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Mistakes while setting company in UAE

Common mistakes made while setting up a company in the UAE

Setting up a business is not an easy task and hence, cannot be taken lightly. The process of converting an idea into action requires commitment, dedication, time, and money. The burden of things to be done and phases to be completed may be overwhelming for an entrepreneur; however, keeping the flow going leads to success. UAE, being an investor-friendly country and providing several business benefits, is an attractive location for entrepreneurs to set up a company.  

The business ecosystem comprising updated technological infrastructure and support, effective logistics, the banking processes, tax benefits, various free zones, and multiple business opportunities excites entrepreneurs and investors. Despite the thrill and excitement of setting up a company in UAE, there are also a host of challenges that may hinder the process. Below we discuss some of the common mistakes that one should avoid while setting up a business in UAE: 

Free Zone Selection 

mistakes while setting company in UAE: free zone selection

There are a number of free zones in the UAE. Each of them has a list of available packages providing different sets of benefits. The benefits include the size of the office, costs, availability of visa quotas, company registration support, and other features and benefits.  

The entrepreneur must go through the packages very carefully to select the right office size for their start-up. They must check the visa quotas for employees available free of cost and find out the additional cost for additional visa quotas required. The overall cost of the company registration package, along with the features, must be

checked and compared thoroughly to select the right one for your business.

Selection of the right bank 

The entrepreneurs must search for the right banking partner for opening an account and handling financial transactions. Before selection, the entrepreneurs must check the initial account opening charges, types of accounts available, limits, or any other restrictions, hidden or recurring charges, and any other requirements to be fulfilled. Entrepreneurs must choose the right bank based on their transaction frequency and business requirements.

Selection of the right bank

Selection of the right business license 

mistakes while setting company in UAE: selection of right business license

UAE offers a multitude of business license options. Entrepreneurs must select the one, which suits the business model of the company, the products and services to be offered, and the projected growth plan. Some license categories may have more benefits, but it might not be offering the same features when and if the start-up intends to increase its products.  

Therefore, entrepreneurs must review all these factors and choose the business structure and license that does not restrict their business strategies. Otherwise, it may lead to penalties, legal actions, or personal liabilities of shareholders.  

Selection of the right local sponsor 

In some cases, a local sponsor is a prerequisite before setting up a business in UAE, where the sponsor holds 51% of the shares in the company. The entrepreneur must ensure that the agreement is correctly written, read, and signed by the parties involved, and the structure is appropriately defined.  

Further, it’s in the interest of the entrepreneur to ensure that the partnership, ownership, and management terms and conditions are clarified; and resolution committee in the case of disputes, are identified. The agreement must specify the rights, duties, and responsibilities of all the shareholders of the company and must be in writing. 

mistakes while setting company in UAE: Selection of the right local sponsor

Compliance with employment laws 

The employer is required to obtain a valid work visa for an employee before starting work in the company. An individual is not allowed to work as an employee in a company if the employer has not submitted a ‘No objection Certificate.’  

Entrepreneurs must be careful that they do not violate any employment laws or agreements in the country, as it may lead to legal actions. Therefore, entrepreneurs must ensure that all their foreign employees have an employment visa and a valid work permit.  

Above are the common mistakes that businesses make when setting up a business in the UAE. We provide some other minor mistakes that companies must avoid for the survival and growth of their business in UAE: 

  • Just a bit of secondary research on the internet is not enough to set up a company in UAE; a consultant or professional advisor must be consulted before taking the plunge. 
  • Business transactions based on verbal contracts are not considered valid and binding; entrepreneurs must have written agreements with all the details and properly signed by the parties involved to avoid miscommunication or complications. 
  • Risk-mitigation measures must be put into place to account for any or all business risks that a company may face in the times of worst-case scenarios.  
  • Adaptability to the local way of doing business is beneficial for entrepreneurs. It means the company is making efforts to blend in the business culture of the UAE, thereby leading to higher receptiveness.  
  • Entrepreneurs must remain updated on the laws and regulations for company operations in UAE as they change often and may affect the company, employees, shareholders, or business. 

Thus, entrepreneurs must ensure that they are not making any of these mistakes and are ready completely to take advantage of the plethora of opportunities that the UAE offers. 

N R Doshi Loader
Company Formation Service

N R Doshi & Partners

NR Doshi & Partners offers company formation services to entrepreneurs in Dubai and other emirates of UAE. We provide the necessary guidance in the formation of a Mainland Company, Free Zone Company, and Offshore Company. Our guidance in finding a good location, finding a local sponsor, compliance with licensing procedures, opening bank accounts, and arranging work visas will give you the confidence to go ahead.  

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