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Limited Liability Company - LLC (Onshore/Mainland)

Free Zone Establishment, Free Zone Company - FZE, FZCO


What is the main source of law authorising this entity form?

The respective rules and regulations of the relevant free zone authority that are supplemented by the UAE Commercial Companies Law (If specially provided) . There are multiple Free Zone Authorities in the UAE.


Give a brief summary of this entity form, including

Does the entity possess separate legal personality?

Free Zone Establishment (FZE)

Free Zone Company (FZCO)

Free zone entities are treated as separate legal entities.

(Maximum) period of existence

Period of existence will depend on the agreed period of the shareholders based on the Articles and Memorandum of Association of the Free zone entities. Note that Free zone entities can exist for an indefinite period.

Governing document(s)

Certificate of Incorporation, trade license, signed Memorandum of Association and share certificates.

Liability of incorporators / shareholders

The shareholders' liability is limited to the extent of their shares in the Free zone entity.

(Governing) bodies

Governed by manager(s) and the Board of Directors.

Other particularities

100% owned by foreign nationals.

Activity of the Free zone entity can only be carried out within the free zone and/or free zone to free zone as well as outside of UAE. A Free zone entity can only carry out its activities in the mainland through a local agent/distributor.

Lease agreement will be prepared by the relevant authority and is required to incorporate;

Approvals may be required from the respective government authorities based on the type of activity to be registered;

Annual renewal is applicable.


Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

Limited to share acquisition (there is no asset/equity acquisitions).

Conversion from FZE to FZCO and vice versa is possible.

Conversion from one form to another is possible, provided that the provisions of the law and the rules and regulations of the applicable authorities are complied with.


Can this type of entity be publicly listed or held?

No, Free zone entities cannot be publicly listed.


Can this type of entity be used for a non-profit or charitable organization?

No.





Give a brief summary of the process of incorporation, formation, or organization, including

Main documents required

The process depends on the specific free zone authority as each has its separate forms, applications and required execution of the required documentation. Typical/common documents for incorporation include:

For individual:

  • Passport copy
  • Residence visa & Emirates ID (if available)
  • No Objection Certificate (if employed in another company)

For corporation:

  • Certificate of Incorporation (notarised and attested)
  • Articles & Memorandum of Association (notarised and attested)
  • Board Resolution appointing manager/director (notarised and attested)
  • Power of Attorney given to manager/director (notarised and attested)
  • Memorandum and Articles of Association (notarised and attested).
  • Specimen signature of manager/director (notarised and attested)
  • Passport copy of manager/director
  • Share capital information including details of ultimate beneficial owner (UBO)

Kindly note that the above corporation documents can either be in English or in Arabic.

Involvement of notary, company register, governmental authorities

N/A

Timing (estimate)

Depending on the free zone authority.

Main costs, including registration and similar fees (excluding legal fees)

Depending on the free zone authority.

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

Yes.


Minimum number of incorporators / shareholders and residency requirements

Free Zone Establishment (FZE)

Free Zone Company (FZCO)

  • To establish FZCO, the maximum number of shareholders shall be 50 and the minimum shall be 2 shareholders (except FZE).

Minimum number of directors (or other applicable officers) and residency requirements

Free Zone Establishment (FZE)

Free Zone Company (FZCO)

  • Depending on the rules and regulations of the free zone authority.
  • No residency requirement except the manager.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

Free Zone Establishment (FZE)

Free Zone Company (FZCO)

  • Depending on the rules and regulations of the free zone authority.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

Physical presence of the incorporators/directors is not required in the jurisdiction for incorporation and can be represented by the appointor via duly executed and legalised Power of Attorney.


Is a tax identification number, or equivalent, required? If so, how is it obtained?

It depends. In UAE VAT, businesses whose annual turnover exceeds the mandatory registration threshold of AED 375,000 and the voluntary registration threshold of AED 187,500 are allowed to apply for VAT registration (TRN – Tax Registration Number) with the Federal Tax Authority of UAE.





What is the title of the applicable company registry?

Free Zone Establishment (FZE)

Free Zone Company (FZCO)


What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles, Ownership identification (direct and/or indirect ownership, 'beneficial owners'), Group structure, Share capital, Directors, Accounts, Insolvency, good-standing, liquidation, Liens and encumbrances on the shares, Liens and encumbrances on assets of the entity, Other (e.g. litigation, tax matters)

The information listed below must be filed with the authorities and is not publicly available:

  • Application form for reservation of the trade name of the company and the application form for initial license approval.
  • Board resolution(s).
  • Memorandum & Articles of Association.
  • License.
  • Books of Account or financial statements.
  • Powers of Attorney.
  • Certificate of Incorporation/Registration (for some free zones)
  • Specimen signature (for some free zones).
  • Passport copy of manager/director.
  • Share Certificates (for some free zones)
  • UBO information of the shareholders

Note: Despite the mandatory filing of the UBO information, such information remains confidential and not publicly available.





What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The Board of Directors or the managers represent the company and must carry out management duties in the interests of the company in accordance with the objects as provided in the Articles and/or Memorandum of Association of the company.


How are the members of the executive body appointed, dismissed and replaced?

The appointment, dismissal and replacement of the members of the executive body is provided for in the Articles and/or Memorandum of Association company.

Details of such appointment, dismissal and/or replacement can be further agreed through a Shareholders Agreement.


Is it possible to appoint corporate directors or must all directors be natural persons?

Yes – some free zone authorities allow appointment of corporate directors with special approval from the Registrar.


Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

It is possible to appoint a non-executive director, but this is not a mandatory requirement as per the rules and regulations of the free zone authorities.

The Free Zone Authority’s rules and regulations on the appointment, dismissal and replacement of a director will also be applicable with a non-executive director.

The incorporated entity will only have a one-tier board only.


What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

The Company shall have the General Assembly of all the shareholders the entities whereby all the rights and obligations are provided by the Free Zone Authority’s rules and regulations and the Articles & Memorandum of Association.

The main tasks of the General Assembly are as follows: amendment of Articles & Memorandum of Association, appointment of directors and/or manager, share purchase and transfer, increase and decrease of share capital, profit/loss distribution, liquidation, changing of legal form and changing company name and activity.


What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Depending on the rules and regulations of the free zone authority - ordinary resolutions will require the approval and consent of shareholders in accordance with simple majority.

However, special resolutions that deals with the amendment of Articles & Memorandum of Association, increase and decrease of share capital, change of company name, legal form or activity, share purchase and transfer and liquidation/dissolution will require approval and consent of shareholders representing 75% of the share capital.


Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

No.


What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

For most free zone authorities, the directors will prepare the financial statements within 6 months after the end of the financial year and shall be submitted to the Annual General Meeting.

For annual company compliance, yearly audited financial statements are required to be submitted to some free zone authorities.


Is the entity permitted to determine its own financial year?

Yes, the free zone entities may prescribe its own financial year subject to the approval of the free zone authority and provided that such financial year does not exceed 18 months or be shorter than 6 months.


Is the entity subject to any statutory (external) auditor obligations?

Yes.


Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

All employees working with the entities are required to have a UAE residency visa sponsored by said entities (employment visa).





What is the title designated for ‘ownership interests' (e.g. shares, quota, interests, membership)?

Shares.


Are different classes of ownership interests possible? If so, what are some examples of different classes?

Some of the free zone jurisdictions allows classification of shares if more than one shareholder but subject to their approval.


What documentation is required for the transfer of ownership interests?

For any transfer of shares, the following documents are required:

  • Duly executed resolutions approving the sale and purchase of shares.
  • Share Purchase and Transfer Agreement.
  • Amendment to the Memorandum & Articles of Association.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

To be signed before the Free Zone Authority.


Are there any applicable stamp duties imposed when transferring ownership interests?

None.


How are shares issued? (including information on payment obligations, registration requirements)

To be identified and indicated in the Memorandum & Articles of Association of the entity.


Further information on equity contributions, e.g., Non-cash payments on shares; (Share premium) contributions without issuance of shares, Can partially paid shares/ownership interests permitted and what are the restrictions on them?

The capital of the entity shall be composed of either a contribution in cash or equivalent in contribution in kind.


Any requirements with respect to share cancellation, share repurchase and other capital reductions

No share cancellation and share repurchase.

Any increase or decrease in the share capital needs to be approved by the shareholders representing at least 75% of the share capital.


Any requirements with respect to distributions to shareholders?

The entity shall only declare or pay a dividend or make a distribution out of the profits available and if the said entity is able, or would after the payment be able, to pay its liabilities as they become due or if the realisable value of the company's assets would thereby exceed the aggregate of its liabilities and its share capital and share premium accounts.


Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes.





Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?
  • Annual Trade License.
  • Annual Lease Agreement.
  • Annual immigration card (if with employees).
  • Annual audited financial statements (some free zones do not require submission of audited financials).
  • Economic Substance Regulation (ESR) notification filing and ESR report if required.

License: Approximately 15,000.

Lease: Depending on the office solutions.


What are the general corporate tax rates? (Specify if there is a national versus local distinction).

Not applicable.





Summary of any specific matters, e.g. recent or prospective major legal developments

No imminent major legal developments are expected in 2021. Key major amendments to the UAE laws were introduced in 2020 and these are:

    1. Federal-Decree Law No. 11 of 2020 amending certain provisions of the Commercial Agencies Law published in the Official Gazette on 28 May 2020.
    2. Cabinet Decision No. 57 of 2020 Determining the Economic Substance Requirements published in the Official Gazette on 10 August 2020.
    3. Dubai Decree No. 23 of 2020 on regulating sale of heirs to residential properties in the Emirate of Dubai, as amended published in the Dubai Government Official Gazette on 13 August 2020.
    4. Cabinet Decision No. 58 of 2020 On the Regulation of Procedures Related to Real Beneficiaries published in the Official Gazette on 24 August 2020.
    5. Federal-Decree Law No. 26 of 2020 amending certain provisions of the Companies Law published in the Official Gazette on 27 September 2020 (the “ Amendments to the Companies Law”).
    6. Federal Decree-Law No. 14 of 2020 amending some provisions of the Commercial Transactions Law published in the Official Gazette on 27 September 2020.
    7. Federal Decree-Law No. 29/2020 amending certain provisions of Personal Status Law published in the Official Gazette on 27 September 2020.
    8. Federal Decree-Law No. 6 of 2020 amending certain provisions of the UAE Labour Law published in the Official Gazette on 27 September 2020.
    9. Federal Decree-Law No. 19/2020 regarding Trusts published in the Official Gazette on 27 September 2020.
    10. Federal Decree-Law No. 27 of 2020 amending some provisions of the Law of Evidence in civil and commercial matters published in the Official Gazette on 30 September 2020.
    11. Federal Law No. 15 of 2020 on Consumer Protection published in the Official Gazette on 10 November 2020.
    12. Dubai Law no. 14 of 2020 on the timeshare system in Dubai published in the Dubai Government Official Gazette on 24 November 2020.

Thus, the implementing guidelines to the Amendments to the Companies Law is expected to be published and implemented in 2021.




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Mohammed R. Alsuwaidi
Al Suwaidi & Company
United Arab Emirates