Thursday, 26 July 2012


The U.A.E. Companies Law Federal Law No. (8) of 1984, as amended by Federal Law No, (13) of 1988 regulates, inter alia, joint liability companies, joint venture companies, private joint stock companies, limited liability companies, simple commandite companies (limited partnerships) and share capital commandite companies. In addition, article 313 of the UAE companies law specifically provides (subject to certain exceptions) that the UAE companies law shall apply equally to any foreign company that conducts its ‘principal activity’ in the UAE or has its ‘center of management’ in the UAE. Therefore, utilizing a non-UAE corporate shell to carry out a UAE joint venture business or joint venture project will not, unlike many other jurisdictions, provide any insulation to unwanted provisions of UAE company law. In the context of an international joint venture to be based in or the business carried on in the UAE, the parties would in most instances elect to carry on the joint venture through one of the following business forms unless for tax reasons in the parties’ home jurisdiction a general or limited partnership structure without share capital dictated otherwise: Joint Venture Company Part four of the U.A.E. Commercial Companies Law Federal Law No.(8) of 1984, as amended, is dedicated to regulating a ‘joint venture company’ carrying on business in the UAE. Article 56 defines a joint venture to mean “ a company concluded between two or more partners for the sharing of profits or the losses of one or more commercial businesses by one of the partners in his own name”. This article then goes on to further clarify that the company vehicle is “confined to the relationship between the partners and shall not be effective towards third parties.” In other words, third parties will have no recourse against the joint venture company and third party rights are limited to recourse against the joint venture partner that such third party actually dealt with that gave rise to the obligation to the third party. This rule is modified in article 61 where the ‘veil’ can be lifted in situations where the joint venture company is held out to the third party as being a contracting entity undertaking an obligation. Article 57 then states that the joint venture contract of the joint venture company shall regulate the rights and the obligations of the joint venture partners “and the manner of distribution of the profits and losses” but the contract is not a UAE commercial contract capable of registration under UAE laws, unlike other commercial agency contracts. The essence of Part Four of the company legislation is to favour joint ventures carrying on business in the UAE by exempting it from much of the general local corporate law and limiting the exposure of the joint venture partners and the company created to carry out an active business in the UAE. Dubai Free Zone Companies One of the most widely used ‘free zone’ companies in Dubai is the Jebel Ali Free Zone Company (which in the context of joint ventures would be an FZCO multiple shareholder limited liability corporation where liability is limited to the extent of the company’s paid up share capital). Such a company is quite similar in nature to what is referred to in the international context or offshore context as an IBC (international business corporation), since a JAFZ company is one which is exempted from the requirements of the UAE Companies Law and general corporate law of Dubai otherwise applicable to “local” companies (such as the ability to own 100% of the company versus the normal ‘foreign’ component being restricted to 49%). Regulation of a JAFZ free zone company is by the JAFZ rules and regulations. There are several ‘free zones’ within the Emirate of Dubai such as the Dubai Airport Free Zone and Dubai Technology E-Commerce and Media Free Zone and the list is growing at a rapid pace. Limited Liability Company (“LLC”) A third form of business entity likely to be used for a Dubai or UAE joint venture project or business venture would be a Part 7 limited liability company.

An entity that most closely resembles a North American or European ‘private company’ where there must be less than 50 subscribers, each shareholder being liable only to the extent of share capital subscribed, the company may conduct any lawful activity(other than insurance, banking and financial investment) and articles of incorporation are prepared (called the company’s “Incorporation Contract”) setting out the basic rules governing the operation of the company. There are several distinct differences from ‘Western’ private companies which should be noted by anyone contemplating a UAE joint venture and these unique aspects should be addressed and dealt with in the joint venture agreement to the extent possible without offending the laws of the UAE. Your Tamimi & Company legal advisor will be able to review these differences with you. Share Commandite Company Another possible business format that joint venture partners might consider utilizing in the UAE would be a commandite limited by shares.

A share commandite entity is defined in part 8 of the companies law to mean a company consisting of general partners who are jointly liable to the full extent of their assets for the company’s liabilities, together with limited participating partners whose liability for company obligations is limited to the extent of their subscribed share capital. All general partners must be nationals of the UAE thereby limiting participation in the activities of the company within the UAE to nationals. Therefore, unless the joint venture structure is such that the non-UAE participants are to be silent and passive, this is not a vehicle likely to be used in the international joint venture context. As can be seen from the range of business structures noted above, UAE companies law is a modern corporate statute which is regularly updated to keep pace with the rapidly changing ways of carrying on business and the many joint venture projects that are carried on with the Emirates, some of which will be noted later in this brochure. Regulation of companies in the UAE is not onerous and the regulatory steps prior to incorporation include are straight forward and limited to the filing of an application to incorporate.

The application would disclose who the proposed shareholders will be, among other details. This document is open to public scrutiny (unlike the rule applicable to Part 4 Joint Venture Companies) and as such, if identity disclosure is an issue, trust arrangements would have to be put in place such that the name of the “legal” as distinct from the “beneficial” shareholder appears in the Commercial Register in the UAE. Regulation following incorporation is also relatively non-intrusive and is limited to lodging a copy of the company’s annual financial statement with the Ministry responsible for companies and this financial information would not be open to inspection by members of the public. In addition, the company must file annually a copy of its ‘special register’ that contains the names of the shareholders, shares owned by each shareholder and transactions conducted relating to the company’s shares. In addition to the annual filing of the company’s financial statements, every year a company must submit a detailed list of the names of all members of the board of directors with details of each member’s nationality and postion held on the Board. Further mandatory annual filings with UAE regulators include the following: -the Chairman of the Board of a company must file a copy of a report on all resolutions adopted at the annual meeting of the company; - at the end of each financial year, the company must file a copy of its “Shares Register” setting out details of all shareholders and their shareholdings and any changes from the prior annual filing.

Winston Wambua

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