Advantages Of Company Formation In Uae

The United Arab Emirates comprises of seven independent regions known as Emirates. Each Emirate is unique in its own way and offers its own features and benefits for setting up a business.

We take a look at the various advantages associated with company formation in the UAE.

• Global trade hub

UAE practises a culture of open and free trade with its trading partners. The average tariff rate for goods entering UAE is 5%, but the country is packed with free zones that offer incentives like tax and duty exemptions. UAE’s open border foreign labour policy is an added bonus for private sector companies, allowing them to recruit expatriate employees at internationally competitive wages.

• Strategic location of the country

Located strategically on the new Southern Silk Road between Asia, Europe and Africa, the UAE enjoys excellent trading conditions. The various countries and regions that are in constant business relations with the UAE, and use it reach out to the world are:

China (uses UAE to reach Africa)
India (uses UAE to reach out to the rest of the world)
Latin America (uses UAE to reach South Asia)
Western countries (uses UAE as a hub for the Middle East)

• Low import duties

Most goods and items that are imported into the UAE enjoy extremely low import duties. To add to this, goods imported into free trade zones are completely exempt from import duties.

• 0% Corporate and Personal Taxes

Companies in Dubai or UAE’s free zones are required to pay no corporate and personal taxes and enjoy 100% repatriation of profit and capital. This favourable tax framework was highlighted in a study called Paying Taxes 2013 performed by the World Bank, International Financial Corporation and PricewaterhouseCoopers.

• No double taxation

In order to avoid double taxation of foreign companies, the UAE has signed Double Taxation Agreements with many countries across the world.

• Strong and competitive economy

In a ranking of the Index of Economic Freedom 2013, prepared by the Heritage Foundation in partnership with the Wall Street Journal, the economy of UAE was ranked 3rd among 15 Arab countries and 28th among 185 nations worldwide. Thanks to UAE’s transparent and favourable business climate and highly stable political climate, businesses are able to enjoy a highly dynamic and progressive environment.

• High level infrastructure

Rapid economic progress in the UAE has inspired a massive boost in the construction of residential, tourism and commercial facilities across the country. This is in addition to the on-going development of infrastructural facilities like the Al Maktoum International Airport, free trade zones, ports etc.

How to Register a Startup Company

There are several good reasons why it makes ample sense to register your company. The first basic reason is to protect one’s own interests and not risk personal assets to the point of facing bankruptcy in case your business faces a crisis and also is forced to shut down. Secondly, it is easier to attract VC funding as VCs are assured of protection if the company is registered. It provides tax benefits to the entrepreneur typically in a partnership, an LLP or a limited company. (These are terms which have been described later on). Another valid reason is, in case of a limited company, if one wishes to transfer their shares to another it’s easier when the company is registered.

Very often there is a dilemma as to when the company should be registered. The answer to which is, primarily, if your business idea is good enough to be converted into a profitable business or not. And if the answer to that is a confident and a resounding yes, then it’s time for one to go ahead and register the startup. And as mentioned earlier on it’s always beneficial to do it as a preventive measure, before you could be saddled with liabilities.

Depending upon the type and size of the business and the way you want to expand it, your startup can be registered as one of the many legal formats of the structure of a company available to you.

So let me first fill you in with the required information. The different company structures available are:

a) Sole Proprietorship. That’s a company owned and operated or run by just one individual. No registration is needed. This is the method to adopt if you want to do it all by yourself and the purpose of establishing the company is to achieve a short-term goal. But this puts you at risk of losing all your personal assets should misfortune strike.

b) Partnership firm. Is owned and operated or run by at least two or more than two individuals. In the case of a Partnership firm, as the laws are not as stringent as that involving Ltd. Company, (limited company) it demands a lot of trust between the partners. But similar to a proprietorship there is a risk of losing personal assets in any eventuality.

c) OPC is a One Person Company in which the company is a separate legal entity which in effect protects the owner from being personally liable for any losses.

d) Limited Liability Partnership (LLP), where the general partners have limited liability. LLP combines the best of partnership firm and a company and the partners are not personally liable to lose their personal wealth.

e) Limited Company which is of 2 types,

i) Public Limited Company where the minimum number of members needed are 7 and there is no upper limit; the number of directors must be at least 3 and
ii) Private Limited Company where the minimum number of people needed are 7 with a maximum upper limit of 50. The number of directors must be 2.

Veto Rights and Good Governance: Are the Two in Sync?

One of the most debatable questions in CimplyFive’s First Survey on Secretarial Practice conducted in July 2016 was on the practice of taking Director’s consent for holding Board Meeting at shorter notice.

Though this is not a statutory requirement, our survey indicated that 81% of the respondents revealed that they took Directors consent for holding Board Meetings at shorter notice. Taking consent from all participants even though it is not mandatory seems to be a desirable practice as it meets the basic yardstick of good governance, which is to enable all the eligible members to participate in the decision making process. The moot question is, does a deeper scrutiny of this practice stand the test of good governance?

When we dig deeper, an unintended implication of this practice has the effect of providing a veto right to each and every director, as the failure of even a single director to give their consent has the effect of deferring the Board Meeting, even if every other director wants to have it.

In this context, it is worth noting an interesting observation made by the Robert’s Rules of Order, first published in 1876 which is considered the Bible of Parliamentary procedures, on getting consent from members. The options available are:
All members, or
All members present, or
All members present and voting.

The Book reasons that getting consent from all the members or all members present has the effect of treating a vote to abstain or inability to vote for whatever reason, as a negative vote. Given this effect, this basis is not to be used unless the matter is of such grave importance that a positive consent from all the members is considered essential. Given this backdrop, it is worth examining how and why veto rights emerged, and is it an appropriate instrument for Corporate Board Meetings.

Veto rights or negative affirmative rights are basically negation of the power of majority to take decisions. This is a right not normally accorded in the statute books, which uphold the principles of democracy and endorses decision made by the majority. The rare exceptions where the rule of majority is negated by the statutes is when the rights of a minority group is adversely affected or a basic principle of their association is being modified, altered or substantially changed.

In sharp contrast, veto rights are a standard feature of private Shareholder Agreements that are used mainly by financial investors taking a stake in start-ups to protect their large financial outlay they bring to the table. Covering areas of Board representation, Approval for Financing plans and CXO appointments, Anti-dilution provisions and Shareholder Reward sharing mechanisms like Right of First Offer (ROFO), Right of First Refusal (ROFR), Tag along rights and Drag-along rights, veto rights have a logical and justified place, as in their absence it will be difficult for start-ups with ideas to attract capital, despite the knowledge that capital without entrepreneurs will remain idle cash. Hence, for dreams to be realized and idle cash to become riches, veto embedded in shareholder agreements is a valuable conduit.

In contrast to shareholder meetings where ownership rights are to be protected, the Corporate Board is more a body of collective wisdom to guide and run the company, which includes some high-end residual powers that involve day to day running of the company like powers to borrow and appoint representatives to present company’s interest. Given the nature of the Corporate Board, it is worth debating if consent from Directors should be obtained for holding Board Meetings at Shorter Notice.