Under the UAE Commercial Companies law, a foreign national can have ownership of a maximum of 49% of the shares in a mainland limited liability company. The remaining 51% of the shares in the company are required to be owned by a UAE national.
This does not apply to business activities exempted to be wholly owned by foreign nationals as permitted under the amendments to the Commercial Companies Law through Federal Decree Law No. 26 of 2020 which came into effect on 2 January 2021. The abolishment of the mandatory provision of having a UAE national hold the majority shares in companies came into effect only on 1 April 2021.
You should see if your business/ trade is covered under the list of licenses which allows 100% ownership to foreign nationals. If it does not, then a UAE national would be required to own 51% of shares of your company.
A nominee agreement is a legal relationship wherein a UAE national agrees to act as a nominee holding 51% shares for and on behalf of a foreign national. The nominee holds the legal title to the shares but is not entitled to the benefits that arise out of the shares. The nominee agreement helps a foreign owner to have a company with a local shareholder but allowing all practical control over the company without any interference from the local shareholder.
Who is a Nominee?
A nominee is a UAE national or an entity fully owned by UAE national(s). They are also referred to as local sponsors in common parlance. A nominee agreement allows a nominee to hold legal title to shares of a foreign national but the beneficial interest ultimately vests with the foreign national. As part of the nominee agreement, a nominee is entitled to certain fixed amount every year under the agreement. This amount is usually paid in advance to the nominee by the foreign national.
Who is a Principal?
A principal is a person or an entity who seeks to enter into a nominee agreement with a local shareholder. The principal transfers the legal title of the 51% shares in the company to the nominee. However, a unique feature of a nominee agreement is that the principal holds the beneficial interest over the shares.
What is the need to enter into a Nominee Agreement?
As stated above, the UAE Commercial Companies Law mandates (subject to recent amendment for certain categories of trade/business licenses) for foreign nationals to have maximum ownership to 49% shares in a mainland limited liability company and 51% shares to be held by a local shareholder. Therefore, it becomes necessary for the foreign nationals to enter into nominee agreements to define that only the legal title is held by the local shareholder/nominee while the beneficial interest ultimately vests with the foreign national. Furthermore, the nominee agreement may also define rights to transfer the shares, management of the company, dividends over the shares, etc. in order to specifically define the rights that are held by the foreign national. Thus, nominee agreements are important for ease of business and legal protection in the UAE commercial sphere.
What does a Nominee Agreement cover?
A nominee agreement can have any terms that the parties may mutually agree upon. However, any nominee agreement must cover the below mentioned terms:
Personal information with respect to the principal and nominee:
- It is important to define the parties to the agreement who will engage in the legal relationship of nomineeship created by the nominee agreement.
- These would generally include the names, addresses and email IDs of the parties. If one of the parties to the nominee agreement is an entity rather than a person, their trade/commercial license should also be included to aptly define that party.
Commencement date of the Agreement:
- Dates are an important aspect in order to determine when the relationship of nomineeship will commence.
- A nominee agreement should always have a defined starting date.
Beneficial Interest vests with the Principal:
- The nominee does not have the right to claim beneficial interest accruing over the shares of which they have been made a nominee of. A nominee only holds the legal rights for and on behalf of the principal. Thus, it is important to be defined under the agreement.
Amount of fees to be paid in lieu of the services of the nominee:
- Total amount of fees to be paid in lieu of the appointment as nominee under the agreement outlines the consideration that the parties have mutually agreed.
- Since the nominee agrees to not have any beneficial interest in the shares, he is to be compensated for giving up those rights.
Respective rights and obligations of the parties:
- A nominee agreement should cover the rights of both the parties under the agreement. This would define their position in the agreement and their future implications. Since a foreign national would want to hold all practical control over the company, it is important to include relevant provisions.
- A nominee agreement should also aptly define the respective obligations of each party under the agreement. This is important since it holds the other party responsible for their acts under the agreement.
- A nominee agreement incorporates other provisions such as the transfer of shares, dividends over shares, and management of the company.
- Another important provision is about a power of attorney to be executed in favour of the foreign national from the local shareholder, in order to take complete control over the affairs of the company.
The objective of having detailed provisions in a nominee agreement is to mitigate the risks associated under the agreement. More streamlined provisions in a nominee agreement allows the parties to have confidence that theirs rights are duly protected.
Our online form provides for a range of customisations that cater to all clients on a case-to-case basis. We provide our clients with more freedom and control in terms of what their nominee agreement should cover. Please see our different packages to see various options available in terms of personal customisation of nominee agreement.