Setting up your own business in the UAE can be a very exciting matter. This can not only be thrilling but also challenging. UAE is a country with a plethora of opportunities and options for international companies and individuals trying to set up their business. In spite of having an exceptional commercial environment, tax benefits, and proper rules & regulations we come across companies and individuals facing problems which could have been avoided in the first place had they diligently formed their company OR even better- had they taken proper legal advice.
List of Mistakes that Entrepreneurs Tend to Make
Here are some common mistakes that entrepreneurs make while setting up, that can easily be avoided.
Mistake No. 1 – Having the Wrong Structure and License
The UAE is extremely open to trade and business and there are several platforms available to pursue innovative ideas. The first and the most exciting step to bringing an idea to fruition is setting up a company and obtaining a license. All commercial activity needs a license issued by the relevant regulatory authority.
The UAE provides several incorporation options to entrepreneurs exploring setting up new businesses. Choosing the wrong structure or having the wrong licensed activity (or not having a license at all) can subject one to penalties of all sorts or even worse, expose shareholders to personal liabilities therefore if you intend to operate a business, first get the right license.
Mistake No. 2 – The Wrong Choice of Jurisdiction Within the UAE
Choosing the wrong jurisdiction is one of the most common mistakes when entering the local market. The mistake in choosing a free economic zone in the UAE entails problems with the implementation of the business. In the Emirates, there are more than 50 relatively independent jurisdictions, each of which has a specific feature set directed to particular businesses. The inconsistency of jurisdictions with the requirements for running your business may result in the company being used not being able to carry out your wishes, you will not be able to implement the previously planned commercial activities.
Mistake No. 3 – Improper Legal Agreements with Local Sponsor
When it comes to mainland company formation, one must look for a local UAE national sponsor for the new company setup. The UAE local sponsor will be holding 51% of the company shares. The shareholding agreement must be recorded with proper legal structure.
All partnership clauses, other management, and ownership terms must be included in writing. It will protect you from any dispute regarding the shares and the smooth functioning of the business. Prepare a Notarized legal contract with all the information on shareholding, mutual responsibilities, and other business management terms. The complete agreement on each other expectations has to be recorded clearly to avoid any further dispute in the courts.
Mistake No. 4 – Relying Solely on Information Available on the Internet
The internet is loaded with information about the types of companies, the most efficient and cost-effective free zone, the easiest setup route, etc. Instead of wasting your time in researching the huge amount of data available freely – which could also confuse you- it is always preferable to seek advice from a legal consultant who can lead you in the right direction. The licensing rules and regulations keep changing and some requirements may not even be applicable to you.
Mistake No. 5 – Hasting Things Up
Perhaps the most common mistake that many entrepreneurs commit. It is highly recommended to take your business seriously, and the only way to make that happen is by paying attention to every step. This means that you must avoid taking decisions in a haste, something your consultants will also suggest. Always take your time before making a decision, but once you make one, stick to it.
Mistake No. 6 – Not Registering Your Intellectual Property
Intellectual property, especially in the current economy, is probably one of the most valuable intangible assets a company can have. The value of IP comes from the future economic benefit it can bring its owner and its ability to exclude competitors from a particular market.
Entrepreneurs are so focused on product development that they forget about registering their intellectual property leaving it out there, unclaimed, for competitors to usurp with ease. A popular mistake is where businesses hire web or application developers without any security that the business will own the product when complete.
Mistake No. 7 – Violation of Employment Agreements
An individual while working for a company is not legally permitted to open a business in UAE unless the employer has provided a No Objection Certificate (NOC) for the same. Also, new businesses have to be compliant with the employment laws in the UAE. Employers are not allowed to employ people with Visit Visa at any instance.
Mistake No. 8 – Not Planning for Worst-Case Scenarios
Risks for business cannot be avoided but can be mitigated to a level by signing up for insurance or through a well-documented legal contract. Planning for the worst-case scenarios could help in risk mitigation at the event of any unavoidable circumstances for the company and business owner.
Mistake No. 9 – Not Including Appropriate Exit Clauses in Your Partnership Agreement
When setting up a new business venture, no one likes to think that perhaps things won’t work out the way they planned. However, among all the excitement and possibility that future holds, it’s imperative that you give some consideration to your exit strategy, should the need arise to have one. Business agreements end for a number of reasons, and often these are amicable. Nonetheless, it’s important to be prepared for all possibilities so that you don’t find yourself trapped in a situation that could cost you money, time, and ultimately your business.
Mistake No. 10 – Not Learning About Business Laws of the Country
It is very important to pay attention to this point. Whether you have been around in this country or went there for the first time, you must learn about business law. Knowing is not enough, as your business should comply with the rules and law at all costs. The wise thing to do is to get in touch with a business law expert, or an attorney, or both. They’ll keep you informed on crucial legal stipulations followed by advice on how to negotiate any legal obstacles.
How to Avoid Making These Mistakes?
We understand that running a business holds challenges. However, navigating your way through foreign processes, laws, and regulations should not be a challenge you have to face alone. As your local partner, we’re on hand to deliver business solutions and services that help lighten your load.
Riz and Mona Consultancy has a long and distinguished track record of delivering premium company formation and corporate services. At every step, we facilitate our clients’ success, by providing them with all the tools they need to establish and run their business here in the UAE. Get in touch with us today, to find out for yourself how we can help you in your business venture.
