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Avoid Common Business Setup Mistakes

How to Avoid Common Business Setup Mistakes in the UAE?

Many entrepreneurs, both nationally and internationally, are drawn to the UAE to start their businesses. Due to a range of opportunities, the UAE is a prime location to fulfill business ambitions. However, many entrepreneurs assume that once they have their business license, the remaining requirements are straightforward. This is not the case.

UAE Company Formation

Indeed, obtaining a commercial license is usually the quickest part of the process. This is often followed by the challenge of opening a corporate bank account. Setting up a business in the UAE comes with many requirements that might not be evident at first glance. Company formation in the UAE is accompanied by a complex regulatory landscape and distinct rules that vary in scope.

It’s vital to consider how to address these requirements. It’s not just about understanding the critical aspects of company formation but also recognizing the importance of consulting a lawyer. With proper legal support, your business setup can be smooth and swift. To navigate the requirements and ensure your company formation in Dubai is as straightforward as possible, keep three main points in mind:

  1. Understanding Company Jurisdiction in the UAE
  2. Defining Business Activities
  3. Establishing a Clear Shareholder Profile

In the following sections, we’ll guide you through common mistakes we’ve seen during our work with business owners setting up their enterprises. We’ll also discuss the value of hiring a lawyer, explain how LawBridge offers individualized legal advice, and show you that a hassle-free business setup is achievable with the right knowledge and legal guidance. This ensures that your business setup aligns with regulations and is consistent with your business goals.

Selecting the Right Jurisdiction for Your UAE Business

One of the most common mistakes we see at LawBridge is that business owners do not take enough time to consider the jurisdiction of their business. What do we mean by jurisdiction? It’s the place where your company will be physically located and registered in the UAE. Here, you have two general options – you either choose a jurisdiction within the Mainland of UAE or within the Free Zones of the UAE.

Don’t forget to check the difference between a Mainland License and a Free Zone License

If you opt for the Mainland, there are certain considerations:

  • As a foreign business owner, you need a UAE national who holds at least 51% of your business shares.
  • There are no visa restrictions for the owners.
  • The business can directly participate in the UAE market, among other factors.

Conversely, the UAE boasts over 40 free zones where entrepreneurs can obtain business licenses. Each free zone has its distinct regulations, benefits, and processes. However, common features across free zones include:

  • Retaining 100% ownership of your business.
  • Tax-free operations for a specified duration.
  • Full repatriation of profits.
  • Streamlined registration and licensing processes.

Nevertheless, some banks in the UAE are wary of certain free zones. This can complicate the process of setting up corporate bank accounts if the jurisdiction is not chosen wisely.

Identifying Suitable Business Activities in the UAE

After deciding on the jurisdiction, the next step is to select the activities under which you’ll register your business. In the UAE, especially in free zones, entrepreneurs often receive a list of activities to choose from. It’s crucial to consider your selection carefully, ensuring you operate legally within the framework provided by the licensing authority. Some free zones are tailored for specific activities and offer benefits for businesses in those sectors. The choice of activities can also influence visa allocations, office space requirements, and other business setup procedures.

Moreover, some activities carry inherent risks that can hinder the opening of a bank account. While obtaining a license for these activities might be possible, opening a bank account might not be.

Case Study: Opening a Corporate Bank Account

For example, at LawBridge, a client sought our assistance to open a corporate bank account. Upon reviewing the registered activities, we noticed he had selected a high-risk trade license. We advised a change, which, although it incurred additional costs, enabled him to eventually open a bank account. To prevent such issues, we recommend seeking professional guidance.

For businesses venturing into multiple activities across different categories, it’s vital to ensure all activities are listed on their license. Should there be any changes to the business’s services or products, the license must be updated accordingly.

Certain activities in the UAE necessitate additional government approvals. If you’re considering such a business in the UAE, it’s essential to familiarize yourself with the government’s requirements. Given the intricate nature of this process, consulting legal experts can be beneficial.

Preparing Your Shareholder Profile for the UAE Market

The last critical aspect we’d like to highlight is the importance of having a comprehensive shareholder profile ready. When applying for a corporate bank account, banks require proof of capital. It’s imperative to be transparent about the sources of your funds, be it from businesses or investments, either within or outside the country. If you’re an employed individual looking to start a business, prepare to present bank statements from the last six months, validating sufficient savings to establish a company in the UAE.

Ensuring Compliance with UAE Business Laws

Lastly, businesses must adhere to all relevant laws and regulations in the UAE. This encompasses registering the business with the Ministry of Economy, obtaining a trade license, and complying with Labor, Immigration, Federal Tax Authorities, and Anti-Money Laundering regulations, among others.

How our Law Firm Assists in Streamlined UAE Business Setup

As you’ve likely deduced, starting a business in Dubai or the UAE is intricate. However, LawBridge is here to guide you through every step, ensuring a seamless company formation process. The legal aspects of the UAE can be perplexing, but with our assistance, you can concentrate on core business operations.

We are one of the best law firms in Dubai UAE, a team of government-licensed lawyers committed to minimizing risks associated with your business setup. With LawBridge’s expertise, you can remain focused on your primary business endeavors. If you’re seeking expert, professional legal assistance, consider booking a free consultation with a legal specialist at lawbridge.ae

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