created for the sole scope of business sponsoring.  Their best interest is to support the business as a part of their income is the yearly paid fee.
  • Multiple partners of the sponsoring business give easy access through multiple E-signature cards to labor and immigration services at the government when company needs it.
  • The business is secure and legally protected with a corporate service.
  • Quick paperwork completion: As the rules are strict with organisations, the paperwork is completed at a faster pace.
  • No risk of sponsorship death or early retirement. It does not affect the operations of the business as your sponsor is handled by a team not one person like the case in the individual sponsor.

Cons:

  • Corporate sponsorship fees are often slightly higher due to their annual licensing costs and the added benefits of corporate sponsorship make it a more premium option.
  • Finding a trustworthy corporate sponsor who is reliable and trusted. 
  • A corporate sponsor will usually carry out due diligence and background checks to evaluate the risks involved in the partnership.

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