There are various types of commercial companies which are stipulated in the Federal Law No. 8 of 1984 on “Commercial Companies in the UAE” (the “CCL”). They are basically formed to operate commercial activities in the UAE local market, subject to certain exceptions. The commercial activities are those activities which are described in the Article 5 – 6 of the UAE Federal Law No. 18 of 1993 on Commercial Transactions. Some of these activities are trading, import-export, real estate development, manufacturing, banking, insurance and etc.Under the CCL, the companies are generally described as “a contract under which two or more persons are committed to participate in profit – making economic venture either by providing cash or work contributions and to divide between them profit or loss arising from such venture”. Article 5 of the same Law stipulates the following types of commercial companies in the UAE:
General Partnership is the agreement between two or more partners whereby each of them is equally liable for the company’s obligations to the full extent of all their assets, in accordance with the Article 23 of the CCL. Only UAE nationals are permitted to incorporate General Partnerships. Expatriates are not allowed to form such company as probably the majority of their assets are usually located outside the UAE.
Simple Limited Partnership is composed of one or more jointly – associated partners responsible for the company’s liabilities to the extent of all their assets together with one or more sleeping partner (s) liable for the company’s obligations only to the extent of their respective participation in the capital (Article 47 of Company Commercial Law). This type of partnership is also permitted for UAE nationals only.
Joint Venture is a contractual agreement between two or more partners to share profits or losses of a commercial business. In Joint Ventures, the business is carried out in the name of one of the partners. The local equity participation in the Joint Venture must be at least 51%, but the profit and loss distribution can be mutually agreed. Joint Ventures are suitable for companies working together on short term basis or for a specific project. Joint Venture Agreement regulates the relationship between partners. In practice, there is no registration formality for this type of partnership in the government departments, as the partnership will operate using the license and name of one of the partners.
Public Joint Stock Company is defined as an organization whose capital is divided into negotiable shares of equal value and a partner therein shall be liable only to the extent of his share in the capital of the company (Art. 64 of CCL). The Law requires a minimum share capital of AED 10,000,000 of which a minimum of 25 percent must be settled on subscription. A minimum of 55 percent of the shares of a public shareholding company must be offered to the general public. Furthermore, it should have at least 10 founding members, except in cases where the government entity is involved. Also, any company in which the State or Public Institutions hold any share should be formed as Public Joint Stock Company. The Board of Directors must have a minimum of three and no more than twelve board members. The chairman, as well as a majority of the board, must be UAE nationals.
Private Joint Stock Company has the same characteristics as the Public Joint Stock Company. However, it has three exceptions as follows:
Limited Liability Company (LLC) is one of the widespread companies formed in the UAE. The main reason for its prevalence is that foreigners can hold up to 49% of shares of LLCs and their liability is limited only to the extent of their share in the capital. According to Article 22 of the CCL, 51% of the shares should belong to a UAE national partner, and accordingly. However, distribution of profits and losses can be structured differently by the parties. LLCs can be formed by minimum two (2) partners and number of partners should not exceed fifty (50). The CCL requires the minimum amount of AED 300,000 share capital divided into equal shares with a minimum face value of AED 1,000. However, at present, there is no requirement to actually deposit the amount of the share capital in the bank for incorporating LLCs.
Articles 256 to 272 of the CCL describes another type of commercial company known as Partnership Limited by Shares. Partnership Limited by Shares is very similar to Simple Limited Partnership as it is defined by Article 256 of the CCL as “a company formed by general partners who are jointly liable to the extent of all their assets for the company’s liabilities and participating partners who are liable only to the extent of their shares in the capital.” The partners whose liability is not limited must be UAE nationals in accordance with Article 257 of the Commercial Companies Law. The minimum share capital requirement for Partnership Limited by Shares is AED 500,000.
The Federal CCL stipulates seven (7) types of commercial companies that can be formed to carry our commercial activities in the UAE. Commercial activities mean those activities that are listed in the Article 5-6 of the UAE Federal Law on Commercial Transactions as commercial activities. There are certain types of commercial companies such as General Partnership and Simple Limited Partnership, in which only UAE nationals can participate. However, foreigners can participate in other forms of commercial companies, provided their shares do not exceed 49% of company’s total share capital. In most cases, foreigners go for Limited Liability Companies (LLC). There are some commercial activities such as banking or insurance that are normally formed as Public or Private Joint Stock Companies and expatriates can hold up to 49% of shares in such companies too. Foreign companies willing to work in UAE on short term basis for a specific project can form Joint Ventures with UAE companies. Joint Venture Agreement regulates the relationship between partners.Author: Mirazizbek Makhamatzhanov