Start me up

zoom

zoom

In Dubai, freezones stipulate that owners must prove they had AED300,000, double the amount needed in any other emirate, in order to set up a limited liability company.

As the UAE looks to boost the number of start-ups being established during the global downturn, Claire Ferris-Lay looks at the implications new legislation could have on the economy.

When David Howes left his previous employment to set up his own management consultancy in one of Dubai's newest freezones, Jumeirah Lakes Towers, he was told he had to raise AED300,000 ($81,600) before he could get a business licence to start working. "It was a hurdle," he tells CEO Middle East. "I raised the cash from all of my sources in the UK and transferred it over." Gathering the money together wasn't an easy task - or a cheap one - Howes lost around $4,800 in commission, valuable capital that could have been used for his new business.

Small business entrepreneurs such as Howes will no longer have to raise such substantial amounts of start-up capital following changes to legislation designed to boost the UAE's economy amid the economic downturn.  In August, the UAE federal government announced it was scrapping the minimum capital required for start-up companies based in the UAE.

In June, UAE officials said that the government was launching its own loan scheme for small companies struggling for finance amid the downturn. The same month, it also approved the creation of the Emirates Development Bank, which will focus on funding the industrial sector, as well as small businesses owned by UAE nationals.

Small to medium size enterprises (SMEs) are the backbone of most economies. According to ministry figures, SMEs in the UAE contribute 46 percent to its gross domestic product while Ruwad Establishment, a division of the Sharjah Chamber of Commerce and Industry, a group that backs SMEs run by nationals, estimates that 80 percent of companies in the UAE are small firms. "Smaller businesses are generally the main drivers of the economy and make up the bulk in terms of employment," says Robert McKinnon, head of research at Al Mal Capital.

According to legislation established in 1984, any business looking to set up a limited liability company (LLC) in a freezone within the UAE needed a minimum of AED150,000. In Dubai, however, most freezones stipulated that owners must prove they had AED300,000, double the amount required in any other emirate. These LLC companies must also have a minimum of two partners, one of which must be Emirati.

This start-up capital, half of which had to be maintained as cash or assets at all times, was designed to act as a guarantee for creditors, unsure about doing business with a start-up. It also proved that the company had enough capital to establish itself and most importantly demonstrated a level of commitment from the business owner.

"Having a company with a minimum share capital of AED300,000 would provide creditors with at least a level of guarantee if the company goes into liquidation," says Ahmad Azzouni, senior legal consultant at DLA Piper. "Companies were also required to maintain at least 50 percent of the share capital either as assets or cash to provide a security to customers and creditors. If the business was huge it wouldn't be enough, but for a small to medium size company it would provide them with confidence in dealing with that company."

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM