Q: For LLC formation in the UAE, will side agreements made with the local individual partner be valid in the court of law? A: It depends on the text. Any transfer of the title to any share of a partner that may affect the percentage as set out for national partners in this article shall be invalid…

Basically, most of the LLC companies in the UAE have a side agreement among the shareholders and the local sponsor and that might create a legal risk to the principals in terms of their shares, profits, and inheritance cases. Nevertheless, the most efficient legal way is to have a trust agreement with the local sponsor which shall be subject to DIFC laws and that would make your rights very protective from the legal perspective.

Validity of the side agreement of an LLC in the court

Questions & Answers

Questions & Answers

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Entering into a side agreement with the local Emirati partner

Q: Hello, My name is P. I'm about to open up a company here in the UAE. However, we under the sponsorship of an Emirati. We agreed that he would give the power of attorney under the court to manage everything including bank account, bank cheques. I need advise on how best we can come with an internal agreement.

Sep 12, 2019

1357

Limited liability company set up

Q: How to establish an LLC company in the Emirate of Dubai?

Oct 11, 2016

1127

KYC: Why banks ask for your local sponsor documents to open a business account?

Q: Hi, I own a business in Abu Dhabi (a sole establishment) where I am the 100% shareholder as per trade license. The name of the Local Service Agent also appears on the Trade License as a Sponsor. The Local Service Agent is not an Owner, Partner or Manager. While opening a business account, the bank asked me for the passport copy and Emirates ID of the Local Service Agent, is that mandatory? As the Local Service Agent is not an owner nor a partner or a manager, why the bank cannot open a business account with just my personal details? A notarized Local Service Agent agreement was provided to the bank but they still insist on getting his passport and Emirates ID copies.

May 31, 2017

2676

Required documents to safeguard your investment in a civil company

Q: Hi Mam, What is the importance of side/investment agreement for a civil company?

Mar 29, 2019

441

Assistance with the side agreement while establishing an LLC

Q: Hi, I'm starting a food import company in mainland UAE where my Emirati partner (a close friend) will have 20% and I will have 80%. We're gonna take care of the company creation in DED and trade license application. At which stage are we supposed to draft the ''side agreement'' and sign the power of attorney? Can we create a company where I will have 49% of the shares and register it with DED and then draft the side agreement (80% - 20%) and power of attorney in a second step? Thank you

Apr 20, 2020

474

Possibility of changing the local partner shares and profits in an LLC

Q: Hello, Is it possible to amend an MoA after the LLC incorporation to reduce local sponsor's shares and % profit distribution? Is there any minimum amount for the local sponsor on shares to be held and % profit distribution? Thank you for your reply.

Jun 24, 2020

448

A side agreement as a valid document to protect the shares of a foreign owner of an LLC

Q: Is a side agreement considered a valid enough document to protect my company? I own a car rental company and, by law, I was told it has to be an LLC, so I brought a partner who is really a nice guy. I want to protect my business as I am the full owner and all the assets are mine; including the luxury cars, etc. I only give the sponsor a fee yearly. I’m worried if something ever happened to my sponsor, God forbids, what will happen? Can any of his family try to take his share even though the 100% company is funded and run by me but his share is 51% on papers only? Is the side agreement valid? Is there anything I can do to protect my whole 100%? Are there any documents I can make or use?

Nov 17, 2020

442

Signing an agreement to confirm investment until the company license is issued

Q: Dear Sir/Madam, I'm in the process of setting up a company, and I have an investor who will fund it. Until the company is officially formed, can I sign an agreement between myself and him as individuals to confirm his investment? This agreement would later be replaced (rendered void) by another one between the company and the investor once the license is issued. If this is possible, what is the correct format for such an agreement?

Dec 13, 2023

133

Legal blog

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Legal Aspects of Company Incorporations in the UAE

Sometimes this seems very simple to incorporate a company in the UAE, however, investors must seek professional advice before taking this important business decision to avoid any future legal implications.

Nov 1, 2016

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An Overview of the Legal Framework for Entrepreneurs in the UAE

Over the years the UAE has become a centre of trade and commerce for the Middle East, thanks to its strategic location, excellent connectivity and extensive services to assist with all aspects of business. According to the World Bank's 2016 report, the UAE has ranked 31st in the global index of ease of doing business. This encourages more entrepreneurs to set up different kinds of business entities in the country.

Mar 14, 2017

6325

Local Partner Share contribution in the UAE: What You Need to Know

For entrepreneurs seeking to set up their business in the mainland jurisdiction of the UAE, this is a useful guide to know your rights and obligations.

Jan 26, 2020

17686

100% Foreign Ownership of Companies in the UAE

The UAE government has announced important changes to the federal Commercial Companies Law, the most significant is related to the foreign ownership of mainland companies. This will grant foreign investors the full ownership of share capital in companies carrying out certain activities specified to that effect by the competent authorities. This means that foreign investors’ shares will not be limited anymore to a maximum of 49% like before, but can be up to 100% instead.

Jun 13, 2021

3111

Amendments to the UAE Company Law

An interview-format article covering the topic of the amendments to the company law in the UAE. This is from the legal podcast of lawyer Ludmila Yamalova, the founder of Lawgical with LYLAW.

May 24, 2021

743

Laws & Regulations

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Federal Law No. (2) of 2015 On Commercial Companies

The provisions of this Law apply to the commercial companies established in the UAE and the foreign companies that have established in the UAE a base to conduct any activity therein or established a branch or representative office. The Law abrogates Federal Law No. (8) of 1984 Concerning Commercial Companies.

Mar 25, 2015

29529

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