The Limited Liability Company (LLC) is the most popular method of establishing a commercial entity in UAE. The UAE Law governing this business activity is "commercial Companies Law" (Federal Law No.8, No.13 and No.15 of 1988) where in foreign investors can hold up to 49% of the equity ownership. It is mandatory that 51% of equity must be held with UAE Nationals. Art.218 to 225 of the Commercial Company Laws regulate the establishments of LLC. The main advantage is that the members have limited liability. Meaning members are not personally personally accountable for the loss and liabilities of the Company.
Another advantage of LLC is its flexibility in sharing the profits. It is not mandatory that the profits have to be distributed in proportion to the number of shares in the Company. The most common lapse that occurs when formulating the Memorandum of Association (MOA) is the omission of specific clauses for profit sharing.
Most of the expatriate shareholders fail to focus on the vital aspects of the Memorandum of Association, which may risk the very existence of their business. The Investor must care in incorporating necessary clauses to safeguard their interest in business.
It is required under the commercial companies Act that annual general meeting(AGM) must be held as per the set procedure. LLC management should make sure that proper documentation is available to prove that the said meeting has been called and resolutions were passed by the required majority.
Shareholders agreement is vital for Free Zone companies with multiple shareholders as changes to MOA are deemed to be complex. When the doing is smooth, the legal documents are at the back burner; when the going gets tough, these documents can be a life saver!
Legal Compliance Officer
Horwath Mak - Sharjah Branch