Legal forms of Commercial Companies
Federal Law no. 8 of 1984 concerning commercial companies, amended by Law no. 13 of 1988 sets out the rules regulating the establishment of commercial companies. The law makes it conditional that the companies be wholly owned by nationals, or that nationals own at least 51% of its share capital, whilst the remaining 49% may be owned by foreigners.
The law stipulates that commercial companies established in the U.A.E. must conform to one of the following legal entities:-
This is a firm, which consists of two or more partners who are jointly and severally responsible for all the firms’ liabilities. This type of firm is confined to U.A.E nationals or to persons given the same treatment as nationals.
This type of company is confined to U.A.E. nationals because partners are responsible for the liabilities of the firm with all their assets, which condition cannot be applied to foreigners as their assets usually remain abroad.
Partnership in- commandam (Limited Partnership)
This is a firm consisting of one or more joint partners who will be liable for all monies for the firm and another or several in-commandam partners who will not be responsible for the liabilities of the firm except to the value of their share in the capital. According to the law, all joint partners in such type of firms should be nationals of the U.A.E.
Limited Liability Company
A limited liability company should consist of not less than two and not more than fifty shareholders.
Such a company may not engage in the business of insurance, banking or investment of funds on behalf of others. The capital shall not be less than three hundred thousand dirhams divided into equal shares, the value of each of which should not amount to less than one thousand dirhams. These shares may not be represented by negotiable instruments. If a body corporate is to be a shareholder in a Limited Liability Company under incorporation, then the capital of the Limited Liability Company must amount to double the capital of the company wishing to become a shareholder. If non-nationals hold shares in such a company, the U.A.E. nationals should be awarded shares amounting to not less than 51% of the capital (taking into consideration those business activities which are confined to nationals).
Public Shareholding Company
This is a company with a capital divided into equal negotiable shares. In such companies a shareholder’s liability is limited by the number of shares which he holds. It is conditional that the capital must be sufficient for carrying out the objects of the company, however it must not amount to less than ten million dirhams. As such a company issues negotiable shares, it will be subject to the appropriate control procedure required in this regard.
Incorporation of a public shareholding company involves long and complicated procedures as detailed in the law. For instance, the shareholders must prepare a memorandum and articles of association; and the minimum number of shareholders must be ten. Only after approval for incorporation has been granted by the Department of Economic Development may subscription to the shares begin. Subscribers may then be invited to a General Meeting, which shall elect members of the Board of Directors and declare the incorporation of the company. Following this, the founders shall submit an application to the Minister of Economy and Commerce to declare formally the incorporation of the company in addition to other procedures.
Private Shareholding Company
This is a company incorporated by a group numbering not less than three persons. Such a company may not invite the public to subscribe in its shares; the founding shareholders subscribe in full to the paid-up capital, which should not amount to less than one million dirhams. Except for the foregoing, all provisions which apply to public shareholding companies, will also apply to private shareholding companies, and the incorporation of such a company will be in accordance with the same procedure and conditions except for the provision for public subscription in the company shares.
Partnership Limited by Shares
This is a firm which consists of partners who are jointly and severally responsible for all the liabilities of the company, and of shareholding partners who are only responsible for the liabilities of the company to the pro rata value of their subscribed shares in the capital. Those provisions which apply to the incorporation of public shareholding companies also apply to a partnership limited by shares, while taking the following into consideration:
- All joint and several partners and other founding shareholding partners should sign the deed of partnership of the firm, and for the purpose of liability shall be considered to have the same status as the founding shareholders in shareholding companies.
- The names, titles, nationalities and countries of origin of the joint and several partners are to be mentioned in the memorandum and article of association.
- The capital of the company should not amount to less than Dh500,000//
Incorporation of the firm will take place in accordance with the procedure followed for public shareholding companies, except for the provisions for public subscription in a company’s shares.
The Joint Venture (Consortium Company)
This is a partnership made between two or more partners to share in the profits and losses of a business operated by one (or more) of the partners in his own name. The firm would confine itself to the relationship between the partners and would not extend to third parties. Such a firm is not inscribed in the Commercial Register, and its incorporation deed is neither published nor declared.
A Consortium Company is in fact a clandestine company confined to the relationship between the partners for the execution of specific projects in the name of one partner (e.g. the owner of the license, while the other partner undertakes the management of the company). Ordinarily no special license will be issued in the name of the company, but the licence belonging to the original partner will be sufficient for the execution of a given project with the collaboration of the other partner who will participate in the running of the company.
Although the name of the company may not be entered in the Commercial Register and not be declared to the public, yet it operates as per bona fide agreements which are legally binding on the concerned partners and may be attested before the Notary Public.
Establishing Professional Companies
A professional firm is represented by an agreement in which two or more persons agree to provide services to others for a consideration, whether they are equal or unequal in distributing the work; provided that the jobs in question are unified or carried out simultaneously. Therefore, any firm which practises a profession as its main object, in which partners rely for their livelihood on the intellectual effort they exercise more than on profiting from the business of others, shall be regarded as a professional firm. On this basis, professional companies can be set up between professionals or partisans and carry out non-commercial activities. Federal law no. 18 of 1993 in respect of issuing the Commercial Transaction Code expressly stipulates in article 15 that “The word ‘merchant’ is not applicable to Ministries, Government Departments, Public Institutions, Corporations, Public Benefit Organisations, Societies, Clubs and Professionals who carry out non-commercial activities. However, any kind of commercial activities conducted by the above parties shall be subject to the provisions of this law unless those specifically stipulated to be exempted.”
Activities permitted to be practised by professional firms
Those firms which have been registered as professional companies or firms may only practise specific activities and not extend these to the field of commercial business. The permitted activities include the rendering of the following services: legal practice and consultancy, auditing, organising and keeping accounting records and books, civil engineering and architecture consultancies and services, managerial and economic consultancies and studies, technical services, medical and curative services, educational services and other similar services.
Provisions regulating the Activities of Professional Companies or Firms
- Each partner is bound to perform the work which he accepted and undertook, and each of the partners has the right to collect the fee agreed upon, by means of which the client supplying the work is relieved of his liability by making payment to any of the partners. The partner is not bound to carry out that part of the work which he has agreed to do by himself, and he may assign the same to his partner or anybody other than the partners, unless the owner of the work has made it a condition that the task may not be delegated.
- Any profits are to be distributed between the partners in the manner agreed upon; it is possible that the distribution of profits may be unequal even if it was conditional that the work was to be carried out equally, and each of the partners is to be entitled to his share of profit even if he did not participate in the work(an acceptable excuse having been given). It is possible to register the professional company or firm on the basis that premises, office equipment and related sundries are supplied by some of the partners, whilst the work is carried out by others.
- The partners are jointly responsible for executing this work.