The United Arab Emirates Business Structures
Introduction
It is critical to research the local laws and regulations that apply to a business before its establishment. Understanding the various legal structures and the requirements set forth by the relevant statutes to operate a business legally is vital. The intellectual property of business owners in the United Arab Emirates (UAE) is given high priority by the country’s federal laws, which include provisions on patents, trademarks, and copyrights, irrespective of their nationalities. Abu Dhabi’s solar energy sector has expanded rapidly due to the government’s recent heavy investment in solar power projects. In my partnership with Michael, we anticipate success in the solar industry due to the government’s encouragement in light of Vision 2030. Diverse forms of partnership, legal procedures, and dispute-resolution mechanisms should be considered to ensure the venture’s success. As a result, before launching our solar energy business in Abu Dhabi, my business partner Michael and I will examine the structure of our partnership, the legal framework within the United Arab Emirates in which we operate, and the various dispute resolution options available in the country.
The United Arab Emirates provides a favorable environment for business establishment and growth. According to Trading Economics (2022), the country ranks eleventh out of 190 countries in the Ease of Doing Business Index in 2021. The country ranks first in ease of obtaining electricity but 149th in ease of dealing with insolvency (Trading Economics, 2022). In the United Arab Emirates, starting a business takes an average of 3.5 steps, ten days, and 7.2% of the country’s per capita income (Trading Economics, 2022). As a result, the environment is favorable for my collaboration with Michael to launch our solar energy partnership business.
Main body
The UAE government has made it easier for foreign citizens like Michael to establish businesses by enacting and strictly enforcing business-friendly commercial laws and regulations within the past three years. As a result, the UAE has emerged as a major international business destination. Standardization and simplification of legal requirements have made it much easier for multinational corporations to register and comply with commercial laws, policies, and regulations. In addition, the amount of paperwork that these businesses must complete has been drastically reduced. This law supports economic master plans such as the Abu Dhabi Economic Vision 2030 by encouraging economic growth and development through foreign collaboration with local entrepreneurs. As a result, a UAE business owner considering partnering with a US citizen in the UAE should become acquainted with the various company structures permitted by UAE law.
A minimum of two people in a partnership should be recognized under Article 8 of the UAE Companies Law. According to Article 8 of UAE Federal Decree-Law no. (32) of 2021, a partnership is “a contract under which two or more persons are committed to participating in an economic enterprise with the objective of profit realization by contributing a share of capital or work and dividing among them the profit or loss resulting from the business.” Article 9 of the UAE Companies Law, businesses operating in the United Arab Emirates have the option of operating as either Joint Liability Companies, Limited Partnership Companies, Public Joint – Stock Companies, or Private Joint – Stock Companies. The procedures for dissolving these entities and their ownership, capital requirements, and liability are very different. To engage in legally compliant business activities in the UAE, companies must first get themselves organized as one of the legally recognized types of businesses.
The proposed joint business venture between Michael and myself, both of whom are citizens of the United Arab Emirates, has several potential organizational structures from which to choose, including a limited partnership, a limited liability company (LLC), or both. These organizational models have characteristics congruent with the framework envisioned for our working relationship and the nature of that relationship. According to the UAE Federal Decree-Law no. (32) of 2021, which regulates various business entities, our proposed business partnership would involve both a natural and an artificial person. It is crucial to consider this when deciding on the most appropriate legal structure for our business partnership since our partnership has specific requirements and goals that we need to consider when deciding.
Limited Partnership Company
Under Article 5 of the UAE Companies Law, one or more general partners run the company and are personally liable for its debts. On the other hand, one or more limited partners invest in the company. Partners are only liable for the company’s current debts up to the amount of capital they contributed and have no say in the partnership’s management. According to Article 4 of UAE Federal Decree-Law No. (32) of 2021, limited partnerships are required to register with the Department of Economic Development and comply with specific provisions.
These provisions include naming a general partner and defining the partnership’s line of work, as Article 6 of the UAE Companies Law mandates. By Article 8 of UAE Federal Decree-Law No. (32) of 2021, limited partners have no individual responsibility for the debts and obligations of the partnership. On the other hand, limited partners who participate actively in the company’s day-to-day operations run the risk of being held personally liable for the partnership’s obligations. The partners’ rights and responsibilities are detailed in Article 24 of UAE Federal Decree-Law no. (32) of 2021. At the same time, Article 27 of the same document discusses dissolving and winding up a limited partnership.
Limited Liability Company (LLC)
Article 71 of UAE Federal Decree-Law no. (32) of 2021 specifies that a limited liability company (LLC) is a business entity in which the liability of its members is limited to the number of their respective capital contributions. The memorandum of association specifies that the liability of each partner is limited to the amount of their capital contribution. Since each of us has put seven million dirhams into the partnership, our responsibility to the business is limited to that amount. The partners can be either real people or fictional entities and the name of the LLC should reflect the business’s mission or the identity of at least one of its shareholders.
Furthermore, the company law provides in Article 72 that the company’s managers will be jointly liable for the company’s obligations to the extent of the value of their respective capital assets. To register our limited liability company in the United Arab Emirates, we shall follow the guidelines outlined in Articles 42 and 43 of Federal Decree-Law no. (32) of 2021. The Minister of the United Arab Emirates, in conjunction with the relevant authorities, guides the contributions to the limited liability company’s capital by the partners.
Since Michael is a citizen of the United States of America and I am a resident of the United Arab Emirates, we should form a limited liability company (LLC) rather than a Limited Partnership company in this instance. To establish a limited liability company, there must be at least two and no more than fifty shareholders; consequently, Michael and I satisfy the requirement for the minimum partnership size. As a result, the requirements for establishing a limited liability company have been met by our partnership. We have left room for expansion if the business requires the participation of additional partners in the future as set out in the UAE Federal Decree-Law no. (32) of 2021. Since each of us has made an equal contribution, all partners will have an equal share in the company’s management and debts.
According to Article 12 of UAE Federal Decree-Law no. (32) of 2021, the two partners who form the LLC must agree on a name for the company that satisfies the requirements set forth. Before starting a company, the partners should adhere to Article 14 of the company law, which stipulates the need for a Memorandum of Association (MOA) to be drafted, outlining the company’s goals, capitalization, and management. The company should register with the Department of Economic Development to acquire a business license per Article 15 of UAE Federal Decree-Law No. (32). Article 16 of UAE Federal Decree-Law No. (32) requires the publication of the MOA in the official gazette. The company is required by Article 17 UAE Federal Decree-Law no. (32) of 2021 to open a corporate bank account with its shareholders’ assistance and register with the Chamber of Commerce and Industry. Under Article 18 of the same law, the partners must choose a manager for the company before it can begin conducting business.
The Federal Law of the UAE outlines the resolution of disputes, including arbitration and mediation, as two of those approaches. Arbitration is the process by which an impartial third party resolves disagreement between contracting parties, the decision of which is final and binding on all parties involved in the dispute court (Mann & Roberts, 2019). After reaching a consensus, choosing the arbitrator, dates, and times for the arbitration by the parties involved is necessary. Suppose the arbitrators cannot nominate at least one arbitrator. In that case, the relevant body must appoint two arbitrators, who would then appoint the third arbitrator and begin the arbitration processes within fourteen days of the formation of the body. The arbitrator’s decision shall be final and binding upon the parties and serve as a road map for the parties to follow to resolve the dispute. This decision shall also serve as a guide for the parties to follow. Arbitration is a method to settle disagreements over business matters between managers, partners, or shareholders; however, the process is costly, time-consuming, rigid, and slow.
The use of mediation to resolve business disputes has increased rapidly in the United Arab Emirates over the past three years. In an ideal world, conflicts are settled through mediation instead of more traditional dispute resolution processes. To avoid going to court over their differences, the two sides here would retain the services of a mediator. All parties involved in a mediation session can opt-out anytime, but any agreements reached during the process are legally binding and cannot be changed. In an ideal world, mediation is a process in which the focus is on the parties, and a third party helps them reach a mutually agreeable resolution to their dispute through discussion and compromise. Importantly, it is worth noting that Dubai’s commercial parties have widely adopted mediation as a means of conflict resolution. This is because the procedure is less complicated, adaptable, faster, and cheaper than alternative dispute resolution methods.
The provisions of a partnership agreement that address how disagreements between partners will be resolved are critical. These clauses may include alternative dispute resolution methods such as mediation or arbitration to avoid the time and expense of going to court (Mann & Roberts, 2019). A dispute resolution procedure can also aid in preventing conflict escalation, which can be detrimental to the partnership. Dispute resolution clauses in a partnership agreement help resolve disagreements quickly and cheaply by outlining a clear process for doing so and discouraging parties from taking their dispute to court (Mann & Roberts, 2019). Procedures for dealing with conflicts must be defined, and safeguards put in place to prevent problems from worsening to achieve this goal.
Conclusion
In conclusion, a company should adopt a particular legal structure to comply with the laws of the UAE Federal Government. The UAE Federal Decree-Law no. (32) of 2021 recognizes various corporate structures and identifies their structure. A limited liability company and a Limited Partnership company are potential organizational structures for a business with few partners, as well as a partnership between a UAE businessperson and an American citizen.
References
Federal Decree-Law no. (32) of 2021 – died. ae. (n.d.). Web.
Mann, R. A., & Roberts, B. S. (2019). Essentials of Business Law and the Legal Environment (13th ed.). Cengage Learning.
Trading Economics. (2022). Ease of doing business in United Arab emirates2022 data – 2023 forecast. Ease of Doing Business in United Arab Emirates – 2022 Data – 2023 Forecast. Web.