There are two options for opening a business in Dubai. The first one is to open a free zone company that will give you 100% ownership of your business, but you will be having restrictions for doing local business. The second option is to open a mainland company, for that, you will require a local sponsor who will own at least 51% of your company.
By opening a mainland company in Dubai, you will be having the advantage of doing business with local mainland companies, bidding on government projects, taking advantage of personal taxes and offering more visas to your workforce.
For a company formation in Dubai, we should find a trustworthy sponsor who will not exercise his authority to manipulate your business.
Below are three scenarios where your sponsor can hurt your cause :
Obtaining a DED mainland license
We will only focus on the vulnerable areas where your local sponsor can cause delays in the process of registering the company. Obtaining a DED mainland license requires the signature of your local partner. You can have an idea of how much authority he will be having in affecting your business matters.
You will be entirely powerless if your local partner does not appear to sign the papers. It is plausible to hire a trusted local partner who remains present on your needs.
A sponsor claims ownership of your company
This is a nightmare scenario for entrepreneurs when their local sponsor attempts to claim the full ownership of your business. It is doable and it has happened in few cases where the local partner has tried to take the ownership. However, there are ways to avoid this scenario.
In the start of company formation in Dubai, entrepreneurs are over excited and become desperate to hire the sponsor. In this desperation, they only make a verbal contract which has no legal standing. Relay on making a verbal contract with the local sponsor. Verbal contracts have no legal status unless it is supported with documentary evidence. It is therefore recommended to make a proper contract with the local sponsor so that you could protect yourself if he makes a malicious attempt.
The sponsor Disappears
You don’t only need the sponsors for one time to sign your company registration documents. Sponsors have authorities, and therefore you require them time and again for signing up different documents for different purposes. You might lose your business project if you are required to submit a document which require his signatures and he does not appear before the deadline. Or you can miss an opportunity to bid against a government assignment just because your sponsor is disappeared and you can’t trace him.
Most of the forms and agreements are in the Arabic language. If your local partner is credible, then he can help you proceed with the legal requirements as well.