In the United Arab Emirates, navigating business ownership requires a keen understanding of local legal frameworks. One such essential tool is the nominee agreement— a vital document for foreign entrepreneurs aiming to establish a presence in the UAE.
Under UAE law, foreign nationals can own up to 49% of a mainland limited liability company, with the remaining 51% requiring ownership by a UAE national. This legal framework necessitates the use of nominee agreements for many foreign investors, especially those whose business activities aren’t exempt from these rules.
A nominee agreement establishes a legal relationship where a UAE national, or an entity they fully own, acts as a nominee holding 51% of the shares on behalf of a foreign national. While the UAE national holds the legal title to these shares, the foreign national retains the beneficial interest, allowing them to maintain operational control of the company without interference from the local shareholder.
The nominee agreement outlines the rights and duties of both parties, including details such as the transferability of shares, company management, and dividend distribution. These agreements are not a mere formality but a critical component for legal protection and operational clarity in the UAE market.
Typically, the nominee, also known as a local sponsor, receives a fixed fee annually as per the agreement. This fee compensates them for holding the shares without claiming any benefits associated with share ownership. The principal—a foreign national or entity—retains the beneficial interest and control within the company.
A principal must ensure that the nominee agreement is comprehensive, covering crucial elements like personal information of both parties, commencement date, and financial arrangements. It’s essential to define the beneficial interest clearly to avoid any legal ambiguities.
Recently, amendments to the UAE Commercial Companies Law have introduced more flexibility, allowing 100% foreign ownership in certain sectors. However, for activities still under the 49% ownership cap, nominee agreements remain indispensable.
Entering into a nominee agreement also includes provisions for power of attorney, empowering the foreign national to manage company affairs fully. This agreement mitigates risks by clearly defining each party’s rights and responsibilities, providing business owners with peace of mind.
Navigating the business landscape in the UAE requires understanding complexities like nominee agreements, which are fundamental to successfully establishing foreign ownership in compliance with local law. Ensuring clarity and thoroughness in these agreements is crucial for long-term success.
Source: Legalinz
