Difference Between Closing & Freezing a Company in the UAE

Hello, guys, today let’s talk about the difference between freezing company’s license and closing down the company.

As you know a company is like a live organism, it has a life cycle when it is formed, when it does business, and it closes down. Ending the existence of any legal entity in the UAE is a multi-step procedure which involves dissolution, winding up, liquidation of assets, paying creditors (if applicable) and more. But if it is more or less understandable what termination of a company is, let’s find out what freezing of company’ license is.

Well, freezing company’s license means that you can keep your license inactive for a specific period of time. For sole establishments registered in DED license suspension can not exceed one year, other types of companies can have their license frozen up to three years. The three years period cannot be extended.

Please note that this option is not applicable in all emirates and freezones, therefore it’s worth checking of such availability prior to any action taken. License can be frozen in Dubai Department of Economic development for example.

Once the license is frozen, it is illegal for a company to practice any of its activities. At the same time, it is worth mentioning that the owner of a frozen license or shareholder is allowed, during the suspension period of his expired license, to apply under his name, for a new license and is able to set up new companies and businesses in Dubai.

What are the most common situations when the owner can freeze the license?

The option of freezing a license is like a helping hand for those companies that would like to suspend the license to avoid liquidation and prevent losses.

As you know, if the company’s owner does not renew his license, a non-renewed license fine will apply. All emirates and free zones have different fines, but it is AED 2,500 in DED for example. Such fines can be applied on a monthly or yearly basis. A frozen license can stop the accumulation of fines during the suspension period of expired license.

If the license is not renewed 5 years in a row, then it will be cancelled automatically.

Moreover, any partner that did not timely renew his license and has a company with expired license will be blocked from renewing or registering any additional new or currently existing license unless all fines has been settled.

Therefore, the most common situation is when a business owner does not want to lose his license as it costs a lot. You can apply for license freeze only one time during the period of company’s existence.

What are the steps for freezing a license you may ask. To freeze your license you will be required to issue a letter on corporate letterhead requesting to temporarily freeze the license, stating the reasons for freezing the license and providing justification for such request. Then you will need to cancel all your employment visas and get a confirmation letter from Ministry of Human Resources and Emiratisation indicating the absence of sponsored people on your license and confirming there are no labour restrictions imposed on the license.

In Dubai Economic Department for example after application submission you will need to pay the relevant government fees, which is AED 2,000 per year of license freeze plus AED 210 per each due month since license expiry date. And be prepared to have an inspection, as a report from the inspection division in DED is among the required documents.

Before you start the procedure of freezing the license, make sure there are no pending legal actions against your company at the time of application. You should be aware that creditors do not lose their right to claim against a company and initiate a court case against a company with a frozen license. In case of court claim Department of Economic Development will de-freeze the license.

The license freeze can only be deactivated only once throughout the duration of the freeze period.

To restart the operations after suspension, the manager or the shareholders of the company need to visit the Economic Department and submit the application for renewal with a valid lease contract registered in Ejari.

As opposed to freezing, company closure or company liquidation is the process in which the legal status of the company is completely terminated. The liquidation is also known as winding up of the company after which the company is finally wound up completely and stops existence. A company can be liquidated in a compulsory or voluntary mode. The reason can be shareholder’s decision, financial instability, or any other reason. What is the difference between closing and liquidation.

Remember, that the main advantage of freezing license is helping non-active company with expired licenses to keep the license, suspend business and prevent from paying license non-renewal fines. This temporarily solution is a real helping hand for some companies in difficult times to avoid liquidation, and the chance to renew operations, restart businesses and avoid going through the new set up procedure with relevant new set up costs.

If you want to know more about Dubai freezone company formation, feel free to get in touch with our professional consultant team and we would be delighted to assist you and help you to compare Dubai freezone company setup costs and help you to find that free zone, which would suit your business needs the most.

Disclaimer: Business Boutique UAE-Consultants.com is not affiliated with any particular government or legal entity. Business Boutique does not give professional legal advice nor any other professional advice subject to a public office in the government. This article merely sets out a simple and basic idea as to the reasons of Dubai freezone company setup and Dubai free zone company formation cost. Business Boutique in no way holds nor imposes any official governmental or legal authority and the article herein is only to be taken as a guide. All further governmental or legal issues should be addressed to the corresponding authorities.

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