What are the Types of Companies in the UAE?

Now that you have decided how to name your company and which license and business activities to choose, it is time to determine, which company to establish.

It is likely that you are not a GCC national as well as you are not holding a UAE citizenship. So you want to know, which company, as a foreigner, you can establish in the United Arab Emirates. Here is the answer: you will be able to establish a Professional Company or a Limited Liability Company (or LLC). Before we carry on, let me share with you that there are also two types of Professional Companies: a Sole Establishment and a Civil Works Company. If you own a company alone, this will be a Sole Establishment. However, if you have partners, it will be a Civil Works Company then.

If you ask, what the main difference between a Professional Company and a Limited Liability Company is, this is first of all liability. Because Sole Proprietorship is a business owned by an individual and not a company, it is this individual, who is then 100% responsible for business debts and any other financial obligations of the legal entity. As opposed to Professional Company, in Limited Liability Company each of shareholders is liable only to the extent of his or her shares in the capital of the company.

Second difference between the two would be that not all activities, which are allowed to LLC, can be practiced by a Professional Company. Professional Company owned by a foreigner can only render certain professional services, provided business owner proves that he or she has relevant degree and experience. If you plan to trade or manufacture something, Professional Company will not allow you to do that.

And the third difference would be partnering with a UAE national. Limited Liability Company must be 51% owned by a UAE national, whereas you will own 49% only. Any transfer of shares that may affect the percentage of a UAE national shall be invalid. Professional Company, on the contrary, does not require from you such partnership with a UAE national. Instead, a Local Service Agent shall be appointed. As such, in a Professional Company you own all 100% percent, but you have to enter into agreement with a Local Service Agent. A Local Service Agent is a UAE national, who against annual remuneration provides administrative assistance in connection with company’s license renewal and resident visa issuance. Please note that Local Service Agent does not own any stake in the company.

So you’ve just learnt that you can form either a Professional Company or a Limited Liability Company in the UAE. Now let’s explore where exactly you can register these companies in the UAE. Professional Company can be established only in the mainland, and Department of Economic Development is the authority issuing licenses for such companies. It is not possible to open a Professional Company in a free zone. Limited Liability Company can be established as an offshore, free zone as well as a mainland / local company. So, as you may have expected it, limited liability company is the most commonly used company type in the country. And now it is high time to look at offshores, free zones and mainland LLC options closer.

There is ample information available on offshore companies, local companies and different economic zones within the Emirate. Thus, in this video we will not bore you by repeating it once more. We have designed an algorithm that will allow you by answering just 2 questions determine whether you will need an offshore, a free zone or a local entity. Just as simple as that.

First we have divided all businesses into 2 main categories: those who operate in the service sector and those who operate in the trade sector. And next we created an algorithm for each of them.

Let’s have a look at the algorithm for service-based industry first. The first question we ask is whether we plan to offer services outside of the UAE only or not. If your answer is yes, then the solution is an offshore company. If your answer is no, we move on. Next we need to ask ourselves, if to provide this service we may need to travel to client or we can do it from our office. So, in case we provide the services from our registered premises, a free zone company will be the best solution. However, if you need to travel to your customers to different parts of the emirate, a local company will be the only possible solution. Let's have a look at an example: if my company provides consulting services outside of the Emirates, I would rather opt for an offshore company. But as soon as my company decides to provide services also to clients in the UAE, a free zone company must be registered. And finally, if I start thinking that I want to conduct consulting trainings to clients at their offices, I must start considering setting up a local/mainland company.

When drafting algorithm for trade sector, same principles were used. If the question “do you sell products outside of the UAE only” is answered positively, your choice is an offshore company. If we also work in the Emirates, but the delivery is done through a courier / distributor - a company in the economic zone will suffice. And finally, if we want to deliver goods all over the emirate ourselves - the local company will be the only possible option. Say you trade with some baking products. These products are supplied by an Asian country and next sold on to some specific country in the European Union. Then at some point of time you decide to open a store in the UAE to sell this bakery. You want to be a 100% foreign owner with no local partner and no local service agent. As a result, you establish a free zone company. So whoever wants to buy from you, they come to your shop, in other words to your registered premises. But then you continue to grow and you want to start delivering your products all across the emirate, as well as start offering catering service for some celebrations, where your cakes will be displayed. See, now you need to travel to client and you can no longer stay in your shop. So here we come to the point, when a local company will be the only possible solution.

Does it look structured now? I am sure it does. First, choosing how you will be working: from your office or you will need freedom of travel, and then picking one of the available options. If a free zone, there are over 40 of them in the UAE, and you will be registering a limited liability company that you will own 100%. If you need a freedom of movement, you will have to consider a local company set-up and see if a Professional Company will work for you or it will be a Limited Liability Company with a UAE national partner, in case you want, for example, to trade or manufacture something.

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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