Alsuwaidi & Company


In regards to Company formation, corporate governance and licensing in the United Arab Emirates’ by Suneer Kumar, Partner & Head of the Corporate & Commercial practice group and Vida Grace Serrano, Senior Associate of Corporate & Commercial practice group.

Corporate Practice:

Q1: What are the key considerations when selecting a business structure for company formation in the UAE?

The key considerations when selecting a business structure for company formation in the UAE involve assessing the shareholder structure, business requirements, market dynamics, and the specific activities intended to be carried out. In the context of UAE laws, these factors play a crucial role in determining the most suitable legal entity, taking into account ownership regulations, business nature, market conditions, and the scope of planned operations. Whether it’s the involvement of a local partner, the nature of business activities, or the intended market presence, a comprehensive evaluation of these considerations ensures a harmonized and well-informed decision-making process for establishing a company in the UAE.

Q2: How can foreign investors ensure compliance with local regulations during the company formation process?

In the UAE, the nuances of business ownership and operations are indeed crucial considerations for foreign investors. Mainland companies, while permitting 100% foreign ownership in defined activities, offer the flexibility to conduct business both inside and outside of the UAE. This flexibility makes mainland entities an attractive option for those looking for a broad operational scope within the country and internationally.

On the other hand, free zone companies in the UAE allow 100% foreign ownership as well, but there is a limitation on the scope of services. These companies are generally restricted to rendering services within and amongst free zones and outside the UAE. This model is advantageous for businesses that primarily focus on international trade and do not require a significant presence in the local market.

Offshore entities in the UAE are designed for businesses that intend to operate exclusively outside the country. While providing certain tax benefits, offshore entities are restricted from conducting business within the UAE. This option is ideal for businesses that primarily deal with international clients and have no need for a physical presence within the country.

Understanding these distinctions is vital for foreign investors seeking to establish a presence in the UAE. It ensures that the chosen business structure aligns with the intended scope of operations and complies with the regulatory framework of the selected jurisdiction.

Following the selection of the appropriate business structure, adherence to the licensing and regulatory framework of the chosen jurisdiction is paramount.  Obtaining the requisite licenses and permits for specific business activities is crucial to ensure legal compliance. It is important to highlight that different business activities may necessitate approvals and permits from governmental departments and authorities. This underscores the importance of a thorough understanding and compliance with the evolving regulations across various jurisdictions within the UAE contributing to a smooth company formation process. Engaging local legal experts such as Alsuwaidi & Company LLC therefore becomes instrumental in navigating these intricacies providing invaluable insights to facilitate successful establishment and operation in accordance with local laws and regulations.

Q3: What documentation and licenses are typically required for registering a company in a UAE Free Zone?

For registering a company in a UAE Free Zone, the documentation and licenses required vary for individuals and corporate entities.

Types of Licenses:

  • Specific free zones offer various types of licenses, such as trading, industrial, professional, and more. The type depends on the nature of the business

For Individuals:

  •  Passport copy
  •  Last entry permit stamp or latest Unified Identification Number (UID number)
  • UAE Residence visa copy (if applicable)
  • Emirates ID copy (if applicable)

For Corporate Entities (Outside UAE):

  • Corporate documentation (license, AOI, MOA)
  • Incumbency certificate reflecting shareholders and directors
  •  Resolution for incorporation
  • Ultimate Beneficial Ownership declaration including passport copies of the ultimate beneficial owners

**All attested up to the level of UAE embassy of the country of issuance

For Corporate Entities (Inside UAE):

  • Corporate documentation (license, AOI, MOA)
  • Incumbency certificate reflecting shareholders and directors
  • Resolution for incorporation
  • Ultimate Beneficial Ownership declaration including passport copies of the ultimate beneficial owners

Additionally, Alsuwaidi & Company can assist in providing the necessary requirements and drafting the required documentation for a smooth registration process.

Q4: Are there specific industry restrictions or licensing requirements that vary across different emirates in the UAE?

Yes, certain industry-specific activities may require approvals and NOCs (No Objection Certificates) from authorities that regulate the particular industry. For example, establishing a healthcare facility might require approvals from the Health Authority in the respective emirate. Industry restrictions and licensing requirements can indeed vary across different emirates in the UAE.

Q5: Can you explain the significance of the Memorandum of Association (MOA) in the company formation process?

In accordance with UAE Companies Law, the Memorandum of Association (MOA) holds significant importance in the company formation process. The MOA outlines the company’s constitution, defining its objectives, scope of activities, and the internal regulations governing its operations. It serves as a crucial legal document, specifying the company’s structure, share capital, and the rights and obligations of shareholders. Approval and adherence to the MOA are fundamental for obtaining the company’s trade license, emphasizing its essential role in the establishment and governance of businesses in the UAE.

Corporate Governance:

 Q1: What are the main responsibilities of directors in ensuring corporate governance compliance?
In accordance with UAE Companies Law, particularly for Limited Liability Companies (LLCs), directors play a crucial role in ensuring compliance with corporate governance standards. Given that LLCs are the predominant type of entity established in the UAE, directors bear the following key responsibilities:
  1. Directors must ensure the LLC adheres to all applicable laws and regulations, both at the federal and emirate levels. Upholding fiduciary duties, directors are obligated to act in the best interests of the company and its shareholders. Monitoring financial performance, directors are responsible for accurate financial reporting, transparency, and safeguarding the company’s assets.
  2. Participating in strategic decision-making, directors contribute to the formulation and execution of the LLC’s business plans. Identifying and managing risks, directors are tasked with implementing effective risk management strategies to protect the LLC’s interests. Maintaining accurate corporate records and ensuring compliance with the LLC’s Memorandum of Association and Articles of Association.
  3. Disclosing and managing conflicts of interest is crucial to prevent any compromise in the integrity of decision-making processes. Directors are also responsible for transparent communication with shareholders, keeping them informed about the LLC’s performance and major decisions.
By fulfilling these responsibilities, directors contribute to effective corporate governance within the framework of LLCs, promoting transparency, accountability, and sustainable business practices in the UAE.
Q2: How does corporate governance differ for publicly traded companies compared to privately held companies in the UAE?
In accordance with UAE Companies Law, corporate governance for Limited Liability Companies (LLCs) and Public Joint Stock Companies (PJSCs) varies, reflecting the distinction between privately held and publicly traded entities.
For Limited Liability Companies (LLCs), flexibility in governance is a notable characteristic, allowing for a more simplified decision-making process. Being privately held, LLCs benefit from less stringent disclosure requirements, fostering greater confidentiality in business operations and financial matters. Ownership and control typically reside within a smaller group of individuals or entities, resulting in a more centralized decision-making structure.
In contrast, Public Joint Stock Companies (PJSCs) operate under stricter regulatory compliance due to their public status. Enhanced transparency is a core feature, with publicly traded companies mandated to provide extensive financial disclosure and transparent reporting to safeguard the interests of shareholders and the public. PJSCs often adopt a more complex board structure, incorporating a separation between executive and non-executive roles to ensure checks and balances. Shareholders in PJSCs enjoy more rights, including the ability to vote on key decisions and elect board members. Public companies must adhere to stock exchange regulations, impacting their operations, financial reporting, and governance practices.
In summary, the key differences in corporate governance between LLCs and PJSCs in the UAE stem from the nature of ownership, regulatory requirements, and transparency obligations. While LLCs enjoy more flexibility and privacy, PJSCs adhere to a more structured and transparent governance framework due to their public listing.
Q3: What role do shareholders play in influencing corporate governance practices within a company?
As per UAE Companies Law, shareholders in Limited Liability Companies (LLCs) play a crucial role in influencing corporate governance practices. Their roles encompass various aspects that contribute to shaping the governance framework:
  1. Shareholders exercise voting rights on significant decisions, such as the appointment of directors, modifications to the Memorandum of Association, and major business transactions. They can influence corporate governance by electing representatives to the board of directors, ensuring their interests are represented in strategic decision-making. Shareholders typically have the authority to approve annual reports, financial statements, and the distribution of profits, fostering transparency and accountability.
  2. Active participation in general assembly meetings provides shareholders with a platform to express concerns, pose questions, and engage with the company’s management. Shareholders may enter into agreements that outline their rights and responsibilities, impacting governance structures beyond statutory requirements. Through discussions and voting, shareholders can influence the formulation and amendment of corporate policies, ensuring alignment with their expectations.
  3. Additionally, shareholders may hold the power to remove directors if they believe their actions are not in the company’s best interest, contributing to checks and balances within the governance structure. Overall, the engagement and decisions of shareholders significantly impact the corporate governance practices of an LLC, promoting accountability, transparency, and alignment with shareholder interests.
Q4: Can you provide examples of recent corporate governance reforms or updates in the UAE?
The UAE has demonstrated a commitment to regulatory enhancements aligned with international standards, and these initiatives can have significant implications for corporate governance practices. Several key considerations are essential for businesses, including Limited Liability Companies (LLCs):
  • AML (Anti-Money Laundering):
The UAE is actively strengthening Anti-Money Laundering (AML) measures within the framework of the UAE Companies Law aiming to prevent money laundering and terrorist financing.
  • UBO (Ultimate Beneficial Owner):
Ongoing efforts are directed towards enhancing Ultimate Beneficial Owner (UBO) transparency with anticipated provisions being incorporated into the UAE Companies Law to foster corporate accountability.
  • ESR (Economic Substance Regulations):
Economic Substance Regulations (ESR) are a focal point, ensuring that entities, including LLCs engaged in relevant activities maintain substantial operations within the UAE.
  • ESG (Environmental, Social, Governance):
Increasing attention is placed on Environmental, Social, and Governance (ESG) principles urging companies including LLCs to incorporate these factors into their business strategies for sustainable and responsible practices.
  • VARA (Virtual Asset Regulatory Authority):
  In the context of the crypto industry, regulatory frameworks are under consideration, and the establishment of entities like the Virtual Asset Regulatory  Authority (VARA) could play a role in overseeing virtual asset activities.
It is crucial to stay updated with official government sources, regulatory bodies, or legal professionals in the UAE for the latest amendments to the UAE Companies Law and corporate governance reforms. Alsuwaidi & Company offers legal assistance to ensure that companies, including LLCs, remain compliant with the evolving regulatory landscape in the UAE.
Q5: How does the UAE legal system address issues of corporate misconduct and enforcement?
The UAE legal system addresses issues of corporate misconduct and enforcement through a comprehensive framework that encompasses various elements.
  1. The UAE Commercial Companies Law serves as a cornerstone, outlining legal provisions governing corporate entities and establishing standards for transparency, accountability, and the responsibilities of directors.
  2. Regulatory bodies such as the Securities and Commodities Authority (SCA) play a crucial role in overseeing corporate activities in specific sectors, ensuring compliance with regulations.
  3. Corporate misconduct can also lead to both criminal and civil liability with the legal system allowing for the prosecution of individuals or entities involved in fraudulent activities, breaches of fiduciary duty or other offenses.
  4. The principal Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) legislation includes Federal Decree-Law No. (20) of 2018, as amended by Federal Decree Law No. (26) of 2021, and Cabinet Decision No. (10) of 2019, as amended by Cabinet Resolution No. (24) of 2022.
  5. Dispute resolution mechanisms, including courts and arbitration centers in the UAE, handle disputes related to corporate misconduct. The legal system supports alternative dispute resolution methods, such as arbitration and mediation.
  6. Corporate governance codes and guidelines have been implemented in the UAE, emphasizing ethical behavior, transparency, and responsible corporate practices.
  7. Various governmental agencies, including the Ministry of Economy, Dubai Financial Services Authority (DFSA), and Abu Dhabi Global Market Financial Services Regulatory Authority (FSRA), are entrusted with enforcing laws and regulations related to corporate conduct. These agencies investigate complaints, conduct audits, and take appropriate enforcement actions.
It is important to note that enforcement mechanisms may vary across free zones and different emirates.

Mergers and Acquisitions

Q1: Can you provide examples of recent corporate governance reforms or updates in the UAE?
Legal due diligence for mergers and acquisitions in the UAE requires a thorough assessment is undertaken across various legal dimensions. This involves a comprehensive review of the target company’s corporate structure, governance practices and adherence to legal requirements. The examination extends to scrutinizing all legal contracts and agreements encompassing those with suppliers, customers and partners with the aim of identifying potential risks and obligations. 
Intellectual property rights are also carefully assessed ensuring proper ownership and protection; and verifying the absence of infringement issues. Additionally, the evaluation encompasses employment contracts and human resources matters including compliance with labor laws and potential liabilities. Regulatory compliance is a key focus involving a detailed analysis of adherence to licensing, permits and industry-specific regulations considering recent legal amendments. Commercial due diligence involves a detailed review of existing contracts and commitments coupled with an analysis of the potential legal implications of future engagements to gauge overall commercial viability. 
Alsuwaidi & Company, with its expertise in legal services, plays a pivotal role in providing thorough legal due diligence. Their experienced professionals ensure that all aspects of the legal framework are meticulously examined, providing comprehensive insights to mitigate risks and support informed decision-making in the mergers and acquisitions process.
Q2:  Are there any industry-specific regulations that impact the M&A landscape in the UAE?
As per UAE laws and regulations, the M&A landscape in the UAE is influenced by industry-specific regulations that vary across sectors with notable examples spanning various domains.
In the financial services sector, M&A activities are overseen by the UAE Central Bank and regulatory authorities like the Dubai Financial Services Authority (DFSA). These entities ensure compliance with sector-specific regulations governing banking, insurance, and securities.
In the energy and natural resources sector, the Ministry of Energy and Infrastructure play a pivotal role in regulating M&A activities. Their regulations impact transactions in oil, gas, and renewable energy industries.
The telecommunications and media sectors adhere to regulations set by the Telecommunications and Digital Regulatory Authority (TDRA) which oversees M&A activities ensuring compliance with licensing requirements and competition laws.
The Ministry of Health and Prevention (MOHAP) takes charge of regulating M&A transactions in the healthcare sector. It imposes regulations related to licensing, patient data protection, and compliance with healthcare standards.
Real estate M&A deals are influenced by regulations from authorities such as the Dubai Land Department and the Abu Dhabi Department of Municipalities and Transport. These regulations impact transactions in real estate development and property dealings.
In the technology and innovation sectors, regulatory bodies like the Dubai Silicon Oasis Authority (DSOA) and the Abu Dhabi Global Market (ADGM) regulate M&A activities, focusing on intellectual property, data protection, and innovation-driven industries.
Companies operating within free zones are subject to specific regulations governed by respective free zone authorities, each with its regulatory framework and licensing requirements.
Understanding and navigating these industry-specific regulations is crucial for the successful execution of M&A transactions in the UAE.
Q3: How do regulatory approvals and clearances impact the timeline of M&A transactions?
Regulatory approvals and clearances play a pivotal role in shaping the timeline of M&A transactions. The diverse regulatory landscape in the UAE necessitates that certain M&A activities undergo thorough scrutiny and approval from relevant authorities. Different sectors such as banking, telecommunications and energy are overseen by specific regulatory bodies requiring compliance with sector-specific regulations.
Moreover, foreign investment regulations come into play particularly when foreign investors are involved. Compliance with regulations related to foreign ownership and investment restrictions is vital, requiring approvals from the UAE’s regulatory bodies overseeing foreign investment. These regulatory processes often demand comprehensive due diligence and the preparation of extensive documentation to support the application contributing to potential delays in the overall timeline.
In cases involving entities operating in multiple emirates or free zones, coordination with various local authorities becomes necessary. Each jurisdiction may have its approval processes adding complexity and time to the regulatory approval phase. Additionally, the overall timeline may be influenced by changes in governmental policies or regulatory frameworks emphasizing the importance of staying informed and adapting to new requirements.
Given these complexities, engaging with legal experts familiar with the UAE’s regulatory landscape becomes imperative. Alsuwaidi & Company, as experienced legal professionals, play a crucial role in navigating the intricacies of regulatory approvals, ensuring timely submissions, addressing concerns, and facilitating a smoother approval process for M&A transactions in the UAE.

Commercial Practice:

Contracts and Agreements:
Q1: What are the key elements that should be included in a well-drafted commercial contract in the UAE?
In the realm of UAE law, a well-drafted commercial contract should encompass essential elements to ensure legal clarity and compliance, aligning with the evolving local legal landscape.
Firstly, there should be a precise identification of the contracting parties, including their legal names, addresses and contact details. This foundational step establishes a clear understanding of the entities involved.
Moving forward, articulating the objective, scope, and purpose of the contract becomes crucial. Clearly outlining the obligations, responsibilities, and rights of each party avoids potential misunderstandings and fosters a comprehensive understanding of the intended contractual relationship.
Payment terms represent another critical aspect. Clearly specifying the amounts, currency and due dates along with any penalties or interest for late payments, ensures financial clarity and accountability.
In addressing the intellectual property dimension, the contract should explicitly detail ownership and usage rights elucidating any licenses or restrictions associated with intellectual property.
Confidentiality and non-disclosure provisions should be included to safeguard sensitive information outlining each party’s obligations to maintain confidentiality and establishing consequences for breaches.
To handle potential disputes, the contract should outline dispute resolution mechanisms, such as the choice of jurisdiction, arbitration or alternative dispute resolution methods aligning with the legal avenues available in the UAE.
The governing law clause is very essential that is specifying the legal framework that will govern the interpretation and enforcement of the contract. This ensures that the agreement aligns with the legal principles of the UAE.
Including a force majeure clause becomes vital in addressing unforeseen circumstances that may hinder the fulfillment of contractual obligations. Such clauses provide a legal framework for managing unexpected events.
Indemnification and liability provisions are also included to allocate risks and responsibilities in case of breaches or unforeseen events providing clarity on the financial implications of contractual outcomes.
Termination and exit clauses should be clearly articulated, defining the conditions and procedures for contract termination, exit or renewal, thus, safeguarding the interests of both parties involved.
Lastly, compliance with laws in the UAE is paramount. Ensuring that the contract aligns with relevant local laws and regulations and addressing any specific legal requirements applicable to the nature of the agreement, reinforces its legal standing.
Q2: How can businesses ensure that contracts comply with both civil and Sharia law principles?
In ensuring compliance with both civil and Sharia law principles, businesses can benefit from the expertise of legal professionals with local knowledge. Alsuwaidi & Company, being a UAE law firm with lawyers knowledgeable in Sharia law, stands as a valuable resource for businesses seeking to align their contracts with the nuances of both legal frameworks.
Crafting the contractual structure in a manner that respects both civil and Sharia law principles is paramount. Clear and unambiguous language should be used to establish mutual understanding particularly in reconciling potential differences in interpretation between the two legal systems.
In the financial aspects of the contract, businesses should ensure compliance with Sharia principles, avoiding interest-based transactions (riba) and considering Sharia-compliant financial structures such as Mudarabah, if applicable.
Selecting dispute resolution mechanisms that are acceptable under both civil and Sharia law, such as arbitration or mediation, can further contribute to a harmonious legal framework. Specifying the governing law and jurisdiction in the contract ensures that it accommodates both legal systems and helps avoid conflicts.
Alsuwaidi & Company, as a UAE law firm, is equipped to provide Sharia-compliant contracts review through qualified Islamic scholars or experts, offering an additional layer of scrutiny to ensure alignment with Islamic jurisprudence.
In addition to legal considerations, businesses should be culturally sensitive, understanding the local values and traditions influenced by Sharia principles. This approach fosters contracts that not only comply with legal frameworks but also respect the cultural context.
By adopting Sharia-compliant business models, where applicable, businesses can structure transactions to adhere to Islamic principles, contributing to overall compliance. Regular legal monitoring is essential, enabling businesses to adapt contracts to any changes in the legal landscape, ensuring sustained compliance over time.

Q3: What dispute resolution mechanisms are commonly included in commercial contracts in the UAE?

Commercial contracts in the UAE typically integrate diverse dispute resolution mechanisms to address potential conflicts efficiently. These mechanisms include:

Arbitration, a widely favored method allowing parties to designate a specific arbitral institution or opt for ad-hoc arbitration. It provides a neutral forum for dispute resolution, and awards are generally enforceable in the UAE.

Mediation is gaining popularity as an alternative, involving a neutral third-party facilitating negotiations to achieve a mutually acceptable resolution. While not binding, successful mediation can lead to a settlement agreement.

Litigation through local courts is an option for matters that cannot be resolved through alternative means. UAE courts have specialized commercial divisions to handle such disputes, though parties should consider potential for lengthy proceedings.

Expert Determination involves engaging an industry expert to resolve specific technical or specialized disputes, applicable in sectors where technical expertise is crucial.

Conciliation, similar to mediation, involves a neutral third-party facilitating discussion. It is a flexible approach, allowing parties to tailor the process to their needs.

Multi-tiered dispute resolution clauses are often included, requiring parties to engage in specific steps such as negotiation or mediation before proceeding to formal dispute resolution methods like arbitration or litigation.

Selecting the most suitable mechanism depends on the contract’s nature, the involved parties and specific circumstances. While arbitration is often chosen for efficiency and neutrality, local litigation is increasingly recognized as a robust option. 

Q4: How are force majeure clauses typically interpreted and applied in UAE commercial contracts?

Force majeure clauses in UAE commercial contracts are interpreted based on specific contractual language and principles. These clauses typically cover unforeseeable events beyond the parties’ control, such as natural disasters or government actions, making contractual performance impossible or impractical.

The interpretation requires a direct causation link between the force majeure event and the inability to perform contractual obligations. Parties are encouraged to adhere to any notice requirements outlined in the contract ensuring timely communication of the event and its impact.

It is important to note that force majeure clauses do not provide absolute protection, and the impacted party is generally expected to demonstrate reasonable efforts to mitigate the impact. Negotiation and collaboration between parties to find alternative solutions are encouraged in mitigating the effects of force majeure events.

Events resulting from government actions including regulatory changes or restrictions, may be considered force majeure contingent on the specific language in the contract and the impact on performance. Courts may interpret force majeure clauses based on principles of good faith and fairness considering the circumstances surrounding the event.
For more information, please contact our Authors: Suneer Kumar directly on [email protected] ,Vida Grace Serrano directly on [email protected]