EMERGING TRENDS IN JOINT VENTURES IN THE UAE
There are several important emerging trends underpinned by the JV sector in the UAE:
- HEIGHTENED FOCUS DISCRETIONARY FOCUS ON NON-OIL: The UAE government is also promoting the use of Joint ventures beyond oil and gas, for example, in:
- Technology (AI, Blockchain): with a focus marketing the UAE to become a national leader of these fields – and attracting foreign expertise through Joint ventures.
- Renewable Energy: The UAE is looking toward cleaner forms of energy, which it prefers to pursue in Joint ventures with renewable energy experts.
- Infrastructure Development: especially in large-scale infrastructure projects, which often invoke Joint ventures, between local UAE and international construction companies
- Healthcare and Tourism: Many opportunities exist in the UAE’s expanding healthcare and tourism sectors.
- GOVERNMENT AND PRIVATE SECTOR COLLABORATION: There is increasing involvement both by government entities (for example, sovereign wealth funds) and private business as partners in Joint ventures combining government resource with private funds.
- STRATEGIC USE OF FREE ZONES: Many Joint ventures are launched in separate capital financial free zones (DIFC and ADGM) likely for the benefits and more regulatory favourable environment.
- FOCUS ON KNOWLEDGE TRANSFER: Joint ventures are seen as a great tool for knowledge transfer and the UAE is hoping to learn from those established (more) foreign companies, while developing an expertise at the national level.
BENEFITS OF JOINT VENTURE IN THE UAE
In simple terms, a joint venture in the UAE is a joint company between two or more companies for the purpose of accomplishing a specific business undertaking. There are several attractive reasons why companies may choose joint ventures:
- SHARED RESOURCES: Joint ventures allow companies to combine financial resources, knowledge, and technology, thus reducing the financial burden and risk associated with creating a new project.
- MARKET ENTRY: Partnering with a local company can facilitate the act of entering a new market, as the local partner can provide knowledge of market access regulations, consumer preferences, and distribution channels.
- COMPLEMENTARY SKILLS: Joint ventures can also take advantage of each partner’s individual strengths (for instance, a company with a unique name brand may have unique manufacturing capabilities in partnership with their joint venture partner).
- RISK SHARING: Discussing the risks and benefits of the joint venture with each partner and sharing these benefits and risks can be beneficial, particularly for joint ventures products with a high level of uncertainty.
DIFFERENT FORMS OF THE UAE JOINT VENTURE
The initial process is to identify the appropriate legal space for the new joint venture, and this encompasses the key factors. The choice of legal framework will depend on anticipation of control, exposure to liability, and taxation. The key will be to consult with business and tax advisors to be guided in this decision.
The most visible options will be:
LIMITED LIABILITY COMPANY (LLC):
A popular legal framework in the UAE jurisdiction; it provides limited liability against partners, and provides for flexible options in regards to the management structure.
LIMITED LIABILITY PARTNERSHIP (LLP):
The LLP structure is similarly structured to be limited liability, with it being used in professional partnerships whereby the negligence of one partner should not impact the others.
PARTNERSHIP:
A partnership structure in a joint venture is the simple process, whereby partners have all exposure to unlimited liability or risk, meaning partners are responsible for the debts of the joint venture through their personal assets.
CONTRACTUAL JOINT VENTURE:
No new legal structure will be allocated. The partners are merely agreeing to define how they will work together in the form of a contract specifying their duties.
DIFFERENT OPTIONS WHERE TO SET UP A JOINT VENTURE IN DUBAI
MAINLAND LICENSE:
One option that foreign businesses should consider is setting up a Joint Venture (JV) with a Mainland License. There are several advantages of a Mainland License for companies doing businesses seeking to set up a Joint Venture. To provide an example, having a mainland license means access to the entire UAE market, not just limited to the particular free zone & international jurisdictions. Moreover, the UAE government encourages foreign investment in the mainland, so Joint Ventures can whatsoever benefit from simplified licensing procedures or other initiatives.
UAE FREE ZONES:
Joint Ventures can be set up 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, and generally means that the agreements governing setting up the joint venture will be more enforceable. The holding company may (when required) set up operating subsidiaries, to carry out the activities of the joint venture company in another jurisdiction. Apart from that, freezones also present an environment with best in class infrastructure including office spaces, business support services and convenient connectivity with strategic location for ease of access to regional and international markets.
OFFSHORE JURISDICTION:
Set up a Joint Venture in any of the UAE offshore jurisdictions is another appealing option. Creation Business Consultants are offices duly registered agent in Ras Al Khaimah International Corporate Centre (RAK ICC), with a range of corporate entities that can be used for Joint Ventures, including an International Business Company, Holding Company, Special Purpose Vehicle and the Joint Venture Company (with Memorandum and Articles and/or separate shareholders agreement containing rights of shareholders may be set out). For specific information, visit our UAE Offshore company setup page.
POST-INCORPORATION KEY RECOMMENDATIONS
On completing the Joint Venture incorporation, several key ownership structure and management points should be managed diligently for continuously successful operation:
- Ownership structure – clearly define the ownership stake of each partner and their contribution (whether financial, intellectual property, etc.) to the the Joint Venture. This will highlight the ownership stake, determine voting rights and profit share
- Profit share – decide and define a fair and predetermined approaches to profit share including losses to be shared, based on ownership stake of parties involved and/or contributions (in whatever form).
- Decision making – determine and define how decision making will take place and detail voting rights, majority necessary for certain decisions, and potential dispute resolution procedures. Making the contributions and particular decisions aside, ensuring that there are well defined roles for daily operational aspects including financial matters, staffing and marketing decisions is also critical.
- Board of directors – if a board is to be created, consider defining the formation of the board including, who is on the board, members roles and responsibility and voting rights.
- Exit strategy – include an exit plan and detail the procedures if the JV is wound up which includes details about the distribution of assets, potential buy-out options available for Partners (for example if it is a limited company, members can avoid liquidation by making a buy-out offer straight away). Lastly, consider including a non-compete clause, as protective measure of the JV intellectual property, to avoid partners starting another competing venture following exit from the Joint Venture.
TAKEAWAY
The joint venture routes present a viable option to seize business opportunities provided by the UAE thriving economy and strategic location. Despite this and the growing assistance networks in-place to support foreign companies get a foothold in the UAE, what continues to hold many foreign companies back in establishing joint ventures in the UAE, are the regulations and cultural differences that come into play, and finding the right intermediaries (i.e. experienced business and tax advisors) is critical to a successful long-term business plan.
