Choosing a local partner in UAE is a compulsion enforced by the government for the foreigner businessmen that wish to open a business in the Mainland Zone. The mainland zone is not open to the foreign businessmen and they have to choose a local business partner or sponsor in order to establish a firm that requires a commercial or industrial license in Dubai. All these firms are termed as LLCs or Limited Liability Companies.
In the following post, we are going to share all the important facts that you must know about local business partnerships and things to know before you find business partners.
So, read on and make sure you don’t miss any important fact.
Which Mainland Businesses Require a Local Sponsor?
When you are a foreigner that wishes to open a business that is commercial or industrial in nature, and wish to involve in trading activities in the mainland zone, you require a local sponsor. Having a local sponsor is a must as you have only two options before you:
- Opening your firm as an LLC or Limited Liability Company, that requires a local sponsor
- Joint Liability Company and Professional services companies that don’t require a local sponsor
In both cases, you require a local service agent or LSA. As per the UAE government norms, a professional service company is the one that operates on the intellectual efforts of the partners. Some of the examples of professional services companies are law firms, legal consultancies, IT consultancies, education, accountancy and administrative services etc. The LLCs and sole establishments can also apply for the professional firm license.
Things to consider while finding a Local Sponsor
The local sponsors can be easily found in Dubai and all over the UAE, and the recent boom of foreign businesses is one of the major reasons behind it. Being a local sponsor means the sponsor can get a passive income by just being listed as a business partner in the documents. The local sponsors don’t participate in the actual business proceedings and receive a set amount of money annually. They don’t have any share in the business profits and are just silent business partners.
This entire scenario acts as a double-edged sword as well. As more and more people are looking for establishing their businesses in the lucrative UAE markets, sponsorship-related crimes are also effacing. Hence, we recommend keeping a few things in mind before choosing a sponsor.
- What are the various governmental departments regulating the sponsorship as far as your business capabilities and functionalities are concerned? There are various government bodies, such as Dubai Municipality, DED and ADNOC etc that regulate the different aspects of a business.
- Whether you want your local sponsor to be a silent partner with a fixed or incremental fee or you wish to have a local person as an actual business investor?
- Is your business partner a corporate service provider or an individual?
- What happens to the local sponsor’s role in an event of business acquisition or succession?
While these are some of the most important things you must keep in your mind regarding the local sponsors, the list doesn’t end here. Hence, it is important to approach business partnerships via LSA.
The procedure of Adding a Partner in an LLC Company
To add a new partner, you have to fill and submit a Type BR1 with the signature of the existing and new partners. The form is submitted to DED with the following (or more) documents, as applicable:
- MOA or LLC Agreement
- List of partners
- Trade license copy
- Passport copies of the partners
- Commercial register
- NOC by the sponsor
There might be some other documents and supporting notarized certificates etc that must be submitted by the owner. These documents can vary from person to person and it is important to consult the LSA beforehand to avoid any delays or troubles at the later stages.
Apart from the documents, you have to pay different types of fees, such as attestation fees, notary fee and BR1 form fee etc.
Is your partner an Individual or a corporate service provider?
When you opt for a local business partner that actually has a say in your business or brings an investment with him or her, it is important to consult a local service agent and discuss the roles and responsibilities of each party. The government regulations might vary for individual partners and corporate service providers as well.
Further, there can be certain types of regulations for the kinds of businesses the corporate service providers cannot get involved in.
Benefits of having an individual partner:
- Less paperwork involved
- More affordable as only one person is to be paid
- Better connections and networking when the individual is a prestigious and famous person
Benefits of having corporate service providers as your partners:
- Less legal troubles
- Clearer process with better time and asset management
- No succession planning is required
- Corporate sponsors already have their own work and rarely interfere with the business proceedings
Exit Clauses – can you change sponsor easily in the case of a disagreement?
While you can change or replace a local sponsor, it is impossible to remove them entirely. This means that if you want to operate in the mainland business zone, you have to have a local sponsor. The LSA can guide you to proceed with the signature on the addendum to type BR1 form which is related to this process.
Further, the change of a sponsor is done by selling the shares. However, you cannot force a sponsor to sell his or her shares without any legitimate reason. But this doesn’t mean that the laws are against the foreign businessmen. They can approach the legal bodies with serious reasons for their request and get the current local sponsor replaced.
Changing the Local Partner
Before you proceed with the change, we recommend choosing a local partner in UAE that can take the former’s place.
To proceed with this change you have to:
- Obtain the sign of both the parties on the addendum to MOA and the share transfer agreement
- Sign the documents in the presence of a Public Notary
- Complete the licensing or amendment procedure by submitting the documents to the DED office.
We hope all our readers find this discussion on local business partnerships informative and choose their business partners well.
For more expert information, contact Kiltons Business Setup Services LLC or please leave your comments in the following section.
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