Formation Of A Business In Abu Dhabi Essay

Question:

Discuss about the formation of a business in Abu Dhabi.

Answer:

Introduction:

In order to determine best business structure in Abu Dhabi for the purpose of creating a business in Abu Dhabi a least expensive and simple legal form of company has to be selected. In this regard for the purpose of this report a limited liability company has been selected which is the best legal form of company that can be created in Abu Dhabi. A limited liability company comprises of two to fifty shareholders and each of the shareholders is accountable to the extent of their shares in the organization (Desislava and Keith 2016). In this regard it is noteworthy to mention that a limited liability company can be established with multiple shareholders. In the present case study it is required that in order to create a computer repair company with a home delivery service along with three friends the best option is a Limited Liability Company.

Discussion:

Limited Liability Company better than the other prevailing options:

In recent trends limited liability companies has been considered as best option n attracting small businesses however such businesses can have several owners (Aljifri et al. 2014). In UAE other types of business entities exists for instance sole proprietorship business, limited partnership business, non-profit corporation and general partnership business (French 2014). In case of the companies mentioned above the owners are personally accountable for the debts of the company. Therefore according to the case study it is noteworthy to mention here that though 300,000 AED has been raised; all the shareholders are equally liable for it. If it is required to take a personal loan in order to cover 2 million AED, then in such case all the shareholders are liable. In case of a Limited Liability Company all the shareholders are equally liable for the debts incurred in the course of business. In case of Limited Liability Company the owners are not personally chargeable for the debts incurred because profits and losses are allocated to ownership interests differently (Gomtsian 2016). In Dubai personal loans are mainly extended in case of self-employed professionals and the salaried class. In Abu Dhabi banks while providing personal loans takes into account the required information about the income and the repayment capacity of the individual who is taking the loan accelerating credits to them.


However in major cases the business of a limited liability company is formed along with a local partner where the local partner is salaried a considerable fee each year under a side agreement which states that, in consideration of the fee, the local partner will be legally beneficial in holding 51% of the share of the company however the foreign company will be beneficially entitled to hold 100% of the share capital of the limited liability company (Hassan and Naser 2013). In UAE in the presence of civil company, offshore company and Free Zone Company the limited liability company is recommended where the purpose of the entity is to enhance sales within the region (Majdalany and Henderson 2013).

Other forms of company creation would not be permissible to legal entities:

Opting for a limited liability company can prove to be beneficial because profits and losses can be allocated to different ownership other than interests. The main law which governs the formation of companies in UAE is the Commercial Companies Law 2015 (Molk 2016). Article 22 of the Act requires the local majority ownership of at least 51% of the shares and share capital however some business activities requires a percentage ownership which is even higher (Majdalany and Henderson 2013). The distribution of profits and losses are different in certain cases. In this regard the various benefits enjoyed by a limited liability company in UAE can be emphasized. In UAE companies generally enjoys tax free profits therefore in this regard it can be stated that limited liability companies also relishes tax free profits. The shareholders of limited companies are limited to unpaid capital investments and a minimum of two shareholders are required in order to create a business of Limited Liability Company (Naser et al. 2013).


In this regard it is noteworthy to mention that the establishment of business with Limited Liability Company requires application of separate legal entity; due to the reason that the form of limited liability companies is different for different states. However in case of partnership companies and sole proprietorship is not permissible to separate legal entities. Partnerships are governed by state laws and the legal entities of such state laws may vary widely however sole proprietorship has no separate legal entity (Shayah and Qifeng 2014). Due to lack of separate legal entity the owners are personally responsible towards the business because in case the business comes to an end the creditors are at the authority to consider the personal assets of the owners. As the Limited Liability Company possesses a separate legal entity which is quite different from the others and in such case the members shall not be personally liable for the debts incurred by the Limited Liability Company (Hassan and Naser 2013). Due to the presence of separate entity the limited Liability Company is entitled to get a tax identification number of its own and thereby can open a bank account and proceed with the business under its own name.

Legal and government procedures along with DED in opening a business in UAE:

The UAE is set up under the UAE jurisdiction where Islamic Sharia Law has been regarded as the main source of legislation under Article 7 of the Constitution of UAE (Gomtsian 2016). Since time immemorial the rules and regulations of Islamic jurisprudence rely upon the understanding, construction as well as the evaluation of the provisions of the Civil Code (Khan and Kenneth 2017). In addition to the provisions of Article 75 of Federal Law No. 10 of 1973, the Supreme Court must administer the provisions of Sharia law, federal laws and other rules of custom and principles of natural law accordingly (Aljifri et al. 2014).

In this regard the legal and government procedures along with the procedures of Department of Economic Development (DED) can be emphasized in order to start a new business in Abu Dhabi (Shayah and Qifeng 2014). Any sale of shares in a limited liability company situated in United Arab Emirates (UAE) requires certain documentary and procedural requirements. According to the provisions of Article 22 of the UAE Commercial Companies Law, the companies registered under UAE laws must have majority of local individuals holding at least 51 per cent of their share capital (Kerr et al. 2013).

In order to start a computer repairing company along with three friends the followings steps has to be followed however the requirements would be same in case if an individual wants to open a company with a physical retail shop with a fleet of ten delivery cars.

Name of the Company:

In order to create a computer repair company with a home delivery service with three partners it is important that the company must select a trade name which does not resemble the name of any other legal entity in UAE (Nadal 2013). In the next process it is required that the applicant should fill out a trade name reservation form with the Dubai Department of Economic Development (DED) in order to get a valid trade name. In this regard it can be stated that the computer repairing company should end its name with either Limited Liability Company or its abbreviation LLC.

Registration:

The procedure of application starts with the DED by filing a trade name application form and a licensing application form (Molk 2016). There shall be a Power of Attorney in order to authorize a person to act on behalf of the shareholders while forming the computer repairing company or a physical retail shop. In addition to this copies of passports of the shareholders along with the proposed general manager and directors will be required. Then an initial approval will be issued by the DED. However depending upon the proposed activities of the computer repairing company or a physical retail shop that has been created as a form of a Limited Liability Company additional approvals may be required. In this regard the Licensing Law of 2011 which is officially known as called Law of the Organization of Economic Activities Practice in the Emirate of Dubai which contoured the process of licensing where approvals has been obtained from the required ministries and departments by the DED (French 2014). After the initial approval from the required ministries and departments the holder of the Power of Attorney will sign a Contract of Establishment of the LLC and such contract must be written in Arabic and should contain another copy written in English.

Issuance of Commercial License:

After the Contract of Establishment has been signed, notarized and filed, the Limited Liability Company or as depicted in the case study as a computer repairing company or a business comprising of a physical retail shop is at the authority to open a local bank account and obtain a Bank Certificate verifying the deposit of share capital, obtain a lease of an office, publish the Contract of Establishment in the Companies Gazette that has been issued by the Ministry of Economy. The shareholders or the persons mentioned in such case study shall appoint an Auditor in order to file a copy of the auditor’s confirmation of appointment along with the auditor’s license (Hassan and Naser 2013). After the completion of the above steps a Commercial License must be obtained by the company from the DED. Finally after the issuance of Commercial License by the DED it is required that the LLC must register with the local Chamber of Commerce depending upon the emirate in which the LLC’s office is located.

Conclusion:

In the conclusion it can be stated that in order to set up a viable business plan in growing markets Abu Dhabi can be considered to be the right decision. It can therefore be stated that in case of a limited liability company the shareholders as well as the partners are equally liable for the debts incurred in the course of business. In the present case study in order to cover the estimated expenses of 2 million AED all the shareholders in the business is equally liable and shall equally contribute in clearing the debts. In this case it is not required to take personal loan. In order to start a business in Abu Dhabi it is important that the legal and government requirements should be understood in order to reduce the risks involved

References:

Aljifri, K., Alzarouni, A., Ng, C. and Tahir, M.I., 2014. The association between firm characteristics and corporate financial disclosures: evidence from UAE companies.

Desislava D. & Keith B., (2016) “International Establishment Mode Choice: Past, Present and Future”, Management International Review (MIR), Vol. 56 Issue 4, p489-530.

French, R., 2014. A Public Law Perspective on Intellectual Property. The Journal of World Intellectual Property, 17(3-4), pp.61-80.

Gomtsian, S., 2016. Private Ordering of Exit in Limited Liability Companies: Theory and Evidence from Business Organization Contracts. American Business Law Journal, 53(4), pp.677-744.

Hassan, Y. and Naser, K., 2013. Determinants of audit fees: Evidence from an emerging economy.

Kerr, M., Ryburn, D., McLaren, B. and Dentons, Z., 2013. Construction and projects in United Arab Emirates: overview. Multi-Jurisdictional Guide, 14, pp.1-12.

Khan, Y. and Kenneth, E.S., 2017. Corporate governance and the legal environment: some theoretical insights and related UAE evidence. Ushus-Journal of Business Management, 13(3), pp.1-25.

Majdalany, G. and Henderson, J., 2013. Voluntary Disclosure of Intellectual Assets and Intellectual Liabilities: Impact on Financial Performance in Publicly Listed Firms in the United Arab Emirates. Electronic Journal of Knowledge Management, 11(4).

Molk, P., 2016. How Do LLC Owners Contract Around Default Statutory Protections?.

Nadal, n.i.c.k., 2013. Corporate governance post ‘Arab spring’in the Middle East and North Africa. Law in Transition, 6, pp.52-61.

Naser, k.a.m.a.l., nuseibeh, r.a.n.a. And Al-Hadeya, a.h.m.e.d., 2013. Factors influencing Corporate working capital management: Evidence from an Emerging Economy. Journal of Contemporary Issues in Business Research, 2(1), pp.11-30.

Shayah, M.H. and Qifeng, Y., 2014, October. Development of free zones in United Arab Emirates. In First Middle East Conference on Global Business, Economics, Finance and Banking, Dubai

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