Steps to Change the Legal Form of the Company in UAE

A business’ legal structure isn’t a proposition that’s one and done. As your business evolves and changes, it’s going to make sense to undergo the process for changing its legal structure. There’s good news and that’s in most cases, transitioning to a different legal form for a business is simpler than you can imagine. 

Also, it is likely for small businesses to change from the simplest business structure of sole proprietorship or partnership to a complex LLC or corporation. A corporation may also choose to change to a much simpler structure in order to reflect the changes in the company; however, this is not as common as changing to LLC from a partnership or sole proprietorship. 

For most business owners, changing the legal form of businesses will come as they are taking on more investors or additional business partners. Another common reason as to why a small business in UAE will change its legal structure is because it is seeking investment and financing and the prospective lender wants to review a solid and formal business plan. A lot of businesses in UAE change their legal structure in order to take full advantage of potential benefits and legal protections that are only available to more complex legal business forms. 

Also Read: Difference Between Memorandum Of Association And Articles Of Association

Process of Changing Legal Form of Company in UAE

The question is this: when is the best time for a business to dive in and make the significant change? Also, how is it done properly and legally? First, you need to remember that you always need to consult with an expert in business setup in UAE before you initiate anything regarding your business’ legal structure. The choice can seriously impact your business and you may not be able to switch back to the previous one. With that being said, here are steps on how you can change your company’s legal form in UAE:

Plan the Change and Involve Key Employees

Solicit feedback form your key employees and frontline managers in order for you to gain a deep insight as to the practical issues that the business may face. Invite at least two influential employees in participating your planning meetings for the change. In addition to providing you with unique insights, the employees may help in keeping other employees informed regarding the planning process as well as the excitement that is brought about by change. 

Communicate Planning Progress to the Entire Organization 

Send updates to the entire company regarding the change in order to give them an idea on what is happening with the business, most especially prior to the implementation stage. This can be done through a company newsletter or email. Avoid making your staff members feel like their future is uncertain with your company, especially if they’re the main targets when a company downsizes. 

Bonus tip: Consult legal counsel prior to performing layoffs as well when the change of structure requires it. You need to make sure that you’re completely compliant to labor and employment regulations regarding communication, notification, and compensation for employment contract termination. If you are going to require substitute for the employee that will be terminated, make sure that you hire the substitute before the position is eliminated.

Seek the Assistance of Business Setup Experts in UAE 

It is important for you to have business setup experts in UAE conduct the change of legal structure as the process for changing the legal form differs in mainland and free zone businesses.

Also, remember that legal structures like civil company and sole proprietorship aren’t available in free zones as free zone companies are operating as LLCs with one shareholder or more. In addition to that, LLCs in a free zone may be divided into FZEs or free zone establishments and FZCs or free zone companies. In UAE mainland, you may be able to change to civil company from sole proprietorship. With an LLC, a free zone entity may be changed into a free zone establishment or free zone company. 

Also Read: How To Draft A Memorandum Of Association For A Company

When you are considering the amendment of your business’ legal structure, you should remember that changing sole proprietorship into an LLC can involve a middle joint and that’s a civil works company. A civil works company can have a UAE national as sponsor retaining more than 51% of the company’s shares. if you intend to change from sole proprietorship to LLC, you won’t be able to bypass conversion into civil company. This is why it is extremely crucial to consult with an expert on UAE business setup. 

In UAE, it’s possible to have a smooth experience in the changing of legal structure for a business with the help of professionals in business setup. At Notary Public Dubai, we won’t just help you draft a power of attorney in UAE to authorize a business setup expert in helping you with the process, but we will also let you consult with seasoned business setup experts.