UAE’s company formation process is known for being fast and straightforward. However, this is only the case if done with the help of a local expert.
In fact, the company incorporation process here is not without its complications. For those with the expertise to overcome them, it can be quick and painless. For those who are not aware of this, it can be a challenge.
One of the areas causing the most confusion is the issue of local sponsors. Traditionally, foreign entrepreneurs have always been required to work with a local sponsor in order to build a UAE business. The local sponsor will hold a 51% stake in the business, with the expatriate entrepreneur retaining the rest.
In recent years this rule has been relaxed somewhat. However, sponsors are still required in some cases. These sponsors can be either local individuals or corporate entities. Corporate sponsorship is often the best option for a professional and safe process.
What is Corporate Sponsorship in Dubai, UAE?
Sponsorship in the UAE is the process whereby a local business or individual holds a 51% stake in an organization. Sponsors generally have no role in decision-making and do not receive a share of the profits. They are usually paid a fee for their service. This was traditionally the only way for non-GCC nationals to operate businesses in the UAE mainland.
Corporate sponsorship is where a UAE-owned and -registered company, instead of an individual, holds a 51% stake in your business. Again, the sponsoring company does not take a share of the profits or exercise control over the business. Corporate sponsors are paid an annual fee for this service.
Personal sponsorship is very similar, however, in this case, it is an individual Emirati citizen who holds a 51% stake in your business. Individual sponsors must be professionals, UAE government employees, or UAE business owners.
While personal sponsorship is often the cheaper option, it does not provide the same protection as the corporate option. To ensure a smooth process, legal clarity, and complete control over your business and its profits, it is always advisable to work with a corporate sponsor. With a corporate sponsor, long-term protection can be put in place to protect your profits, assets, and administration and decision-making powers, allowing you to remain in complete control of your business.
Do you need a local sponsor to do business in Dubai, UAE?
Whether or not you need a local sponsor will depend on a number of factors, including your nationality, your license type, and the industry in which you want to do business. If you are a non-GCC citizen looking to set up a UAE mainland LLC with a commercial or industrial license, you may need to obtain the services of a local sponsor.
However, if you want to do activities in any of the following industries, you will definitely need a local sponsor:
Oil exploration and production
The investigation, security, and military (including the manufacture of military weapons, explosives, clothing, and equipment)
Banking and Financial Activities
Insurance
Pilgrimage and Umrah Services
Some recruiting activities
Water and electricity system
Fisheries and related services
Postal, telecommunication, and other audio-visual services
Road and air transport
Printing and Publishing
Commercial agency
Medical retail (including pharmacies)
Blood Bank, Quarantine, and Venom Bank
If your chosen activity is not on this list, 100% company ownership is possible. However, it must be approved by the Foreign Direct Investment Unit and the Foreign Direct Investment Committee.
What are the benefits of Corporate Sponsorship in Dubai, UAE?
If your business needs the services of a local sponsor, there are many good reasons to choose a corporate over an individual. The main advantages of corporate sponsorship include:
Streamlined Process: Securing the services of a local sponsor can be an involved undertaking. For this reason, it is advisable to partner with a corporate sponsor who will have processes in place to ensure the process runs as smoothly as possible.
Zero Interference: While most sponsors don’t want to be involved in the day-to-day operations of your business when working with an individual, there’s no saying that this won’t change later. Corporate sponsors, however, will never be involved in the running of your business, allowing you to retain complete control over your employees, customers, offerings, and future direction.
Financial Guarantee: As your business becomes more profitable, an individual sponsor can claim a more significant share as payment for their services. A reputable corporate sponsor, on the other hand, will charge a set annual fee, allowing you to keep 100% of your profits.
Clear succession planning: In case an individual sponsor passes away or chooses to retire early, their shares in your company are automatically passed on to their successors. This can be mitigated through succession planning, although such procedures are not always legally correct and can be costly to set up. As a company cannot die or retire, you have no such concerns with corporate sponsorship.
Legal protection: Entering into a business deal with someone you don’t know can be risky, even if you think you have adequate legal protection. When you work with a corporate sponsor, you have the peace of mind of total legal protection. Reputable corporate sponsors will only work on contracts drawn up by first-class legal counsel, meaning your shareholder rights will be protected now and always in the future.
The disadvantage of Corporate Sponsorship in Dubai, UAE
Sponsorships are such great opportunities for small businesses and offer many advantages, but that doesn’t mean there aren’t some disadvantages to keep in mind. For example, some sponsorships come with specific requirements (for example, a sponsored athlete is expected to wear your logo at all times) or agreements that expire after a certain time period has elapsed. Some other examples of potential disadvantages include high costs (sponsorship can be expensive) and sponsor expectations that may not align with your brand values.
It is considered expensive:
You wouldn’t be alone in believing that while corporate sponsorship is such an easy route, it must be expensive. However, this is not always the case. When it comes to personal sponsorships, some entrepreneurs report being hit with hidden costs and unexpected fees after signing an agreement. The corporate route provides transparency and clarity from the very beginning.
When does Corporate Sponsorship fail?
Business can go wrong when it comes to corporate sponsorship in Dubai. Companies may back out of deals if they feel they are being used to advertise products, or if other reasons arise. If a deal doesn’t work out, either side can back out – something that can cause a lot of problems in a sensitive industry. Although sponsorships and endorsements are valuable, sometimes the thought of a deal can be too much to bear. When companies become involved in politics, the arts, or other important aspects of society, even if they have no interest in such things themselves, this can create a conflict of interest. The very nature of this relationship creates some inherent risks.
Corporate sponsorship in Dubai business, or any other type of sponsorship for a cause, can be a great tool to help raise funds and awareness. But it’s important to understand the legalities involved, especially when things go wrong. It is not uncommon when sponsorships do not work out in Dubai or elsewhere due to creative differences.
What do the donors wish?
Corporate sponsorship is the most common type of business relationship, a sponsor may pay for the use of their corporate logo and promotional materials with their message on it, or promotional or advertising support in exchange for sharing sales revenue with them. Can provide.
Conclusion
Corporate sponsorship is essential for setting up an LLC company in Mainland Dubai. On the other hand, choosing the right local corporate sponsor is a difficult task. But there is no need to be worried if the right corporate sponsorship service is selected.
Corporate sponsorship may be viewed by some as sponsorship at best and advertising at worst. The details of the deal and the objectives of both parties need to be worked out very carefully before the deal becomes official.
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