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9 Common Mistakes Made While Setting Up Company in UAE

UAE Is an attractive location for setting up a company due to the host of business benefits available for the investors. Also, there is a wide variety of business activities and cost-effective company formation packages to choose from for the new business owner.

The ample choice of business activities, technology infrastructure, banking, logistics support, and Government policies are providing the required ecosystem for businesses to flourish in the UAE.

As an entrepreneur setting up a business in UAE, there are certain parameters to consider to ensure you have hassle-free company formation and a successful continued business operation in the region.

Common Mistakes made while Opening a Company

Here are 9 Common Mistakes made while setting up your Company in the UAE.

1. Not choosing the right Free Zone, Company Activity, and Business License

For investors, it is very important to choose the right Free Zone, Company Activities, and business license. The smooth functioning of the company operations in UAE is determined by the chosen Free Zone and the related business activities specified in the Trade License.

company setup mistakes in uae

For every trading activity in the UAE, there needs a trade License from the Free Zone or the Department of Economic Development of the respective Emirate in UAE.

Solution: Ensure the right Business Activity and Business License is chosen

The business activity and business license must be chosen with care as it plays a vital role in future business operations. Also, choosing the right business activity helps the company scale up efficiently.

Also, there are specific business licenses to be obtained for carrying out business in the UAE. Choosing the wrong business structure and operating without required licenses will result in penalties and blacklisting of the company.

2. Violation of Employment Agreements

Individuals working for a company in UAE must get a No Objection Certificate for legally starting a company in UAE.

Also, new businesses have to be compliant with the employment laws in the UAE. Employers are not allowed to employ people with Visit Visa at any instance. All the employees must be having a valid work permit and employment visa.

3. Improper Legal Agreements with Local Sponsor

In Mainland Company formation, presently there is no requirement for a local sponsor to start a company. However, there are existing mainland companies with sponsors that are not set up the right way.

For instance, there are Mainland companies that have flawed shareholding agreements and no proper legal structure. 

Solution: Prepare a Legal Contract with all Partnership & Other Management Clauses to protect you from any dispute

Prepare legal agreements and contracts to protect the investor from any legal dispute. Make a note of all agreements and other management clauses with the partner. Document and validate all the partnership contracts, ownership terms, etc.

It will protect you from any dispute regarding the shares and the smooth functioning of the business. Prepare a Notarized legal contract with all the information on shareholding, mutual responsibilities, and other business management terms.

Record the complete agreement on each other expectations to avoid any further dispute in the courts.

4. Not choosing the right Free Zone Company Registration Package & Office Spaces

Always keep a check on the company formation package available in the Free Zones. They have a wide range of office types and business license packages. Also, understand the office space facilities at each Free Zones for setting up a company without any hassles.

For instance, upgrading to a larger office soon after setting up a company with smaller office space will cost more. Similarly, if small office space is not available, the investor will be forced to take large office space.

Also, ensure you have ample visa quotas for your employees and room for expansion. Most of the starting packages are of one visa quota. Adding more visas will require extra payments etc.

Solution: Choose the right Free Zone Company Registration Package & Check the available Office Space

Choose the right Free Zone Company Registration Package & Check the available Office Space. Ensure you have a clear understanding of the company registration packages of the selected Free Zones.

Also, the investor should have a clear understanding of the visa quotas available under the trade license, additional fees for visa processing and adding more visas, office space rental agreements, and more.

Finally, the overall cost of company setup depends on various factors, the office rent varies based on Free Zones, Emirates, Square Feet, other amenities, etc. The investor must not be in a position where unexpected expenses affect their business operations.

5. Opening a Bank Account for Business without checking the Bank Charges

The new companies must have a thorough check on the bank account charges, there could be significant charges for account handling and other hidden charges.

The investor has to choose the Bank according to their business requirements and activity. Banks in the UAE have various charges for transactions, Credit/Debit cards, checkbooks, Foreign Fund transfers, etc.

Hence while opening the Corporate Bank Account, ensure you are aware of all the recurring and hidden charges the banks will be charging from you.

6. Lack of Agreements or Signing Unenforceable Contracts

Businesses are often done on trust and verbal contracts. However, in case of any future dispute, it becomes challenging to prove the statements. So, the most reliable and legally bound form of contract is written form.

Many of the start-ups and newly formed companies go for readymade contracts from the internet or their business network. It helps to save legal & notarization costs in drafting new ones but prevents getting the right legal protection through notarization of the contracts.

It is best advisable to have a legal contract newly created with the assistance of a legal expert for your company and not go by standard template-based contracts to avoid any long-term risks.

7. Relying Solely on Information Available on the Internet

There is an enormous amount of information available online on company formation, various licenses, business setup packages, etc.

For building awareness and getting a basic understanding of the company formation process, the online information will be of great help. It is best to get in touch with an expert business consultant to have a hassle-free company set up in the UAE.

Often there can be outdated information sources on the internet that would not give you the right facts.

Why Choose the right Business Consultant for Company Setup in UAE?

So before you signup with any consultant or online company setup package, ensure the credibility of the Consultant or the website.

Contact them and physically visit them as company formation is a long-term engagement with your consultancy.

Benefits of having a Business Consultant for Company Setup in UAE

Your Consultant will be playing a vital role not only in company formation and obtaining your trade license.

As your progress in the business, any additional requirements related to company formation, administration, and accounting, you can rely on your business consultant’s assistance.

Business Consultants come in handy for a lot of business support & advisory services such as:

  • Adding new Business Activity & Visa quotas
  • Opening a new Branch
  • Banking Assistance
  • Approvals from Government Authorities
  • Shareholder Agreements
  • Legal Translations, VAT & Accounting
  • Company Dissolution
  • and more…

8. Not Planning for Worst-Case Scenarios

Every business is prone to the risk of failure or racking up unexpected operating expenses on the go. Hence, the risk in business cannot be completely avoided but can be mitigated to a level through financial security such as insurance, copyrights, patents, well-documented legal contracts, etc.

Planning for the worst-case scenarios could help in risk mitigation in the event of any unavoidable circumstances for the company and business owner.

Hence, companies registering in the UAE must have a clear exit strategy in case of any unexpected event of failure to avoid legal consequences and bankruptcy.

9. Not Registering Intellectual Property

Intellectual Property (IP) is a very important aspect of new business for branding and marketing purposes.

It will help in future economic benefit to the business owner. All business assets could be secured by intellectual property rights.

The marketing and branding assets such as websites, and a company logo. colors and fonts, business proposal documents, other business documents, etc., could be saved from copying and re-using without permission.

To know more about a hassle-free Company Formation in UAE, talk to our experts right away!

Contact: Aurion Business Consultants

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