16th September 2014
When setting up a business, you probably expect to own it 100% outright and have complete operational and financial control. Would you even consider setting up a business and giving the majority share to a complete stranger? What risks would you be exposed to?
Establishing a Limited Liability Company (LLC) in the United Arab Emirates (UAE) dictates that the majority share needs to be held by an Emirati National or a 100% Emirati-owned business. The maximum shareholding by a foreign company or individual is just 49%.
Choosing the right partner is crucial to the future success of your business. Making a hasty or ill-informed decision could be catastrophic. It’s essential to do your research first and understand the implications for your business when you set up and, more importantly, further down the line when your business is operational.
Five questions to consider when selecting your local sponsor:
- What do you want from a sponsor?
- Will a high profile sponsor deliver?
- What if something happens to your sponsor?
- What will your financial commitment be?
- Is there an exit strategy?
1) What do what you want from your sponsor?
Are you looking for a sponsor to be actively involved or silent? An actively-engaged sponsor will contribute to the set up and operational costs of the business; be active in the day-to-day running the business and decision making; and, take their entitlement to profits. Alternatively, a professional corporate sponsorship platform, such as Gateway Group, will act as a ‘nominee’ partner; minimizing the risks associated with appointing an unknown individual and granting operational and financial control to the foreign party; and, rather than taking a share of the profits, a fixed annual fee is agreed.
2) Will a high profile sponsor deliver what they promise?
Its easy to be seduced by high profile or celebrity individuals and also to be wooed by promises of ‘open doors’, introductions and contracts; however, how can you ensure such promises will be delivered? Also will you have access to the high profile figure once you have signed a contract? In reality you are very unlikely to have day-to-day contact with a high profile local partner. Instead, their staff of administrators and PROs will take care of the sponsorship responsibilities. Its very important to understand how these responsibilities will be administered to ensure timely availability and efficiency for duties such as document signings during the incorporation and ongoing running of your business, in order to avoid unnecessary delays which can impact financially and operationally. Alternatively, Gateway Group a Western-managed corporate sponsor platform, has powers to represent and sign on behalf of the sponsor. This means that your day-to-day point of contact is an experienced, knowledgeable, Western professional; its easy to arrange appointments of document signings and there are no communications barriers; and, because corporate sponsorship is the key focus of the business, it’s in our interest to be pro-active to our client’s requirements to ensure exceptional client care and speed of service, so that our client’s businesses flourish.
3) What happens to your business, if something should happen to your sponsor?
If selecting an individual as your local partner, it’s crucial to understand what happens in the event of their death. Sharia law determines that when a person dies, their estate is distributed amongst the next family layer. However, do you know the beneficiaries and what their intentions will be for their share of your business? What would happen to your business if the heirs had a feud over the estate? By engaging with a corporate sponsor, the foreign party is provided with business continuity in times of succession. This prevents unnecessary disruption and uncertainty.
4) What will the financial commitment be to your sponsor?
The financial remuneration to a local sponsor / partner will be dependent upon the terms of their engagement. An actively-engaged partner will take a share of the profits. However, professional corporate nominee, will assess the risk and liability of the activities of the company and the number of their employees to determine a fixed annual fee. The added benefit of this, is that it helps Client’s to budget and have the peace of mind that their profits are all theirs.
5) Is there an exit strategy?
Terminating agreements in the UAE can be difficult. Sponsors naturally don’t want to lose the business, but also the cultural aspect of viewing a liquidation as a failure can have a significant impact, even if a large exit fee is involved. Gateway Group’s corporate approach provides for an easy, three month, written notice period. This provides security for clients knowing that there are no long tie-in periods or exit fee requirements. Like any business, we don’t want to lose clients, but we understand that strategies change and we would wish our clients well with their future endeavours. Reputation is key, so its important that we stand by our promise.
Related Blogs that you may be interested in:
How to start a business in Abu Dhabi CLICK HERE
How to protect your investment in an Abu Dhabi LLC CLICK HERE
Have you considered the risks of starting a company in the UAE and how to mitigate them?. Email us at: info@GatewayToAbuDhabi.com