A Limited Liability Company (LLC) is the most common legal structure for trading businesses in Dubai. There are certain restrictions on foreign ownership of these structures.

LLC in Dubai has been one of the most popular legal structures in Dubai since the time the first Commercial Companies Law was enacted in 1980. From SMEs to large trading houses, LLCs have been the preferred structure due to the conditions of limited liability and convenience of operations.

An LLC in Dubai can have any industrial, commercial (trading), professional or tourism activity. There are some professional activities which are excluded, and some others require approvals of other regulated authorities.

Ownership

An LLC can have between 2-50 shareholders.

The shareholders in a Dubai LLC are liable only to the extent of their share in the capital of the LLC.

Both individuals and corporates can be shareholders in an LLC.

The main feature of an LLC in Dubai is that 51% of the share capital should be held in the name of a UAE National. This aspect usually raises concerns among foreign investors and many are uncomfortable about relinquishing control of their company to a local partner. A few doubts that arise include the following. For ease of reference, we have included the answers/comments as well.

Will the local partner have bank account control?

No. This can be restricted and specified in the Memorandum of Association, that is notarized in the Dubai Courts.

Do we have to share the profits of the company in the same 51/49 ratio?

The profits can be distributed in a different ratio, as specified in the Memorandum of Association.

What kind of management control will the local partner exercise?

In case the local partner is a passive partner, management control can be vested with the foreign partner, including strategic decisions.

What happens in case the local partner is incapacitated, or passes away? What happens to his/her shares?

Working with a professional company, such as ours, can mitigate these risks. Using a corporate sponsorship structure, where the 51% is held in the name of a company, instead of an individual, can help alleviate such concerns. This is because a company never dies. Further, we can structure the corporate sponsor in a Common Law jurisdiction such as the ADGM.

Am I able to change the local partner, in case of disagreements?

This is possible, if structures correctly at the outset. The process will involve a shareholding change in the LLC.

Here is a ready reckoner of the ownership rules for a Limited Liability Company in Dubai.

Agreements

The following agreements are signed when forming a Limited Liability Company in Dubai.

Memorandum and Articles of Association

The LLC Memorandum details the agreement between the partners. It is governed by the Commercial Companies Law of 2015. The document can be wholly in Arabic, however, usual practice is to have this in English and Arabic, in a dual-column format. The Memorandum is signed in front of the notary public in the Dubai Courts.

The Memorandum lists out the following salient terms:

1. Name of the Company– The trade name of the LLC is mentioned. There are certain rules governing the name approvals at the Dubai DED. Read this article to know more about trade names in the UAE.
2. Objectives of the Company– Here the intended activities are listed as per the Standard Classification of Economic Activities of the licensing authority. These activities require pre-approvals from the Dubai DED.
3. Share Capital– Lists out the capital contribution of each partner. Normal share capital for an LLC is Dubai is AED 300,000, with the value of each share being AED 1,000. This capital is not required to be deposited in a bank account.
4. Managementof the LLC– The names and details of the directors and manager are mentioned. Every LLC has to appoint a Manager, who takes care of the day-to-day operations of the company.
5. Company governing matters– Other mandatory details include auditor appointments, financial management, and distribution of profits and losses of the company.

Click here to access a draft Memorandum for an LLC in Dubai.

Side Agreement 

In cases where the UAE National acts as a silent partner, convention was to sign a gentleman’s agreement between both parties, detailing the arrangement. This was not a notarised agreement, and hence carried a degree of risk. Nowadays, there are structures available to mitigate the LLC ownership risk, by the use of professional companies providing corporate sponsors, to using intermediary companies to enact these agreements.

Conclusion

There have been moves to allow for 100% ownership in select sectors.

The UAE Foreign Direct Investment (FDI) Law was adopted recently, to allow for opportunities of foreign ownership to increase from the current 49%, to 100%.

While the mechanism and sectors allowed have still not been announced in detail, this move is significant in increasing the attractiveness of the UAE as a destination to work and live in the region.