Now let’s discuss the changing of a company’s legal form. Here we will look at why a company may need changes to its legal form, what the requirements for such changes are and what charges for such amendments usually apply. We will also compare relevant procedures in a free zone and in mainland and share with you, as to how to proceed. Additionally, you will learn how a company’s legal form change may affect your company’s name and what aspects you shall be aware of in light of this. But let’s start from the very beginning and determine first, what a company's legal form change is.
Before you establish a company, you always need to choose the relevant legal form for your business. This legal form shall be in line with your business needs. You may want to be registered as a free zone establishment first but then you may require a change to a free zone company. Or you may need to convert your existing Sole Proprietorship into mainland Limited Liability Company. The legal form you opt for at the start is not definitive, and you may decide to change it later to adapt to the new business conditions.
The main two reasons causing legal form change are the following: you may have begun doing business on your own, as a sole owner, so you established a sole establishment (if we talk about free zones) or a sole proprietorship (if we talk about mainland). Now you would like to partner with someone, who has relevant expertise and investments, and transfer, say 50% of your shares, to this new partner. Or maybe you and your partners wish to reorganise the business, for example from Civil Company to Limited Liability Company, as you want the liability to be limited now. So you decide to change the company’s legal form to best adapt to the new operating requirements.
The process of changing company’s legal form in free zones and mainland differs. First of all, because such legal forms as sole proprietorship and civil company are not available in the free zone and all free zone companies operate as limited liability structures with one or more shareholders. At the same time limited liability companies in free zones can be divided into free zone establishments (FZEs) and free zone companies (FZCs). Therefore, while a mainland company you may wish to change from Sole Proprietorship to Civil Company and further to Limited Liability Company, free zone entities can be modified from free zone establishments (FZEs) to free zone companies (FZCs) only.
When considering legal form amendments to a mainland company, one should remember that the process of changing Sole Proprietorship to Limited Liability Company involves one more middle joint, and it is a Civil Works Company. We discussed a legal form of Civil Works Company before and said that it is the same Sole Establishment but with more than one partner. It still does not have a local partner, who holds 51% shares in the company, but a local agent instead, assisting with administrative needs of the business. It shall be noted, that the share of the new partner in the Civil Works Company might exceed 51%, except in the case of an engineering consultancy. So, coming back to the legal form change in the mainland company. At the time you decide to change a Sole Establishment to LLC, you need to change your Sole Establishment to Civil Works Company first. Following this amendment, you apply further for the change of a Civil Works company to a Limited Liability entity (LLC). A Sole Establishment can not be restructured into LLC company in one step, bypassing the conversion to the Civil Company, what shall happen first.
The reverse procedure is also possible. As much you can convert Sole Establishment to LLC, your Limited Liability Company can be changed to Sole Establishment. As in the previous example, a change to the Civil Works Company will be first required.
If your company operates as a free zone entity, you may also need to go through certain amendments, once you decide to change the corporate structure. As we just mentioned before, in a free zone your business may operate as a free zone establishment (FZE) with one single owner or as a free zone company (FZC). Not in all free zones the structure is apparent from the company’s name. In the first chapters we discussed with you, that not all free zones add suffixes FZE or FZC to companies’ names. Some may have FZ LLC or even Limited and LLC for both company types, with one or several shareholders.
As such, when considering free zones, there are no real difficulties in changing FZE to FZC; the process is relatively straightforward. You just need to remember the following rule: if your company name does not contain words FZE or FZC at the end, you will just need to do the share transfer to introduce new or remove old partners. If your company name, however, contains abbreviation and instead of FZE your company will become FZC or vice versa, in addition to share transfer you will have to apply for company name change. The latter is usually associated with extra government fees.
As a result of such amendments, you will receive updated corporate documents, including amended memorandum, share certificate or certificates and a license, if the latter lists shareholders or the name change was performed.
In case the company name change from FZE to FZC is involved, before you initiate the process, think of how that may affect your existing contracts and business in general and plan that move, to prevent any hindrances from occurring with you daily operations. Additionally, once the change from XYZ FZE to XYZ FZC is completed, you will need to approach your bank and request to amend the records and re-issue a new cheque book. For this you shall also allow a week or even two, so plan everything accordingly.
The time-frame for legal form change as well as the fees for the same depend on the emirate and the relevant registration authority, assisting with amendments. The fees vary from AED 1,550 per transaction to AED 10,000. To introduce relevant changes from three-five to twenty working days may be required. Additionally, all shareholders will need to appear in front of the registration authority.
Once amendments are introduced, all corporate documents are amended, your partners, clients and suppliers are notified of the changes, you are ready to continue company’s operations.
We are done with legal forms now. In the following chapters, we will talk about the liquidation or closing your company and discuss all aspects related to shutting your company down. It is important to know how not only to enter business but also how to exit it properly. You will hear essential information that will help you to avoid mistakes and wrong moves.
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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