Hardly does it matter if you have all the resources, a game-changing innovation and a great team, if you are not duly aware of legal procedures and documentation involved in setting up and operating of a successful business. Suzanna Kalendzhian, Founder of LegalAdviceME, the first online legal services marketplace in the region, points out to certain considerations startup founders need to keep in mind before taking the leap of establishing their businesses.
Launching a startup is never an easy task with much planning involved from the creation of a business idea to setting up a physical office, and finally to establishing the brand as a significant player in the industry. The basics of entrepreneurship remain the same internationally, while the differences arise from the business practices specific to the selected region and the laws that govern it. This applies to the UAE as well, wherein the entrepreneurial environment and legal framework create a positive outlook for emerging startups in the region.
Starting up a new business in the UAE, entrepreneurs face numerous choices to be made. Founders have to choose the right location and form of the company, structure a company and its ownership, employ people, enter into contractual arrangements with customers and suppliers, resolve disputes, and so on. Understanding of the UAE legal framework may considerably help entrepreneurs to make right decisions and future-proof their startups.
Peculiarities of the UAE legal system
The UAE legal system is the backbone to rules and regulations that need to be followed by entrepreneurs while setting up a business. The UAE is predominately a civil law jurisdiction which is influenced by French and Egyptian law. It also follows the principles set out by the Islamic Sharia Law, which governs such aspects of life for Muslims, as personal matters and morality. Notwithstanding the importance of Sharia Law, it is important to note that its application in the UAE is limited to:
- personal matters (e.g. divorce, wills and inheritance)
- commercial matters expressly covered by the Sharia (e.g. Islamic banking)
- issues when there is no specific legislation on a subject
Being a federation composed of seven member emirates, the UAE have federal and local legislation. Federal laws and regulations are applicable to the country as a whole across all the emirates while local laws and regulations govern matters not covered by the federal legislation within an individual emirate. Major sectors such as immigration and labour relations are governed at the federal level, however, licensing of businesses is largely governed at the local level by relevant local authorities.
The legal framework for commercial activities in the UAE is established on a federal level, with each emirate exercising a tailored set of rules and regulations within its respective territory. Commercial companies operating in the UAE are required to establish a formal legal presence and be licensed. Some licenses require prior approval from certain ministries and other authorities such as the ones for banks and financial services providers, or law firms, or pharmaceutical products manufacturers.
Commercial licenses are specific to the proposed activity and location of the business, never being generic. For example, a licensing permit issued for a business venture in Dubai does not by default permit the business to be conducted in the emirate of Abu Dhabi. Therefore, selection of the location for a new business entity is one of the key considerations for startups in the UAE as it determines which legal authority to turn to for registration procedures.
In the next episode, we will talk about the different types of companies and free zones.