Joint venture in UAE
Joint Ventures are considered as a very useful tool for entities that wish to expand their scope of business activity as the following offers various interesting benefits to business owners such as access to resources, intellectual property and risk sharing. This article will provide an overview of Joint Venture in UAE law.
Joint Ventures in UAE law are governed by Federal Law No. 2 of 2015 concerning Commercial
Companies (the "UAE Commercial Companies Law") and its amendments. Within the following various regulations and restrictions figure regarding this particular business structure.
However, prior to exploring the main points that UAE Law emphasizes on regarding Joint Ventures it is crucial to define the following.
What is a joint venture?
A Joint Venture is a business structure that allows two or more distinct entities to collaborate in order to accomplish a particular project or experiment a business activity. In this structure parties behold the ability to combine their resources, knowledge and capital in order to accomplish the objective that the joint venture was established for. The following aspects are considered as advantages and the source of attractiveness of Joint Ventures.
However, as any business structure Joint Ventures have their aspects of distinction from other business
structures.
Main characteristics of a Joint Venture:
Cooperation:
The establishment of a Joint Venture requires the parties to actively cooperate and collaborate by providing their business knowledge and resources in order to accomplish the objective of the Joint
Venture.
Shared Control:
The parties within a Joint Venture behold each a certain level of control and the ability to participate in decision making. However, as the Joint Venture is an agreement the following details the level of control and decision making that each party beholds.
Shared profit and loss:
Within a Joint Venture the profits and losses are mainly shared between the parties this might include
liabilities and responsibilities.
Varying legal structures:
According to the goal that Joint Venture has the legal structure can vary, in fact this is considered as a very attractive aspect for business owners as this offers them a certain flexibility when it comes to the choice of the legal form of the Joint Venture. Business owners can either create a separate legal entity, for instance a limited liability company or opt for a contractual agreement.
Duration restrictions:
A Joint venture is not usually a permanent entity, it is generally created for a specific period of time, and the establishment document specifies if it’s valid through a specific period or either terminated upon the execution of the intended project.
Given the fact that the constituting elements of a Joint Venture and its benefits have been introduced, an overview of the legislation that governs Joint Ventures in the UAE can be examined.
Joint Ventures key elements legislation in UAE law:
Key elements:
Various types of Joint Ventures:
As previously mentioned, the Joint Venture’s parties can opt for different legal frameworks depending on its establishing goal and scale. The UAE in the matter takes into account this necessity by offering to business owners various legal frameworks such as limited liability companies (LLC), public joint stock
companies (PJSCs) and private joint stock companies (PrJSCs).
Requirements on Ownership and Shareholding:
The UAE Commercial Companies Law requires in the event where the Joint Venture involves the ownership of a foreigner that 51% of the shares are of a UAE entity or of a UAE national.
Requirements on capital
Joint Ventures are subjected to the fulfillment of a minimum amount of capital, the following is determined by the relevant authorities, the amount is determined by the type of activity of the Joint Venture and the emirate in which it will operate within.
Requirements on governance and management
Normally, the mode of governance and management is of the choice of parties of the Joint Venture, yet the UAE Commercial Companies Law sets a number of requirements when it comes to the following matter. The UAE Law requires the presence of directors and auditors in addition to keeping financial statements.
Duration and the termination of the Joint Venture
As previously mentioned, the duration of the Joint Venture is determined by the parties and they decide whether it will be definite (meaning ending on a specific date or upon the completion of the intended establishment goal) or indefinite. The termination of the joint venture can be due to various reasons, for instance in the case where the agreement referred that the joint venture will end by the accomplishment of its intended goal, then in this case the agreement is considered terminanted.On the other hand, the parties can as well terminate the agreement with mutual consent or even for the reasons stipulated in the UAE Commercial Companies Law.
Dispute Resolution offerings
The UAE provides multiple dispute resolution options for Joint Ventures, whether through mediation, arbitration or through the local competent courts. However, it is crucial that the establishing agreement mentions the dispute resolution preference of the parties, for instance if they wish to resolve any arising disputes from the Joint Venture agreement through arbitration then the following has to be clearly stated in the agreement.
In case you are involved in any issues related to the following subject or have any queries, Hassan Al Reyami Advocates and legal consultants would be delighted to address your concerns during a 30 minute free legal consultation session offered to you.
