Q: I have signed 5 years ago a side agreement when forming a Dubai onshore LLC trading company. There is no termination clause. Do I have any recourse to enforce a change of sponsor… A: Only an LSA (Local Service Agent) can be changed in a professional license. For an LLC the 51% is a 51% partner…

Dubai, UAE

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The legal way of changing the local partner in an LLC

I have signed 5 years ago a side agreement when forming a Dubai onshore LLC trading company, and I now realize that there is no termination clause.

One clause says that the contract is signed for 10 years and that it will be renewed after 10 years. As a result, the company who provided me with the local sponsor wants to charge me a hefty "penalty" for agreeing to change the sponsor.

Besides, they are holding all details (online access codes and password) to deal with the Ministry of Labor. So I have no liberty to change the sponsor unless I pay them a lot of money.

I am bound with them because only they can properly cancel my employees' visas if I wanted to recreate a new company.

Are such indefinite and abusive side agreements legal?

Do I have any recourse to enforce a change of sponsor without paying the "penalty" they are requesting?

Thanks

Nikhat Sardar Khan

Kochhar & Co Inc. Legal Consultants (Dubai Branch)

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23 Dec 2018, 20:32

People have a misconception that by signing a side agreement a 51% partner under the law, under the memorandum, under the trade license should be considered a "sponsor" who can be changed anytime.

Unfortunately, it is not true. Only an LSA (Local Service Agent) can be changed in a professional license but for an LLC the 51% is a 51% partner.

The side agreement is illegal under the Federal Law number 17 of 2004 concerning Anti Fronting Law which aims at prohibiting the use of side contracts or nominee agreements with the UAE nationals.

The only way is to buy the shares or sell the shares.

24 Dec 2018, 02:57

Thank you Nikhat for your answer.

As the Managing Director of the company (as is clearly specified in the company's Memorandum of Association), I wish to gain control over the issuance and cancellation of visas of my employees.

Can I legally obtain that ability from the Ministry of Labor by showing that I am the managing director?

Currently, the sponsor company holds all access to the Ministry of Labor online portal, under the name of the 51% partner.

24 Dec 2018, 08:01

Do the powers mentioned in the MOA grant you the powers to employ staff and apply for the visas?

If yes, then with the same you can go to the Ministry to change the access password and login details.

Normally, the task of applying for a visa is that of the local partner unless he issues a POA to you to the same along with the access details.

If the same is not possible, then set up a new company.

24 Dec 2018, 09:25

Thank you once again Nikhat.

As per the Memorandum of Association, the powers of the Director(s) include the following:

1. To represent the company at all the government and semi-government departments, ministries, all companies, establishments or any other business houses and sign all the relevant documents, papers, contracts, tenders with or in front of them.

2. To appoint and remove/dismiss employees...etc.

Is that good enough?

24 Dec 2018, 13:24

Looks good. You may try. No harm.

24 Dec 2018, 14:27

Once more, many thanks Nikhat. You have been very helpful!

24 Dec 2018, 14:50

Most welcome.

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Anitha Rajeev

Al Nassar Advocates & Legal Consultants

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25 Dec 2018, 12:41

Dear questioner,

Thanks for contacting online.

Since this is an LLC, what we call sponsor also is a shareholder in the company.

Changing the sponsor means the 51% shareholder should be ready to transfer his share in the name of another.

The terms of the MOU (side agreement) is good enough to the extent of the terms that are not covered as per MOA.

In order to give a clearer answer, the MOA and the side agreement is to be read in detail.

Please feel free to contact me on 0556635526 or WhatsApp me on 0508575526 or email me at ar@alnassaradvocates.com if you need any further assistance or clarification upon this.

Regards,

Anitha Rajeev.

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