Starting a business in the United Arab Emirates is an exciting and rewarding endeavour, but it can also be a huge undertaking. One of the most important aspects of starting a business in the UAE is understanding how to get a sponsor. A sponsor provides both financial backing and real-world protection to ensure that you are held accountable for any commitments you make. This article is an essential guide to finding a sponsor in the UAE, including what sponsorship entails and the benefits of corporate sponsorship.
What is a Local Sponsor in the UAE?
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So, what is a local sponsor?
In the UAE, a sponsor is an Emirati individual or company that provides financial backing and/or legal protection for another individual or business. Working with a dependable local sponsor is crucial for conducting safe business operations in Dubai.
Obtaining a local sponsor is a necessary part of setting up a limited liability company following the Commercial Companies Law. Specifically, according to Article 10 (1) of Federal Law No. 2 of 2015, for any local partnership with a foreign investor in the UAE, the UAE national must hold at least 51% of the company’s shares. However, rest assured that this does not necessarily mean that the profits and losses of the company will be shared equally. You can also customise your local sponsorship agreement through an Investor’s Right Protection Contract.
Different Types of Local Sponsors in the UAE and Dubai
If a foreign-owned business in Dubai does not meet the requirements for 100% ownership, expatriates must have a local sponsor to conduct business on the mainland. Any non-compliance to this law can lead to consequences for your business. This is why it is so crucial for you to know the different types of local sponsors available.
There are three main types of sponsorship as it pertains to mainland business incorporation in the UAE:
Local Sponsor – Corporate
In Dubai, a corporate sponsor can refer to a government or local entity that agrees to partner with you when incorporating your business. As mentioned, according to Commercial Companies’ Law, Emiratis who act as local sponsors for foreign businesses must own at least 51% of their own organisation. Finalising your corporate sponsorship in Dubai is highly dependent on the type of venture and company framework that you want to establish.
Local Sponsor – Individual
Partnering with an individual sponsor is often preferential for many small businesses and entrepreneurs when it comes to starting an LLC on the mainland. This is because local sponsors typically don’t play a role in the day-to-day operations of the business. The individual local sponsor also retains a 51% shareholding stake in the firm, much like the corporate local sponsor.
Local Service Agent as a Sponsor
An Emirati local service agent acting as a sponsor is relevant to business owners who require a professional business licence to deliver services to customers in the mainland region.
Learn more about the differences between local and corporate sponsors in Dubai, here.
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Benefits of Corporate Sponsorship for Your Business
There are a few advantages of engaging a corporate sponsor over and above an individual sponsor for businesses in the UAE, which include:
Managing the Important Stuff
Your company’s local sponsor would have various responsibilities other than having a 51% shareholding stake. They also aid in tasks such as bank account closure procedures, settling debts (if there are any), helping with licence renewal and translations (in Arabic), signing on behalf of the foreign business owner for various contracts and government applications, renewing or cancelling visas, and offering suggestions to help you grow your business in the UAE.
No Business Interference
Entrepreneurs can maintain full control over their business while enjoying the privileges of a corporate sponsor, even if the local sponsor holds a slightly larger percentage of company shares. The corporate local sponsor typically does not interfere with the daily operations of the company, giving business owners complete control over managing their employees, customers, and services.
Protection for Your Business
Dealing with side agreements can be challenging, but corporate sponsorship can be helpful in this regard. Certain corporate sponsors provide well-drafted contracts created by experienced lawyers, which ensure that the rights of the business owner and shareholders are safeguarded. The corporate sponsor will be held liable in the event of any default on debts or promises made by the sponsored business.
A Simplified Incorporation Process
Using a corporate sponsor that is familiar with the ins and outs of setting up a business in Dubai means you can enjoy an easy start to your venture. As top business setup consultants in Dubai and the UAE, Virtuzone takes care of everything needed to launch your company. We handle the entire process of dealing with the various government authorities, saving you time and money in the long run.
Considerations When Seeking a Sponsor in the UAE For Your Business
The process of finding a sponsor in the UAE can be complicated and time-consuming, but it’s a vital (and usually unavoidable) aspect of starting a business here. You can research many different companies and individuals who offer sponsorship services throughout the UAE, and it’s important to seek out those who are reputable and reliable. Ask for references or research online reviews to get an idea of what others think about potential sponsors before committing.
Let’s explore some things to keep in mind when looking for a local sponsor in the UAE.
Verify Your Sponsor’s Credentials
Before collaborating with a local sponsor, it is important to verify their legitimacy. Conduct a thorough background check on them to gain a better understanding of who they are. It can be common for a potential sponsor to make bold declarations on their status in the business world, claiming they are well connected. However, you need to verify their statements and make an informed decision for yourself. Only commit with them once you are completely satisfied with your findings.
Consider The Needs of Your Business
It’s wise to consider your operational and business needs when it comes to local sponsorship in Dubai. For example, if you’re an investor who aims to work within the government sector, it’s best to have a government employee as your local sponsor. Likewise, if your business operates in the financial sector, explore some options for a sponsor adept in this industry. Make sure to also ask about their language skills to prevent any miscommunication.
Understand The Terms of Your Sponsorship Agreement
It’s important to review the terms of your sponsorship agreement and have a detailed discussion with your sponsor about the fees involved. This is to ensure you don’t pay anything above the agreed amount. You should be able to obtain everything in writing, for full transparency. You should also understand exactly what services will be provided by the sponsor, as well as any restrictions or limitations that come with the agreement. Make sure you understand all of the terms before signing the contract and ensure that both parties are in agreement on all points.
Remember, you can always seek the advice of an experienced business consultant who can provide expert guidance on local sponsorship in the UAE.
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Steps to Change a Local Sponsor in Dubai
Generally, once you secure an individual, corporate or local service agent as a sponsor, your business can proceed with its operations with no hassles. However, if you become dissatisfied with your current agreement or if your local sponsor becomes unresponsive, what steps can you take to address the situation? What about changing your sponsor completely?
There are a few steps to follow if you want to change your current sponsor to a new one:
Step 1: Consult with all shareholders
Attempt to resolve any misunderstandings or disagreements with your current sponsor by considering their perspective and finding solutions to the issue without resorting to legal action. Be sure to include all partners and shareholders in any discussions, and if a new sponsorship is a genuine consideration, all viewpoints on the matter should be heard. It is essential to ensure that all of your partners understand and are aligned with any potential changes in the current sponsorship.
Step 2: Amend and submit new documentation
Once a board resolution has been reached amongst existing shareholders who agree to a change in sponsorship, you need to update your Memorandum of Association (MOA) and trade licences to reflect the change in ownership and shares. You can then register the new MOA with the Dubai Economic Department (DED) and pay the applicable fees. To complete the procedure, your current UAE sponsor must formally acknowledge this transition in court. After verification, the legal authorities will file a new application to renew your trading license.
Step 3: Find a new sponsor
After completing the previous steps, you can bring a new local sponsor on board for your business in Dubai. It’s important to select a trustworthy sponsor, as amending your sponsor in the UAE can be a time-consuming and costly undertaking.
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Finding a Local Sponsor in Dubai – FAQs
Is a Local Sponsor Needed for All Business Licences?
Yes. In the UAE, all commercial, professional, and industrial licences require a local sponsor to complete the business licence registration process. For a limited liability company (LLC), a UAE national must hold a minimum of 51% of shares, and your business must comply with the regulations on local sponsorship.
What Does a Local Sponsor Do For My Business?
Typically, local partners have the choice between paying a fixed fee every year or receiving a portion of the company’s profits. In exchange, they must sign contracts and handle tasks related to government and business regulations, such as closing bank accounts, cancelling employee work visas, and paying off any outstanding debts.
What’s the Cost of a Local Sponsor in Dubai?
The cost of a local sponsor in the UAE can differ depending on the type of business that you are setting up. Generally, sponsorship fees can range from AED 8000 to AED 15000 per annum for a professional services firm and may exceed this amount for an industrial setup.
In addition, you should consider additional expenses related to factors like the nature of your business and its activities, the extent of local sponsor involvement in legal procedures, and the length of the partnership agreement.
How Do I Manage Conflict with My Local Sponsor?
If you have a conflict with your local sponsor, it’s best to first attempt to resolve the dispute calmly before pursuing legal action. If the conflict cannot be resolved, you may need to settle the matter in court.
For this, you will need to prepare several documents, including the MOA from the disputed agreement, power of attorney from the disputed contract, and receipts showing payment of annual sponsorship fees. You may also need supplemental documents depending on your specific situation. Lastly, be prepared to have a new sponsor ready in case the situation leads to a new MOA arrangement.
What’s the Difference Between a Local Sponsor and a Corporate Sponsor?
There are some important distinctions between a local sponsor and a corporate sponsor/nominee, as follows:
Local Sponsor
In the UAE, an individual local sponsor refers to a situation where a UAE citizen, in their capacity, owns 51% of the shares in a mainland limited liability company. The UAE citizen, who is the majority shareholder of the company, may grant a Power of Attorney to a foreign national in exchange for a fixed annual fee.
Corporate Sponsor or Nominee
Typically, commercial or industrial license holders opt for corporate sponsorship or corporate nominee arrangements for their business. These sponsors are also UAE nationals, who hold a minimum 51% capital ownership in the company.
Local Service Agent
Businesses that operate with a professional licence must have an appointed local service agent, provided their enterprise has been established on the mainland.
How Do I Know if I Need a Local Sponsor for My Business?
Any business owner planning to establish an LLC company must have a partnership with a UAE national. Limited liability companies operating on the mainland in the UAE are required to have local sponsorship.
Examples of industries that require local sponsorship include:
- Retail and general trading
- Contracting and professional consulting
- Real Estate
- Media and marketing
- Industrial businesses
- Logistics
- Textiles and manufacturing
- Electronics
If you’re wondering what type of sponsorship in the UAE you need for your business, contact one of our consultants today for more information.
Get a Corporate Sponsor in the UAE Today
Local sponsorship is one of the most critical aspects of setting up your business here in the UAE. By researching, asking the right questions, and understanding what services are included in a sponsorship agreement, you can ensure that once you’ve chosen your sponsor in the UAE, your company is compliant and all the important steps are taken care of by professionals.
Contact us today for more information on local sponsorship, and discover how your rights as an investor are our top priority. Let our experienced consultants guide you through the best sponsorship options for your business. You can spend less time handling paperwork and more time growing your business so it’s set for success.
