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Future-proofing your UAE business

Future-proofing your UAE business

Foreign business owners should seek to adopt a corporate structure which protects their personal assets

Despite considerable enhancements to the regulatory business environment, it still remains a surprise that so many entrepreneurs own their businesses in their personal capacity.

Sole proprietorships (also known as sole establishments) have inherently been adopted in this jurisdiction because they are considered inexpensive and/or quick to set-up in comparison with their ‘corporate cousin’, the limited liability company.

But unlike the LLC, a sole establishment does not afford the business owner the same peace of mind and financial protections.

While appreciating that the requirement for local participation is a necessary part of doing business in the Middle East, many business owners still engage an individual as their sponsor or local partner.

But this can create a threat to a UAE business in the event of the sponsor’s death.

A fully functioning business can become operationally and/or financially crippled overnight until lengthy court proceedings have been concluded by the heirs of the deceased to resolve inheritance issues.

This process can be further exacerbated in the case of large families and minor heirs.

In order to future-proof your UAE business, foreign business owners should seek to adopt a corporate structure that not only protects their personal assets, but mitigates the risk of business interruption arising out of the UAE inheritance law regime.

No one-size corporate structure fits all, so it is important to seek the right professional advice and support in order to ensure that your business is set-up (or re-structured) in the right way.

This will depend on several factors, including the nature of your business, budget and longer-term objectives, but generally involves ‘ring fencing’ both foreign and local ownership.

Many foreign investors continue to enjoy the opportunities presented by the UAE and broader region, having engaged a professional sponsor (or ‘corporate nominee’) to fulfil the local participation requirements.

By doing so, foreign investors can securely maintain 100 per cent management and operational control of their business and the right to retain all its profits – for themselves or their heirs.

The appointment of a corporate nominee also offers protection to foreign shareholders against the impact of the UAE inheritance laws and provides a clear exit strategy to be exercised at a later date whether this be for succession planning, investment or sale.

In addition to these customary arrangements, individual business owners should seek to protect their personal assets by holding their interests in their UAE business through an offshore holding company or other special purpose vehicle.

There are lots of options to consider when selecting the right jurisdiction for your holding company, including well-known jurisdictions such as the British Virgin Islands or the Cayman Islands.

A more recent option which is close to home is the Abu Dhabi Global Market (ADGM), which offers a quick and cost-effective solution for a holding company for less than $3,000 per year.

One of the major advantages to the ADGM is the saving on costly overseas attestation and legal translation fees which would otherwise be incurred on preparation of the holding company’s corporate documentation for submission to the UAE licensing authorities.

It is, however, important to seek the professional advice in order to identify the right jurisdiction for you.

For many entrepreneurs, their focus is not on succession planning or inheritance issues, but these are facts of life and should be given careful consideration. Not only does corporatising both the local and foreign shareholders’ interest provide vital protection against business interruption, it also affords the foreign shareholder full control over its business and profits.

It also creates added value if seeking investment or sale.

If your business is not already ‘future-proofed’, it is not too late.

Cost constraints and bureaucratic processes are no longer barriers to creating the right structure for your business.

Establishing a new LLC has never been easier with the recent introduction by the Dubai Economy of streamlined procedures which enable the entire incorporation process to be carried out under one roof.

Restructuring is also a straight-forward process which, if led by the right corporate nominee, can be carried out without any interruption to the business.

So take control of your business and your future by structuring them both for success.

Helen Barrett is partner at Dubai-based CBD Corporate Service

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