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Important Things to Consider While Choosing a Local Partner for Your Business in UAE
There are 2,100 designated commercial activities possible in the United Arab Emirates, and not every one of them requires a Local Sponsor. As of 1st June 2021, only select business activities require a Local Sponsor.
If you are not sure whether the business activity you have in mind requires a Local Sponsor, please get in touch with us and we would be more than happy to let you know.
How to Choose the Right Local Sponsor in Dubai?
According to the law, a Local Sponsor can be an Emirati* male or female aged 21 or above. It could also be a company incorporated in the United Arab Emirates that is 100% owned by Emiratis.
*This is the term used to refer to citizens of the United Arab Emirates.
The law also mandates that when a Local Sponsor is involved, he/she is to own 51% of the shares in the company. The shareholding of the Local Sponsor cannot be less than this.
But this is not to say that the Local Sponsor takes home 51% of the profits, or takes a controlling interest in your company. Most of the time, he/she will sign over a Power of Attorney document entrusting the running of the company to you. This way, you can be in full control over your business.
The Local Sponsor is to be paid a mutually agreed upon Local Sponsorship Fee in return for his/her services towards your company. These include representing it before Government agencies and helping you procure permits for your company or visas for your staff.
To prevent any disputes in the future, a copy of the Local Sponsorship Agreement which outlines the Local Sponsorship Fee payable must be submitted along with the company formation documents at the time of company registration.
The Local Sponsorship Fee can be paid on a monthly / quarterly / half-yearly / annual basis.
So the Local Sponsor in Dubai effectively plays the role of a silent business partner.
There may be instances when the Local Sponsor wishes to become a working business partner, for which he/she is willing to make an investment in your company in return for 51% of the shares. This is very much a possibility, and such a Local Partner will provide you with the right advice to navigate your company in the highly-competitive business environment of Dubai. He/She might also be able to open new doors of opportunity for you that you couldn’t have managed on your own.
A Local Partner in Dubai can thus be an asset to have. There are actually 2,480 individuals in Dubai who have assets of $10 million or more in cash and other business interests, including equity. 165 of them have assets of $100 million or more, and 12 of them are billionaires. What they all tend to have in common are business interests in Dubai.
And they continually keep investing in new businesses in Dubai to grow their wealth. In December 2020, there were only two billionaires in Dubai and 152 individuals with assets of $100 million or more. So you can see how the number of millionaires, multimillionaires, and billionaires are only increasing in Dubai.
Abu Dhabi is not far behind either. There are 420,000 Emiratis who call Abu Dhabi their home and are worth $17 million each. Collectively, they hold over $1 trillion in assets. The United Arab Emirates is the third richest country in the world, and they are increasingly looking to diversify away from oil by investing in other areas of business.
So if you are looking for a Local Partner in Dubai, someone who will be more than just a Local Sponsor, you could manage to find one. There are already Chamber of Commerce-backed incubator programs where Local Sponsors play the role of both mentor and investor, making them more of a Local Partner than a Local Sponsor.
Someone who specializes in business setup in Dubai can put you in touch with the right Local Sponsor / Local Partner for your business, depending on your business needs. Sometimes, you may prefer that a Local Sponsor adopt a hands-off approach when it comes to the running of your company. This too is possible.
In the event that you have a Local Partner who takes an active interest in the running of your company, there may be disagreements. If you establish your company right, replete with exit clauses et al, you might be able to buy out the Local Partner and replace him/her with another Local Sponsor / Local Partner. This is why you should get in touch with one of the leading business consultants in UAE when establishing your company – they will make sure the paperwork is done right so that your interests are protected.
Why Choose Us to Find the Right Local Sponsor in Dubai?
We have been of assistance to clients from 100 countries around the world, and we have an excellent client satisfaction rate so far. We are backed by an in-house team of legal counsel, as well as seasoned professionals handpicked for their expertise in Business Consulting, Tax Advisory, and Corporate Finance. For more details, please call +971 56 408 6728
