UAE is one of the most investor-friendly locations in the world. With a host of business benefits and cost-effective Company Formation packages, UAE is an attractive location for company setup.
Why is UAE the investor’s favorite choice for Company Setup?
The ample choice of business activities, technology infrastructure, banking, logistics support, and Government policies are providing the required ecosystem for the businesses to flourish in the UAE.
As an entrepreneur setting up a business in UAE, there are certain parameters to consider to ensure you have a hassle-free company formation and a successful continued business operation in the region.
9 Common Mistakes made while setting up your Company in the UAE
Here are 9 Common Mistakes made while setting up your Company in the UAE.
1. Not choosing the right Free Zone, Company Activity and Business License
Choosing the right Free Zone, Company Activity and Business License is a very crucial step in Company Formation in UAE.
The future of the company lies in selecting the right parameters for the continued business operation.
All commercial activities in the UAE need a license issued by the concerned regulatory authority.
Solution: Ensure the right Business Activity and Business License is chosen
UAE offers various options for business incorporation. There are specific free zones of specific business activity.
Also, there are specific business licenses to be obtained for carrying out business in the UAE.
Choosing the wrong business structure and operating without required licenses will result in penalties and blacklisting of the company.
2. Violation of Employment Agreements
An individual while working for a company is not legally permitted to open a business in UAE unless the employer has provided a No Objection Certificate for the same.
Also, new businesses have to be compliant with the employment laws in the UAE. Employers are not allowed to employ people with Visit Visa at any instance.
All the employees must be having a valid work permit and employment visa.
3. Improper Legal Agreements with Local Sponsor
When it comes to mainland company formation, one must look for a local UAE national sponsor for the new company setup.
The UAE local sponsor will be holding 51% of the company shares. The shareholding agreement must be recorded with proper legal structure.
Solution: Prepare a Legal Contract with all Partnership & Other Management Clauses to protect you from any dispute
All partnership clauses, other management, and ownership terms must be included in writing.
It will protect you from any dispute regarding the shares and the smooth functioning of the business.
Prepare a Notarized legal contract with all the information on shareholding, mutual responsibilities, and other business management terms.
The complete agreement on each other expectations has to be recorded clearly to avoid any further dispute in the courts.
4. Not choosing the right Free Zone Company Registration Package & Checking on the available Office Spaces
Freezones have a wide range of office choices. Ensure you check the availability of your desired office and not end up spending more for bigger sized office space due to unavailability.
Also, ensure you have ample visa quotas for your employees and room for expansion. Most of the starting packages are of one visa quotas. Adding more visas will require extra payments etc.
Solution: Choose the right Free Zone Company Registration Package & Check the available Office Space
Ensure you have a clear understanding of the company registration packages of the selected Free Zones.
Also, the available visa quotas with your license, additional fees for adding new visa quotas as well as the available office space.
As depending on the Square Feet, the Office rates will vary. Have a clear check on the overall cost of company registration to avoid unexpected expenses on the go.
5. Opening a Bank Account for Business without checking the Bank Charges
The Bank fees are a significant amount especially for start-ups and newly formed companies. Confirm with the bank authorities on all hidden charges and requirements beforehand.
The investor has to choose the Bank according to their business requirements and activity. Banks in the UAE have various charges for transactions, Credit/Debit cards, Checkbook, Foreign Fund transfers, etc.
Hence while opening the Corporate Bank Account, ensure you are aware of all the recurring and hidden charge the banks will be charging from you.
6. Lack of Agreements or Signing Unenforceable Contracts
Businesses are often done on trust and verbal contracts. However, in case of any future dispute, it becomes challenging to prove the statements.
So, the most reliable and legally bound form of contract is written form.
Many of the start-ups and newly formed companies go for readymade contracts from the internet or their business network.
It helps to save legal & notarization costs in drafting new ones but prevents getting the right legal protection through notarization of the contracts.
It is best advisable to have a legal contract newly created with the assistance of a legal expert for your company and not go by standard template-based contracts to avoid any long term risks.
7. Relying Solely on Information Available on the Internet
There is an enormous amount of information available online on company formation, various licenses, business setup packages, etc.
For building awareness and get a basic understanding of the company formation process, the online information will be of great help.
It is best to get in touch with an expert business consultant to have a hassle-free company set up in the UAE.
Often there can be outdated information sources on the internet that would not give you the right facts.
Why Choose the right Business Consultant for Company Setup in UAE?
So before you signup with any consultant or online company setup package, ensure the credibility of the Consultant or the website.
Contact them and physically visit them as company formation is a long-term engagement with your consultancy.
Benefits of having a Business Consultant for Company Setup in UAE
Your Consultant will be playing a vital role in not only for company formation and obtaining your trade license.
As your progress in the business, any additional requirements related to company formation, administrative, and accounting, you can rely on your business consultant’s assistance.
Business Consultants come handy for a lot of business support & advisory services such as:
- Adding new Business Activity & Visa quotas
- Opening a new Branch
- Banking Assistance
- Approvals from Government Authorities
- Shareholder Agreements
- Legal Translations, VAT & Accounting
- Company Dissolution
- and more…
8. Planning for Worst-Case Scenarios
Risks for business cannot be avoided but can be mitigated to a level by signing up for insurance or through a well-documented legal contract.
Planning for the worst-case scenarios could help in risk mitigation at the event of any unavoidable circumstances for the company and business owner.
Hence, companies registering in the UAE must have a clear exit strategy in case of any unexpected event of failure to avoid legal consequences and bankruptcy.
9. Not Registering Intellectual Property
Intellectual Property (IP) is a very important aspect of new business for branding and marketing purposes.
It will help in future economic benefit to the business owner. All the business assets could be secured by intellectual property rights.
The marketing and branding assets such as websites, a company logo. colors and fonts, business proposal documents, other business documents, etc., could be saved from copying and re-using without permissions.