A major hub of entrepreneurship in the Middle East, the United Arab Emirates (UAE) has become a home for startups of all kinds. In 2016, the country took the 19th spot on the Global Entrepreneurship and Development Index (GEDI) report of the best entrepreneurial ecosystems. It is no wonder, then, that budding entrepreneurs from across the globe have been flocking to the UAE to establish their startups.
However, becoming a business owner in the UAE can be quite a feat, particularly if you are a foreigner. As per the laws of the country, you can establish your company in only one of two ways. The first option is to set up your business in one of the UAE’s many Free Zones, which include the International Media Production Zone, the Jebel Ali Free Zone, and Dubai Internet City.
Aside from this option, you may elect to establish your startup on the UAE mainland. This requires you to undertake a more lengthy process of registration through the country’s Department of Economic Development. Among the numerous steps that you must complete to open your business on the mainland, you are required to find a sponsor. The person must be either a native of the UAE or a UAE national who will work for your startup as a type of service agent. Moreover, your sponsor will assist with paperwork by representing your business during relations with government or ministry entities.
If you plan on enlisting the help of a sponsor when establishing your startup in the UAE, then you will need to know exactly how the process works and how to navigate the challenges that may arise. Here are a few of the most important things that you need to know about working with a sponsor for your UAE startup.
Your sponsor must be a majority stakeholder in your startup.
As per Emirati law, the local sponsor whom you choose to work with must be a 51 percent partner in your startup and receive an annual fee from you. While not having majority ownership of your own startup may not appear to be ideal, this is not always a negative aspect of business ownership. Working with a sponsor does not always mean that you cannot be your own boss or run your startup in the way that you want.
It is uncommon for UAE sponsors to engage with the businesses that they support. While you should always keep an open mind if your sponsor wishes to share business ideas, you should not expect them to be closely involved. It is far more likely that your sponsor will be a “sleeping partner” in your startup.
As such, you should also not worry that your sponsor will fire you from your startup. Similar to the attitude that they have toward active contributions, UAE sponsors typically do not become so closely involved as to remove their partners from their businesses. You should not completely rule this out as a possibility, however. If you are worried that your sponsor will unexpectedly try to take control of your startup, you should make sure to come to an agreement in writing to protect yourself.
There are several different types of sponsorship.
When you are searching for a sponsor, you will typically find candidates who fall under one of three major categories. The first, individual sponsorship, entails partnership with an Emirati national who is normally either a government employee or another type of professional. This sponsor does not need to be a business owner in the same domain as your startup. This type of partnership is most beneficial if you are looking to open a limited liability company or trading business.
Moreover, local service agent sponsorship is the right choice for your startup if you are looking to share professional expertise with clients in any capacity. Whether you are an artisan or an engineer, you will need a local service agent to represent your startup during meetings with government entities. Although this sponsor will not be a 51 percent shareholder of your startup, he or she must still receive an annual fee. You can determine this based on such factors as their role within the business and their social standing in the UAE.
Corporate sponsorship is the third major type of business partnership in the UAE. Unlike with an individual sponsorship, your startup will receive support from a UAE national company. In return, the company will own 51 percent of your business’ shares. This form of partnership can be just as beneficial as individual sponsorship, if not more. Corporate sponsors will be less likely than their individual counterparts to want an active role in your startup. Moreover, these sponsors are typically well established in the region, making them a more reliable choice for your business.
You will need to draw up a contract.
For those initiating sponsorships in the UAE, it is common for their contracts to entail a verbal agreement with accompanying minor documentation. However, this is not always the most reliable option if you are looking to enter into a trusting partnership with your sponsor. Verbal agreements are not always capable of holding up in court should anything go awry during your sponsorship. If you are hard-pressed to develop one of these contracts, then you will need ample evidence to verify its legitimacy.
Otherwise, you should always draft a thorough contract with your sponsor. This will not only protect you during professional disagreements, but it will also establish safeguards against suspicious additions such as hidden fees.