In this chapter we will discuss share capital increase and decrease in the UAE companies. To be more specific, we will talk about when decrease or increase might be required, what the process involves, we will go over expenses, associated with such changes, and briefly cover administrative side of the process. Although such transactions may seem complex for start-ups, you will see that often for small business it is a purely administrative task that can be completed by you only with guidance from the registration authority.
In previous chapters we already discussed minimum share capital requirements, share capital depositing, how share capital requirements differ from one registration authority to another. You remember that share capital is the money invested in your future company to make it grow and run day-to-day operations. In return for such investment, you, as a shareholder, gain all or certain number of shares. The amount of shares and share capital can change over time: either increase or decrease. The general perception is that start-up entrepreneurs do not require capital increase or decrease and the process is thought of as something very distant and made only for big companies and corporations. In just a few minutes we will share why this is a very common procedure and why you may need to undergo the process in the future. Understanding this process will allow you to plan accordingly.
If you are just starting a business, you might not need to reduce share capital in the nearest future. The reason being that reductions in share capital are commonly undertaken by companies to create or increase distributable profits or to reduce accumulated losses. The chance that you will need to increase share capital is much higher and there is a number of reasons for that, which we will discuss right now.
When forming a company in the UAE, most of entrepreneurs opt for the minimum share capital, which is required by the registration authority. As we discussed it previously, this can be AED 50,000 in Dubai free zones, between AED 100,000 and AED 300,000 in the free zones in the Northern emirates and AED 150,000 or AED 300,000 for local/mainland companies. Most of the time one(1) share equals AED 1000, which means you would own 50, 100, 150 or 300 shares. Now, imagine that you own only 50 shares and you want to invite two(2) more partners and all of you must hold equal number of shares. To split 50 between three (3) of you would be not possible. So what you will do, you would increase share capital from AED 50,000 to, say, AED 150,000. Additionally, share capital increase is often required, when all business owners want to be able to apply for investor visas. Registration authorities always specify the minimum number of shares and share capital a business owner must have in a company to be able to apply for the investor visa. So, if initially you were a single owner and held AED 50,000 in share capital, for your future partners to be able to apply for investor visas, they would also require to hold AED 50,000 in shares each. This last example is a current requirement of a Dubai free zone, DMCC (Dubai Multi Commodities Centre).
To summarize, the amount of share capital can be either increased or reduced. In either case, relevant regulations of registration authorities set out the procedures for such changes.
Now let’s discuss how the share increase or decrease takes place and what documents might be required for you to complete the said transactions.
First of all, the common rule is that a shareholders’ resolution should be provided. This document shall be on a company letterhead, bear a company stamp and specify the increased or decreased number of shares for each shareholder. Often registration authorities provide their own templates for use. Additionally, you can always run your draft through relevant representative of the registration authority to ensure that the format will be accepted.
If your company is owned by another company, formally being a subsidiary – a board resolution from that parent company should be prepared. For subsidiaries, a good standing certificate of a parent company is usually required too. Don’t forget that all corporate documents of foreign parent company must be legalized and attested by the Ministry of Foreign Affairs and UAE embassy in that country, where the documents were issued, and later documents shall be stamped at the Ministry of Foreign Affairs in the UAE. We just remind you that UAE do not recognize and do not accept only apostilled documents.
In case your company is involved into some specific business activities that are regulated by other governmental authorities, you might be asked to obtain an NOC from your regulating authority to proceed with share capital amendment.
During both procedures of increase and decrease of shares, original corporate documents of your company, such as Memorandum and Articles of Association and share certificates shall be returned to the Registrar. Authorities will be amending the same with the new share capital amount.
As soon as you provide all mentioned documents to registration authority and pay the relevant processing fees, that also vary from AED 1,510 to AED 4,515, you will need to wait for the pre-approval to take place and for the registration authority to issue the letter to your bank (the latter shall apply, if you wish to increase share capital). The pre-approval may take anywhere between 3 to 14 days and once completed you will either be able to receive your amended corporate documents back (in case of decrease of share capital) or letter to the bank (in case of share capital increase).
Next, if you increase share capital, you will deposit funds into your bank account, obtain relevant letter from the bank, confirming depositing of funds, and you will submit this bank letter back to the registration authority to complete the process of share increase.
In a matter of 5 to 10 days, you will receive back all amended corporate documents and a bank release letter. The latter you will return to the bank and the funds you deposited would be no longer frozen. You will be able to use them as you deem it necessary.
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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