Why having a Corporate UAE Shareholder is beneficial for share transfers
What is a corporate shareholder?
In the UAE you can opt to have a corporate partner or sponsor rather than an individual. In the case of a corporate shareholder, a 100% UAE owned national company (Local Sponsor) holds a 51% share in the mainland LLC company and the remaining 49% is owned by an individual, corporate or group of foreign investors. In this type of sponsorship, the business is sponsored by a company, rather than an individual.
The same is true when the local partner is acting as the National Service Agent (NSA) or Local Service Agent (LSA) for Foreign Branch or an Establishment.
Why is it beneficial to have a corporate shareholder/sponsor?
Having a corporate shareholder as a sponsor is advantageous specifically to protect the 49% shareholder’s interests, specifically related to succession protection; ease of exit/share sale; more robust legal protective documents; PRO support and overall reliability.
What is a share transfer?
The shareholders of a Limited Liability Company (LLC) each own a percentage of the business, if they want to sell the shares or change the percentage of ownership or add new shareholders the process of transferring shares already in existence is known as a Share Transfer.
To ‘change local partner’ this involves a share transfer of the 51% of the shares to a new local partner. Currently under UAE law 51% of the shares of an LLC must be held by a Local Emerati National or a 100% Owned Emerati company – so the 49%:51% shareholding ratio must be maintained. Note that the new FDI rules will allows applications to apply for a higher percentage of forrign ownership – please see our FDI article for more information: FDI UAE
Why would a share transfer be required?
There are many circumstances where a share transfer is required, this includes; a shareholder leaving the company, a new shareholder is invited to join, the death of a shareholder, the whole company is sold to a new owner, transferring of shares to existing shareholders.
What is the legal process for a share transfer?
Below is a step by step guide of how a share transfer is executed regardless of the reason of the transfer of shares:
Step One: Draft a Board Resolution (BR) or Shareholder Resolution (SR)
A Board or Shareholder Resolution and Power of Attorney from the board of the LLC or the shareholders in the LLC is required. If the Shareholders are themselves corporates then and BR / SR from the parent companies is also required. The following documentation is required to complete this step:
- Parent company(s) Certificate of Incorporation
- Parent company(s) Memorandum and Articles of Association
- Certificate of Incumbency
- Memorandum and Articles of Association of the LLC
- Trade Licence of the LLC
Foreign Company documents will need to be Attested in the Foreign Country jurisdiction through the UAE Embassy and through the Ministry of Foreign Affairs (MOFA) in UAE.
- Step Two: Complete the Application Form to the DED
A DED application form needs to be completed in Arabic, the buyer, the seller and the manager of the LLC company must sign the document and must it be sealed with the LLC company stamp.
- Step Three: Submit the Application Form to the DED
Once the application form has been submitted to the DED along with the required supporting documents (mentioned below), you will wait for initial approval from the DED which normally takes 1 to 8 business days.
Documents required for the buyer/seller (corporate):
- Completed DED Registration and Licensing application form
- Trade Licence/Certificate of Registration copy
- Memorandum of Association
- Articles of Association copy
- Notarised board/shareholder resolutionDocuments required for the buyer/seller (individual):
- Passport copy
- Emirates ID copy (if a UAE resident)
- Details of the Unified ID Number (UID)
- Step Four: Prepare Required Legal Documents
A short-form Share Transfer Agreement (STA) and an Amendment to the Memorandum of Association (AMOA) of the company will need to be prepared. This document must be in Arabic or be bilingual, if bilingual, the document must be attested by a legal translator and stamped by the Ministry of Justice.
- Step Five: Execute the Share Transfer
The Share Transfer Agreement will need to be executed before the Notary Public – signed by all parties.
- Step Six: Submit the Share Transfer Documents to the DED
Once the Share Transfer Agreement has been notarised, this along with the initial DED approval and supporting documents should be submitted to the DED.
- Share Transfer Agreement (STA) – Signed by all parties
- Amended Memorandum of Association (AMOA)
- Incoming and exiting Shareholder(s) IDs / Corporate Documents and POA
- Parent companies Trade Licences
- Step Seven: Advert to be Placed for 14 Days
Once you have submitted the Share Transfer documents to the DED, you will receive a DED Authorization letter which should be used to place an advert in the Gazette for 14 days publicising the change of shareholder(s). The 14 day Gazette period is only a requirement in Abu Dhabi and other Emirates, not in Dubai.
- Step Eight: Apply for an Amended Trade Licence from the DED
Once the fees are paid, and all approvals are in place you need to apply for a new trade licence which includes the new shareholders or change in share holding capacity.
- Step Nine: Amend other licences
Once the DED Trade Licence has been updates then the LLC may need to update the other licences for the LLC – particularly Ministry of Labour (MOL), Immigration (MOI), Ministry of Economy (MOE) and Chamber of Commerce. Other Licences and regulatory bodies will also need to be notified and updates as will the bank and potentially other counterparties.
How can PRO Partner Group Assist?
PRO Partner Group can facilitate transfer of shares within an LLC - facilitating the change of a foreign shareholder or the local shareholder - it is a straightforward process.
Additionally PRO Partner Group provides a Corporate Nominee Service where we can become the secure corporate 51% shareholder allowing us to undertake the share transfer process. PRO Partner Group provides comfort to the foreign investor by providing, full management control and a no penalty exit / sale / transfer clause and full transparency should the Foreign partner will to change to a new partner in the future, or if through FDI regulations the Foreign partner is able to hold more than 49% of the shares.
For more information on Corporate Sponsorship and Share Transfer please contact a member of the team on firstname.lastname@example.org in Abu Dhabi +971 (0)2 448 5120, or Dubai +971 (0)4 456 1761, or contact me Greg Hastings direct on email@example.com or +971 (0)56 991 1278.
Why having a #Corporate #UAE #Shareholder is beneficial for share transfers https://t.co/RIt3Y6PZNQ— PRO Partner Group (@PROPartnerGroup) July 21, 2019