Starting a Restaurant in UAE - Case Study Example

Starting a Restaurant in UAE Name Institution Introduction The project scope includes exploring the pertinent legal issues required to create a company. Focus is on opening up a large restaurant, which is set to have a fleet of 10 delivery vehicles. The company founders are looking for investors and have already obtained 200,000 AED seed money, which will be used to set up the business and hire consultants. This paper explores the best legal form of company that should be created, and the legal and government procedures that will need to be undertaken with Department of Economic Development (DED) and other government agencies. Appropriate legal form of business The most appropriate form of business is limited liability company (LLC) as an entity with multiple shareholders. As defined by Article 218 of the UAE Commercial Companies Law, an LLC is a type of company requiring that the liabilities of partners be restricted to their shares in the company’s capital. An LLC can further be described as an association that is limited to maximum of 50 persons and a minimum of two persons. Each member’s liability is restricted to the amount of his or her share in the company’s capital. The LLC have no capital limitation, as they are no longer needed to fulfil the lowest amount of capital requirements of AED 150000 in Abu Dhabi and the other Emirates, apart from Dubai, which requires a minimum of AED300000. The LLC refers to a business arrangement between two or up to 50 individuals or partners, in which each one of them is not liable to the amount of all their assets or contributions for the liabilities of the company (PWC, 2015). It is advantageous to the restaurant, as in this type of business, the law considers all partners not to be each partner’s agent, and, therefore, partner’s bankruptcy would not amount to the bankruptcy of all other partners (AHK, n.d.). Additionally, the company shares are not restricted from being represented in certificates that can be negotiated. It, therefore, provides a greater opportunity to raise more finances for the company. A fundamental appeal of a limited liability company is that the shareholders are protected against company liabilities or failures, as their liability is restricted to their share capital. On the other hand, when trading in partnership, and in case of failure of the business, all of the partners’ personal assets would be paid to the creditors. Therefore, the underlying rationale for incorporating the business as a limited liability company is to protect the shareholders and the investors behind the formation of the restaurant from liabilities in case of business failure. Another motivating reason for choosing to incorporate the company as an LLC is that it allows for outside investors, including seed capital investments. Therefore, LLC would protect the investors who have provided the 200,000AED as seed money to set up the business from exposure to personal risk, including losses and possible litigations as the company would be considered a legal entity. This type of company also provide great flexibility in terms of allocating shares, as well as protecting shareholders that lack any managerial skills to get involved in running the restaurants (PWC, 2015). Additional potential forms of business include a Public Joint Stock Company and a Private Joint Stock Company. Compared to other types of companies like Public Joint Stock Companies, it is still clear that the LLC is the most appropriate for the restaurant. A Public Joint Stock Companies consists of any company with capital that is divided into publicly subscribed negotiable shares of equal value (Latham & Watkins, 2011). In the UAE, a company that legally permits a UAE public body to hold any share capital can be referred to as a Public Joint Stock Company. This is not in line with the objectives of the new restaurant, as it only requires investors. Additionally, the minimum capital requirement is beyond what is budgeted for the restaurant. In particular, the minimum capital requirement for formation of a Public Joint Stock Company is AED 10 million, which far surpasses the available AED 200,000. It also imposes liability to the founding members. At any rate, Public Joint Stock Company would not be permissible for establishing a restaurant under the UAE laws, as it is specified for businesses that involve insurance, banking, as well as investment of funds. An additional option worth considering is the Private Joint Stock Company. It is still clear that the LLC is the most appropriate for the business, given that it has no minimum capital requirement. For a Private Joint Stock Company, the minimum capital requirement is AED 2 million, which also far exceeds the available AED 200,000. It also may restrict offering of sharing for public subscription. This also makes it inappropriate as shareholders and investors are needed to fund the restaurant. Therefore, the underlying principle for incorporating the business as a limited liability company, rather than as a Public Joint Stock Companies and Private Joint Stock Company is that it has the most flexible capital requirement and allows outside investors to invest in the company. It also provides great flexibility when it comes to allocation of shares, and as protection shareholders from liability. Additionally, the Public Joint Stock Company would not be permissible for establishing a restaurant under the UAE laws, as it is specified for businesses that involve insurance, banking, as well as investment of funds. Legal and government procedures To register the restaurant as an LLC, there would be a need to acquire first preliminary approvals from the Department of Economic Development (DED), specifically the Licensing Section. The DED will need information on the restaurant, including the business activities, the name of the restaurant and the identity of founders of the business. Afterward, name availability check is done and payments done to register the name online at DED’s website (UAE Trade-USA, 2016). In the next stage, the company documents are filed with the DED. A trade license and Register for membership is then obtained from the Chamber of Commerce and Industry. In order to acquire the Trade License and Commercial Registration Certificate, several original documents for the LLC will need to be submitted to the DED’s commercial registry or online (World Bank, 2016). The documents include an approved application form that the manager of the company or its legal representative has signed, the company’s memorandum of association, a letter of approval of the company from the DED, each member’s or partner’s passport copy and an original letter of approval of the company that the DED Committee of Limited Liability Companies has issued. Once approved, the Commercial Registry will enter the company name into the Commercial Register (UAE Trade-USA, 2016). Before the restaurant would start operations, its legal representative or manager has to apply for a trade license to the DED. The application for the trade license has to be filed along with the applicable fee, and a form providing evidence that the new company has sought clearance on the appropriateness of the office premises with the Dubai Municipality Building Department (World Bank, 2016). A receipt indicating payment has been made to the Federal Ministry of Economy for publication fee, as well as for Chamber of Commerce membership fee, which will then be presented to the DED for verification. Once this procedure is completed, the DED would then issue an original Commercial Registration certificates and Trade License (UAE Trade-USA, 2016). Additional permits and government agencies A license for operating a restaurant should also be obtained from the Food Control Department in Dubai or Food Control Authority in Abu Dhabi. In Dubai, for instance, the main provisions for starting a restaurant are enshrined in the Food Code. The Food Code seeks to ensure compliance with food safety and regulations (Company Formation Dubai, 2016). In the first step, the restaurant owners select a type of business that is in line with the type of food establishment they wish to open, given that the license has to state the activity undertaken by the restaurant. In the second step, an approval is provided by the Food Control Department on the construction plan for the restaurant, including the space for food storage and processing, entry and exit plans and restrooms. Lastly, the Food Safety Department requires the following documents to be submitted when opening a restaurant in the Emirate: The restaurant owner has to submit several documents to the Food Safety Department: an approval that the DEC issued, the layout of the premises, and an approval issued by the Planning Department. Lastly, the DEC issues the license for operating a restaurant. Conclusion As established, the basic rationale for incorporating the business as an LLC, rather than as a Public Joint Stock Companies and Private Joint Stock Company is because it has the most flexible capital requirement and allows outside investors to invest in the company. It also provides great flexibility when it comes to allocation of shares, and as protection of shareholders from liability. Additionally, the Public Joint Stock Company would not be permissible for establishing a restaurant under the UAE laws, as it is specified for businesses that involve insurance, banking, as well as investment of funds. Additionally, shareholders are protected from company liabilities or failures, as their liability is restricted to their share capital. An additional motivating reason for choosing to incorporate the company as an LLC is that it allows for outside investors, including seed capital investments. To register the restaurant as an LLC, there would be a need to apply and acquire original Commercial Registration certificates and Trade License from the DED. Lastly, a license for operating a restaurant should also be obtained from the Food Control Department. References AHK. (n.d.). Framework about establishing a business in the UAE. Retrieved from http://vae.ahk.de/fileadmin/ahk_vae/FAQ/Business_Support/AHK_Merkblatt_Firmengruendung_Englishx_01.pdf Company Formation Dubai. (2016). Open a restaurant in Dubai. Retrieved from http://www.companyincorporationdubai.com/open-a-restaurant-in-dubai Latham & Watkins. (2011). Doing business in the United Arab Emirates. Retrieved from https://www.lw.com/upload/pubcontent/_pdf/pub2783_1.pdf PWC. (2015). New UAE commercial companies law: Legal reforms to strengthen the legal and regulatory landscape of doing business in the UAE. Retrieved from https://www.pwc.com/m1/en/tax/documents/new-commercial-company-law-in-uae.pdf UAE Trade-USA. (2016). Doing business in the UAE. Retrieved from http://www.uaetrade-usa.org/index.php?page=uae-economy&cmsid=105 World Bank. (2016). Starting a business in. Retrieved from http://www.doingbusiness.org/data/exploreeconomies/united-arab-emirates/starting-a-business Read More