The present study is based on the critical evaluation and analysis of the options of the business types for the 11 UAE citizens, to expand their construction firm. In this prevailing study, the best type of business will be select by considering aspects such as location, citizenship, sources of capital, number of people involved, financial requirements, and division of work tasks within the proposed organization. Along with the, the study will also cover legal and governmental process, obligations, licence and agent requirement for the DED to open the business.
The following options of business types are provided from which the best suitable is required to be selected in accordance with the owner’s capital, needs and budget which are; Sole Proprietorship, Joint Liability Company, Simple Commandite Company, Limited Liability Company, Public Joint Stock Company, Private Joint Stock Company or Professional Services Company “Civil Code” Company. The description of the following options is provided as below:
Sole proprietorship is established by single entity and trade license is required by its own name. In the business, foreign ownership can be maintained by foreign professionals; the company have to achieve legal practice for professional services at everywhere in the UAE. All financial obligations and debts of person are presupposed by the owner.
In Dubai, a general partner company involves a company at where two or more partners and unlimited liability can be abided and jointly or individually liable for company’s debts and responsibilities and enjoys profits of the company, by this general partnership can be formed. This company can be established by only UAE nationals. There is an equal right for every general partner to actively participate in control and management of company (Aurion, 2017). The company’s management consist of more than one manager, which is a UAE national and managers may or may not be partners of the company. Owners are liable for debts and legal actions that faced individually, are formed by agreement, evidence of continuation and estoppels. The partners jointly possess the business assets and are responsible for business debts individually.
An entity of a simple commandite company is formed by an active partner in charge of the company’s management, as well as an inactive partner. In this type of business, the active partner of business is liable towards the complete extent of assets and whereas the silent partner is responsible towards the extent to the capital contribution of such partner (Al-Ansaari, Bederr, & Chen, 2015).
In UAE, LLC or Limited Liability Company is very common type of business. This company is established by at least two or maximum 50 shareholders, and who bears limited liability towards their shares in the capital of business. For a local business, this is a single option by which maximum ownership can be given that is 49% to the expatriate (Ibrahim, 2017). While it is compulsory to include UAE national as a partner inside LLC (51% shareholding) the potential investor has an option to select a UAE national (sponsor) as a partner in the LLC. This business type is very flexible and possibilities of different profit sharing arrangements.
A public joint stock company referred as it divides its capital into publicly subscribed shares, or can be said that an entity where the shares capital holds by a UAE public entity. These companies includes minimum of ten (10) founding members and includes minimum capital requirement of AED ten (10) million as well.
Generally, Public Joint Stock company may also established by three founders. All over the globe, at the time of incorporation, a legal entity signs the article (AOA) and memorandum of association (MOA), will be considered as a founding member and responsible for any disobedience of valid law (Hopkins, 2017). There is a limited liability of the shareholders of public joint stock company.
A private joint stock company is referred as the shares of the company which are retained privately. This company requires at least three (3) founding members, and includes minimum capital of AED two (2) million in a company (Mimo Legal Consulting, 2015). Private joint stock can be transformed into public joint stock companies after leading the meeting of certain pre-requisites.
In the globe, it is common that at the time of incorporation the legal entity signs the AOA and MOA, and taking into account a founding member and also responsible for disobedience of valid law. A joint stock company’s shareholder includes limited liability.
Such companies that are included in the Civil Code are just allowed to complete what is regarded as “non-commercial activities” for example, consultancy services. The natures of the companies that are included under the Civil Code are included: speculative venture partnership and professional services company (Areas, 2018). It is essential to remember that a civil code company is same as a sole proprietorship; therefore the actuality is that it is not considered as separate legal entity from its owners.
The selected suitable option for the DED, private joint stock company, as this the most appropriate option for a start-up company due to its nature, type and requirements. In addition, the private stock company is better than public stock company as it needs much more easy and non complex than public one, and this option also suits their capital needs as well. In a situation where, the company desires to switch onto public joint stock company in future, then it can, but at starting phase it is suggested that the individuals must go private stock company in terms of the financial requirements, number of people involved, capital and citizenship. This form of business also met the criteria of financial requirements, because there will be optimum amount of capital contribution among 11 members, and loan can also be derived easily in the name of company (Government.ae , 2018). Furthermore, the division of work factor is also satisfied in this type of business, because there would be presence of maximum amount of individuals, and also the world will be divided accordingly, and also they can possess better operating strategies can expertise can be hired.
This option for the proposed organization is chosen over other; in this option national citizens are required to establish this form of business, so the citizenship element is satisfied. Additionally, in terms of source of capital, this form of business minimum capital of AED two (2) million, and the 11 UAE individuals have 17 million dirham’s so this element is also fulfilled. In context with location, this requires the business to be set up in UAE only, and in the concerned case they are establishing the business based in Abu Dhabi, so this also ensures satisfaction. This form of business requires minimum 3 minimum founding members, and in the present scenario, there are total of 11 UAE citizens, further the number of people involved aspect is also met.
In this case, sole proprietorship cannot be selected as it is run by a single owner, and there are 11 UAE citizens who are willing to start a business, so sole proprietorship cannot be selected. In the similar trend, since Civil code is same as sole proprietorship, so the same also cannot be applied. On the other hand, the general partnership is also not considered due to the unlimited liability, and the partner and business does not have separate legal entity. The joint stock company has been selected over the partnership, because it has limited liability and jointly owned by all the involved shareholders. All the involved shareholders have ownership of some stock amount in the company, which is stated by their shares. However, private Joint Stock Company is selected over Simple Commandite Company, because the select option is easy in terms of formation and the same is cost-convenient.
Limited Liability Company was also less expensive as compared to private joint stock company, but it is also not considered because it is not separate legal entity and advantages are also restricted. In addition to this, when it comes to comparative higher cost, in the private joint stock company, the cost can be recovered due to the tax benefits.
Thus, the most appropriate and applicable option is private joint stock company, it has various features that will be beneficial for the start-up inclusive of ; Artificial Legal Person Separate Legal Entity, Incorporation, Perpetual Succession, Common Seal and transferability of Shares.
For establishing a private stock company, initially the approval and permission from Ministry of Economy is required. A private company can be able to do share listing on the stock market when the board of directors approves for the same, and the financial requirements for the company are; the corporate share capital must be paid fully, the submission of audit budget for the preceding two financial years is required to be done by company under given international standards (Judicial Department, 2018). In addition, there must be approx 30 shareholders while listing and the equity of shareholders is less than the capital equity. Moreover, the private joint stock company will be imposed to the corporate governance rules which will be issues by the Minister of Economy in which the number of involved shareholders within the company surpasses 75 (Flyingcolour, 2018). In regards with the public stock company, a general shareholder assembly should be done at the board of director invitation at least one time in a year, during the four months subsequent to the financial year end, under the prescribed time and place by the bye-laws.
The public stock company can allow the shareholders to put the shares into sale just after the listing procedure. On the other hand, the legal and governmental obligations for the process of listing are required to be satisfied and must not be understated (Judicial Department, 2018). This is inclusive of SCA approval, submission of consecutive documents by the company in a comprehensive details of the background of company and ultimately with the prospectus submission.
A private stock company is subjected to all of the prescribed rules and regulations relating with the Private Joint stock Companies, excluding the rules and regulations mentioned for the Public Subscription. Approximately, 51percent of a company is required to be owned by the nationals of UAE, and also its ownership can be held by GCC nations (Zisha, 2016). Moreover, the company should also hire a manager under the DED business regulations. The mandatory requirement is an approval held from Ministry of Economy for setting a private shareholding company.
The Ministry of Economy has 3 phases verification which are represented as below:
The application is required to be submitted in the time period in from the time of issuing the commercial license. The company is also required to acquire the commercial license which provides them the official permission to begin the formation and operation of the company in Dubai (KWS-ME, 2018). After when the license is obtained, the company is required to build permit which will enable them to begin the activities of construction firm. Furthermore, the company requires specialists for example engineers or consultants who are able to apply on the company’s behalf to get the building permit (Commitbiz, 2018). As provided above, the construction company which formation is required to be started in Dubai needs clearances also the various special permits from the departments of environment and civil works which are Drainage and irrigation department,
Water and electricity department
Building department and Dubai civil defence authority.
References
Books and Journals
Al-Ansaari, Y., Bederr, H., & Chen, C. (2015). Strategic orientation and business performance: An empirical study in the UAE context. Management Decision, 53(10), 2287-2302.
Areas, C.F. (2018). The United Arab Emirates.
Hopkins, R. A. (2017). Doing Business Around the World. In Grow Your Global Markets (pp. 83-112). Apress, Berkeley, CA.
Ibrahim, A. (2017). Legal Responsibility of the New Partner in a Company. Ct. Uncourt, 4, 10.
Online
Aurion, (2017). Legal Business Structures. Retrieved from < https://www.dubaifreezonecompany.com/auriondubai/legal_business_structures.html >.
Commitbiz, (2018). How to Start a Construction Business in Dubai. Retrieved from < https://www.commitbiz.com/blog/start-construction-business-dubai>.
Flyingcolour, (2018). How to Establish Private Stock Shareholding Company in Dubai. Retrieved from < https://www.flyingcolour.net/blog/how-to-establish-private-stock-shareholding-company-in-dubai/ >.
Government.ae , (2018). Planning to set up a business. Retrieved from < https://www.government.ae/en/information-and-services/business/planning-to-set-up-a-business>.
Judicial Department, (2018). License for a private joint stock company. Retrieved from < https://www.adjd.gov.ae/EN/Pages/Legal%20Guidance/SB-licenseprivatejointstock.aspx >.
Judicial Department, (2018). Private joint stock companies. Retrieved from < https://www.adjd.gov.ae/EN/Pages/Legal%20Guidance/COM-privatejointstockcompany.aspx >.
KWS-ME, (2018). How to start construction business in Dubai? How to get contracting and construction license in UAE? Retrieved from < https://www.kwsme.com/construction-business-dubai-contracting-construction-license-uae/>.
Mimo Legal Consulting, (2015). Private Joint Stock Company. Retrieved from < https://mimolegal.com/en/uae-onshore-private-joint-stock-company/ >.
Zisha, R,. (2016). UAE Companies Law: A Look At Private Joint Stock Company. Retrieved from < https://www.stalawfirm.com/en/blogs/view/private-joint-stock-companies-and-uae-law.html>.
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