Since the announcement of the UAE ranking first regionally and fourth globally on the Global Entrepreneurship Index, the most popular theme we currently see is that UAE is burgeoning and gearing up to become a truly global hub for innovation and entrepreneurship. Therefore the need to obtain the right business and legal advice on where to incorporate or what incubator or accelerator programmes may be most feasible, or what legal documents are required, for any new business in UAE is extremely important.
Incorporating with the wrong activity perhaps out of ignorance or to avoid regulatory or legal compliance, either of which are risky and carry onerous implications. Something as simple as products for human consumption or organic soaps for sensitive skin requiring additional authority (like the municipality) approve the labelling requirements or financial activities requiring approval from a financial supervisory or regulatory authority are critical elements that we cannot ignore.
Products cannot be sold without the appropriate regulatory approvals and labelling requirements being met. Prior complete information therefore is key to setting up a business and one should always be aware of and comply with the regulations applicable to them..
Structuring a business in the wrong jurisdiction. Choosing a jurisdiction because it is the cheapest, although it may not be correct for the business, can be a sacrifice that founders are not prepared for.
This carries its own legal and commercial burden when it comes to entering into transactions with bigger entities, ascertaining credibility or worse still transacting in normal operations.
If one wants to set up a business in the UAE, they have the choice of seven Emirates, 53+ free zones and the mainland options, the difference primarily being the location, pricing, visa or office requirement, ownership structure and activity options.
Due to poor judgment and lack of information, a lot of entrepreneurs choose to incorporate in the cheapest jurisdiction as opposed to the most effective one for their business. The very minimal description of activities by some regulators also leaves a lot to the imagination, more description in this respect could assist entrepreneurs in making the right decision.
Hiring employees without confidentiality agreements and not training employees on the value of privacy or confidentiality is a critical risk that businesses are growing discernibly aware of as they understand the value of their trade secrets and their intangible assets.
Breach of confidentiality nonetheless is protected under various laws in UAE and carries significant penalties. Good legal advice and a good contract can limit breaches of the law and preserve secrets as they are meant to be.
If one wants to set up a business in the UAE, they have the choice of seven Emirates, 53+ free zones and the mainland options.
Lack of enforceable contracts with suppliers and clients and not knowing what to do in cases of conflict or dispute is a serious risk; business owners traditionally have not been careful to address a prognosis of the legal risks that could affect their business, leaving matters to trust and goodwill. If conflicts were to occur, it would typically leave a business owner in panic not knowing how to resolve the conflict or limit the cost of the damage.
A diagnosis and redressal of conflict in a forum, in the absence of prior choice, is risky because the parties have not chosen the forum and are unaware of the process, timelines or costs.
Remember ignorance of law is not an excuse in any country so it is best to consciously choose the terms of your contract and the dispute resolution forum.
Not having a business plan or a contingency plan therefore not being able to successfully address business or legal risks is also a common risk with start-ups. However, we see this being sufficiently addressed with regulators requesting thorough and professional business plans.
The UAE Companies Law provides for a reserve fund however, this is not currently actively monitored by regulators. Compliance with this provision would be beneficial for any business, however big or small. The year 2020 brought to light how many businesses did not have business plans or reserve funds.
Remember the popular saying ‘it takes a village to raise a child’, in this case the child being a small business and the village being the whole ecosystem that needs to be consulted foremost to plan how the business will be incorporated, operated and ultimately be successful. Most often it’s the ignorance of law that has businesses end up in loss, be penalised or shut down from its under-estimating the pitfalls one would have to overcome. Good legal advice is invaluable and good legal counsel is gradually becoming indispensable.
Biancka Gracias, Partner & Head of Start-up & SME division – ICLO.
By ITP
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The legal part…getting the red tape right when starting out
Biancka Gracias, Partner and Head of Start-up & SME division at ICLO law firm, dives into the legal perspective of setting up a business in the UAE
Biancka Gracias, Partner & Head of Start-up & SME division – ICLO.
Since the announcement of the UAE ranking first regionally and fourth globally on the Global Entrepreneurship Index, the most popular theme we currently see is that UAE is burgeoning and gearing up to become a truly global hub for innovation and entrepreneurship. Therefore the need to obtain the right business and legal advice on where to incorporate or what incubator or accelerator programmes may be most feasible, or what legal documents are required, for any new business in UAE is extremely important.
Incorporating with the wrong activity perhaps out of ignorance or to avoid regulatory or legal compliance, either of which are risky and carry onerous implications. Something as simple as products for human consumption or organic soaps for sensitive skin requiring additional authority (like the municipality) approve the labelling requirements or financial activities requiring approval from a financial supervisory or regulatory authority are critical elements that we cannot ignore.
Products cannot be sold without the appropriate regulatory approvals and labelling requirements being met. Prior complete information therefore is key to setting up a business and one should always be aware of and comply with the regulations applicable to them..
Structuring a business in the wrong jurisdiction. Choosing a jurisdiction because it is the cheapest, although it may not be correct for the business, can be a sacrifice that founders are not prepared for.
This carries its own legal and commercial burden when it comes to entering into transactions with bigger entities, ascertaining credibility or worse still transacting in normal operations.
If one wants to set up a business in the UAE, they have the choice of seven Emirates, 53+ free zones and the mainland options, the difference primarily being the location, pricing, visa or office requirement, ownership structure and activity options.
Due to poor judgment and lack of information, a lot of entrepreneurs choose to incorporate in the cheapest jurisdiction as opposed to the most effective one for their business. The very minimal description of activities by some regulators also leaves a lot to the imagination, more description in this respect could assist entrepreneurs in making the right decision.
Hiring employees without confidentiality agreements and not training employees on the value of privacy or confidentiality is a critical risk that businesses are growing discernibly aware of as they understand the value of their trade secrets and their intangible assets.
Breach of confidentiality nonetheless is protected under various laws in UAE and carries significant penalties. Good legal advice and a good contract can limit breaches of the law and preserve secrets as they are meant to be.
Lack of enforceable contracts with suppliers and clients and not knowing what to do in cases of conflict or dispute is a serious risk; business owners traditionally have not been careful to address a prognosis of the legal risks that could affect their business, leaving matters to trust and goodwill. If conflicts were to occur, it would typically leave a business owner in panic not knowing how to resolve the conflict or limit the cost of the damage.
A diagnosis and redressal of conflict in a forum, in the absence of prior choice, is risky because the parties have not chosen the forum and are unaware of the process, timelines or costs.
Remember ignorance of law is not an excuse in any country so it is best to consciously choose the terms of your contract and the dispute resolution forum.
Not having a business plan or a contingency plan therefore not being able to successfully address business or legal risks is also a common risk with start-ups. However, we see this being sufficiently addressed with regulators requesting thorough and professional business plans.
The UAE Companies Law provides for a reserve fund however, this is not currently actively monitored by regulators. Compliance with this provision would be beneficial for any business, however big or small. The year 2020 brought to light how many businesses did not have business plans or reserve funds.
Remember the popular saying ‘it takes a village to raise a child’, in this case the child being a small business and the village being the whole ecosystem that needs to be consulted foremost to plan how the business will be incorporated, operated and ultimately be successful. Most often it’s the ignorance of law that has businesses end up in loss, be penalised or shut down from its under-estimating the pitfalls one would have to overcome. Good legal advice is invaluable and good legal counsel is gradually becoming indispensable.
Biancka Gracias, Partner & Head of Start-up & SME division – ICLO.
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