19th January 2016
1. DO YOU NEED TO SET UP A BVI HOLDING COMPANY?
Many company founders elect to establish an offshore holding company in common law jurisdictions such as the BVI.
There are several possible reasons for this, including a quicker (and less expensive) share transfer process, asset security, and a more reliable system for the operation of employee share options.
Many institutional venture capital investors will require certain legal protections, available under BVI law but not commonly available in the UAE. such as the allocation of preference shares and a viable insolvency process.
2. IS A SHAREHOLDER OR FOUNDERS AGREEMENT NECESSARY?
It is always advisable to have the rights and obligations of founders set out clearly in a simple, legally binding document, to avoid uncertainty and potential disagreement. This document will address a number of key issues, such as share vesting periods, good leaver/bad leaver termination events, and a basic decision-making process.
When investment funding rounds occur, a longer-form shareholders agreement will be typically required, addressing board composition, decisions reserved for investor consent (‘reserved matters’), and rights of first refusal on share transfer or issue of new shares.
3. SHOULD THE UAE COMPANY BE BASED ONSHORE OR OFFSHORE?
Whether a business is more appropriately established in one the many free zones in the UAE, or as an ‘onshore’ LLC will to a large extent depend on the operational needs of the business.
Usually, companies intending to operate throughout the applicable Emirate will need to form a LLC with a local partner.
Companies that are chiefly operating online or dealing in intangible assets such as intellectual property are able to consider a free zone-only structure.
Advice should be sought at the outset of the UAE company formation process to avoid unnecessary costs and delays.
4. SHOULD I HIRE EMPLOYEES OR FREELANCERS?
The needs of a business will determine whether a short-term engagement with a freelancer or the continuity of a permanent staff is more appropriate. These two distinct methods of hiring individuals are addressed very differently under UAE law, and legal advice should be sought in particular with regard to an employer’s statutory liabilities.
In both cases, management will need to ensure that the individuals making a contribution will be bound by terms that protect long-term business interests, such as formally assigning all intellectual property, keeping sensitive matters confidential, and undertaking not to benefit direct business competitors.
5. WHAT OTHER LEGAL SUPPORT IS REQUIRED?