EMERGING TRENDS IN JOINT VENTURES IN THE UAE
There are several key trends shaping joint venture sector in the UAE:
- FOCUS ON NON-OIL SECTORS: The UAE government actively promotes Joint ventures in sectors beyond oil and gas, including:
- Technology (AI, Blockchain): The government aims to establish the UAE as a leader in these fields, attracting foreign expertise through Joint ventures.
- Renewable Energy: The UAE is transitioning towards clean energy, and Joint ventures with experienced renewable energy companies are preferable.
- Infrastructure Development: Large-scale infrastructure projects often involve Joint ventures between local and international construction companies.
- Healthcare and Tourism: The UAE’s healthcare and tourism sectors are undergoing significant expansion, creating opportunities for Joint ventures with international investors.
- GOVERNMENT AND PRIVATE SECTOR COLLABORATION: Increased participation by both government entities (like sovereign wealth funds) and private companies in Joint ventures which combines government resources with private sector funds.
- STRATEGIC USE OF FREE ZONES: Many Joint ventures are established within financial free zones like DIFC and ADGM because these zones offer significant benefits and favourable regulatory framework.
- FOCUS ON KNOWLEDGE TRANSFER: Joint ventures are seen as a valuable tool for knowledge transfer and the UAE aims to learn from established foreign companies and develop its own national expertise.
- INCREASED TRANSPARENCY AND EFFICIENCY: The UAE government is streamlining JV formation processes, making it easier and faster for companies to establish Joint ventures.
BENEFITS OF JOINT VENTURE IN THE UAE
In general, a joint venture in the UAE is a partnership between two or more companies to undertake a specific business project. There are several compelling reasons why businesses opt for joint ventures:
- SHARED RESOURCES: Joint ventures allow companies to pool their financial resources, expertise, and technology, reducing the financial burden and risk associated with a new project.
- MARKET ENTRY: Partnering with a local company can be a strategic way to enter a new market as the local partner brings established knowledge of the market regulations, consumer preferences, and distribution channels.
- COMPLEMENTARY SKILLS: Joint ventures can leverage the unique strengths of each partner (for example, a company with a strong brand name might partner with a company with superior manufacturing capabilities).
- RISK SHARING: The risks and rewards of the venture are shared by all partners which can be particularly beneficial for ventures with a high degree of uncertainty.
DIFFERENT FORMS OF THE UAE JOINT VENTURE
The first step is selecting the adequate legal framework for the new joint venture, and it depends on factors like the level of desired control, liability exposure, and tax implications. Consulting with business and tax advisors is crucial for making an informed decision.
The most common options are:
- LIMITED LIABILITY COMPANY (LLC): A popular choice, offering limited liability protection for partners and flexible management structures.
- LIMITED LIABILITY PARTNERSHIP (LLP): Similar to an LLC, but with a focus on professional partnerships where one partner’s negligence won’t impact the others.
- PARTNERSHIP: A simpler structure, but with unlimited liability for partners, meaning their personal assets are at stake if the JV incurs debt.
- CONTRACTUAL JOINT VENTURE: No separate legal entity is formed. Partners simply agree on how they’ll collaborate through a detailed contract.
DIFFERENT OPTIONS WHERE TO SET UP A JOINT VENTURE IN DUBAI
- MAINLAND LICENSE: Establishing a Joint Venture (JV) with a Mainland License offers a unique set of advantages for foreign companies seeking to do business. For example, a mainland license grants access to the entire UAE market, not just the specific free zone & international area, which broadens the potential customer base and business growth. Moreover, the UAE government actively encourages foreign investment in the mainland so Joint ventures can benefit from streamlined licensing procedures or other initiatives.
- UAE FREEZONES: Joint ventures are often established as a holding company in one of the financial freezones such as business setup in ADGM and business setup in DIFC, which are both common law jurisdictions, so the joint venture agreements are generally more enforceable. At the same time, the holding company may (if needed) set up operating subsidiaries to carry out the activities of the joint venture company in other jurisdictions. Besides that, freezones also provide world-class infrastructure, including office spaces, business support services and excellent connectivity with the strategic location, which offers easy access to regional and international markets.
- OFFSHORE JURISDICTION: Another great option is to set up a Joint Venture in any of UAE’s offshore jurisdiction. Creation Business Consultants are dully registered agent in RAK ICC (Ras Al Khaimah International Corporate Centre), which offers a wide range of corporate entities for joint ventures, such as International Business Company, Holding Company, Special Purpose Vehicle and the Joint Venture Company itself (where rights of the shareholders may be set out in the Memorandum and Articles and/or in a separate shareholders’ agreement). For more insights, visit our UAE Offshore company setup page.
POST-INCORPORATION KEY RECOMMENDATIONS
Once the Joint Venture is established, there are several key points regarding the ownership structure and management which shall be managed properly to ensure the successful operations:
- OWNERSHIP STRUCTURE: Clearly define the ownership stake of each partner, considering their contributions (financial, intellectual property, etc.). This will determine voting rights and profit distribution.
- PROFIT SHARING: Establish a fair and pre-determined method for sharing profits and losses. This could be based on ownership percentage, specific contributions, or a combination of both.
- DECISION MAKING: Outline the decision-making process, including voting rights, majority requirements for key decisions, and potential dispute resolution mechanisms. At the same time, clearly defined roles and responsibilities for daily operations are crucial, including financial management, staffing, and marketing decisions
- BOARD OF DIRECTORS: If a board is established, determine its composition, responsibilities, and voting rights.
- EXIT STRATEGY: Include a clear plan for dissolving the JV if necessary, outlining the process for asset distribution and potential buy-out options for partners. Finally, consider incorporating non-compete clauses to protect the JV’s intellectual property and prevent partners from setting up competing ventures after exiting.
TAKEAWAY
Joint ventures offer a compelling path to capitalize on business opportunities given by the UAE thriving economy and strategic location. Despite these trends, navigating regulations and cultural differences can still pose challenges for foreign companies forming Joint ventures in the UAE so seeking experienced business and tax advisors is crucial for successful long-term business plan.
