How to be Secure under an LLC Partnership in the UAE

The UAE is known as a significant business and world investment region. Although there are so many opportunities for foreign investors, there are concerns about partners’ freedom and rights in an LLC.

According to Article 218 of the UAE Commercial Companies Law, a Limited Liability Company is where a partner’s liability is shared with their capital shares. The UAE was ranked 13th as the most promising economy for investment in the 2017-19 period according to a survey made by the United Nations Council for Trade and Development (UNCTAD) and Investment Promotion Agency (IPA) observer.

Benefits of Forming an LLC in the UAE

Did you know that the LLC is the most common type of business in the UAE? Most investors like Limited Liability Companies because of the quick and easy setup process. Most people engage in LLC because of limited liability protection; you are not liable as the owner in case anything goes wrong.

Investors also enjoy conducting business in the UAE because of the great tax breaks; LLCs are exempted from paying taxes. Unlike other types of companies, you can undertake a broad range of activities in LLC. You can apply for a license to conduct business for 2,000 permitted activities. You can also set up your business anywhere in the UAE.

How to be Secure under an LLC in the UAE

Although starting an LLC in the UAE is lucrative, you need to understand your rights and how to be protected in this partnership. Here is what you need to know.

LLC Laws

LLC are the most common types of businesses in the UAE, and the number of partners ranges from 2-50. Your liability is limited to the number of shares you own. According to the law, as an expatriate, you can own a maximum of 49% of the shares, while the Emirati sponsor owns 51%. It is necessary to consult an expert in a law firm in Dubai if you don’t understand how this partnership works. Although you can conduct various businesses, you cannot engage in banking, insurance, or money investment for other parties.

Capital

The UAE companies law does not require any minimum capital share to start an LLC. The Limited Liability Company is required to have enough share capital; therefore, partners can decide on capital. There is no law on the maximum or minimum amount of capital to start this business.

Until recently, AED 100,000 was the generally accepted minimum share capital to form an LLC, but now investors are starting with lower capitalization. An expert from a law firm in Dubai will help you understand the law and finances. There is currently no requirement for you to deposit the capital in a UAE bank. The amount of capital required to start a Limited Liability Company in free zones depends on the area and business activity.

Protection for Foreign Investors in LLC

Foreign investors love doing business in the UAE; however, they are concerned about various issues about forming Limited Liability Companies. They want to know whether they are protected when forming an LLC partnership.

According to the UAE Civil Code Article 246, all partners must act in good faith when signing contracts. Article 246 (1) indicates that all parties must perform their obligations under the contract. Adherence to the agreement is not limited to what is in the contract; additional responsibilities can be suggested from the nature of the custom, transaction, and tradition. The courts recognize that good faith can exist outside the agreement by establishing that references can be made the law. The law is molded around the Muslim Shariah Law and custom.

Although Article 246 states the requirements of good faith, it does not provide a definition. When this issue is raised before an arbitrary tribunal or court, it is up to the arbitrators/judges to decide whether there was bad faith in the given circumstances.

Protecting Yourself in an LLC

One of the best ways to protect yourself when starting an LLC is by signing a partnership contract. This is a legal document between partners with the management and control of the company. It contains the partners’ duties, operations, contributions, profit-sharing ratio, control, etc. A legal expert from a law firm in Dubai can help you to draft a contract that favors all the parties. A contract explains the duties and responsibilities of each partner in the company, such as decision-making. It also stipulates the liabilities of each member to avoid confusion. It also states ways of resolving disputes and financial management of the partnership.

The UAE is an attractive region to start various businesses; however, most foreign investors are concerned and hesitate to form LLC partnerships. The law provides for ways to protect yourself. The best way to do this is by consulting a legal expert to explain the partnership’s requirements and rights before and after forming a partnership.