Setting up a business yourself can be quite complicated. There are many rules and legalities involved which need to be addressed. When it comes to starting a business in a foreign country, the process gets even tougher. Dubai, home to thousands of expats, is also a place where foreign businessmen mostly choose to set up their business. Foreign ownership is one of the most prevalent difficulties faced by expats when they intend to set up a company or business in Dubai. An expatriate can own just 49 percent of every company in the mainland of the city that falls under commercial or industrial licenses. The remaining 51 percent of the share would belong to a local sponsor. Now the only thing that comes to your mind is who is a local sponsor.
Who is a Local Sponsor?
For non-UAE or GCC nationals (foreign investors) who wish to invest and run and establish a company in Dubai, Abu Dhabi, Sharjah or anywhere in the UAE, a local sponsor or a local service agent is a person or corporate entity which complies with UAE company law and regulatory requirements. Foreign investors are expected to have a local citizen, a UAE person, as a sponsor, as per United Arab Emirates law with regard to the establishment of a mainland business. Local sponsor is not only responsible to share the shares in the company. But instead, the local sponsor is also responsible for some important dealings as mentioned below:
- Cancellation of employees work visa
- Cancellation of the labour status for employees
- Closing the bank accounts
- To settle any outstanding debt if there is any
- The Local Service Agent can deal with the government officials and Ministries on behalf of the businesses and also facilitates the renewal process.
- Interpreting the business contracts for business registration that are in Arabic, the local authority is required to understand and interpret these documents and can sign on the behalf of their foreign business partner
Why Companies Change Their Local Sponsor?
Normally, sponsors do not intervene in any of the affairs of the organization. And though the executive director/manager is in charge of operating powers. A local sponsor still retains the right to sign the company’s Immigration and Labour-related issues. There is also no cap on the number of businesses that they may sponsor; hundreds of businesses are funded by certain UAE nationals. In general, their private PRO’s represent these citizens. Therefore, with this PRO, if not all exchanges, most of the interactions happen. Main problems that businesses face are:
Local Sponsor is Inaccessible
In the market, there are many business people who do not have direct links to the local sponsor but via their PROs/consultants/lawyers. The formation of these enterprises exists by consultations with either the PROs, advisers or attorneys. The provider or service representative may not have a structured presentation. To a level where the real business owners do not have their sponsor’s passport information, position details or even communication details.
Local Sponsor is Busy or Unavailable
Another common challenge encountered by firms who have busy or inaccessible sponsors is this. They have no alternative but to refer to their PRO or handler. Since they have no way out of the deal, they are at times compelled to continue the facilities.
Business setups that do not have the requisite leverage to display the sponsor’s shares would operate pillar to post attempting to get jobs completed at a huge mark-up. They can often incur constant costs in a case where there is a need for the sponsor’s participation.
One of the complains that is commonly received is “It seems that everything is long and difficult”. This is because the agent or PRO would not teach the owner regarding the system or the expense factors. They can even not have, in a timely way, original government receipts or even basic amenities.
How to Change Your Local Sponsor?
So, the question is what should one do to initiate the shift of sponsor or local support agent in the above-mentioned situations? We have listed down how to change your local sponsor if need be:
- You would have a Memorandum of Association in the case of a local sponsor. And you would get a Service Provider deal in the case of a service agent. There should be a termination of services provided on these documents.
- There is normally a three-month warning prior to the certificate being renewed. It is necessary to send this note in writing or via email at their official physical / email address to the local sponsor or service agent.
- Try to settle the issue first if a dispute has emerged between you and your present sponsor. And adjust your sponsor if things somehow don’t work out (hopefully with the cooperation of your new sponsor).
- Mediation, and even casual debates, will assist both sides to move through their problems and achieve an understanding. If the existing sponsor declines to commit to a funding change, therefore you will require legal help in the courts to pursue the issue.
- It is important for foreign investors to submit certain documentation to the court for a seamless transition of local sponsors. Those reports contain a Memorandum of Association (MOA). The MOA is between the foreign investor and the local sponsor. Also, the power of counsel records on labour and immigration and cards and annual sponsorship fees receipts.
- For more documents, however, there might be a demand in the future.
- In the case of your LLC sponsor, until you have your paperwork and your new sponsor is willing to adjust, you can meet at the court where an official can check all the documents and validate the consent of your current help. At that point, the company can show the new sponsor with new paperwork, including a joint selling deal, an updated Memorandum of Association, and a trade authorization.
- You would need to confirm that he/she provides you with a NOC in the case of a Local Service Agent. This letter would include submission to the Department of Public Notary Relations and the Dubai Economy. That is achieved until the latest service agent arrangement is signed and the business license is revised.
Riz and Mona Consultancy
The nature of your business will decide whether or not you are required to work with a local sponsor in Dubai. A business formation expert such as Riz and Mona Consultancy will collaborate with you to consider your market practices and decide about whether you are entitled to keep 100% ownership. We will also help you locate a sponsor if you need one.
We can also help in managing the entire company incorporation process for you. This involves applying for your permit, helping you locate your property, applying for visas, and establishing a corporate bank account. Contact us today to book an appointment.