Opening a Large Restaurant in the United Arab Emirates - Assignment Example

Opening a Large Restaurant – Project Name: University: Date: Opening a Large Restaurant – Project Part A The United Arab Emirates is widely recognised for its successful entrepreneurial enterprises as well as supportive business climate. To create a company in UAE, one must follow flexible procedures and transparent steps in order to be successful in mere days. The first step will involve determining the legal form and activity. To initiate the business license issuing procedures, the type of business activity (in this case a restaurant) have to be specified. Furthermore, fees, conditions, as well as requirements vary based on the nature and type of activity. In UAE, the Department of Economic Development (DED) consistent with international objectives to systematise the economic activities has espoused the United Nation’s ‘International Standard Industrial Classification’. In order to create a company to open a restaurant, the owners must first apply for tourism licence, which normally given to facilities’ owners specialising in tourism-related activities like a hotel. In this case, Abu Dhabi Tourism & Culture Authority (TCA) is the entity tasked with issuing the licence. The second step is registering the company’s trade name: the business owners would have to choose a unique name for the company in order to differentiate it from other companies. More importantly, the trade name that would be chosen must reflect the nature of company’s legal status as well as business activity. For the Trade Name to be registered it must meet a number of conditions set out by the Department of Economic Development: The trade name should be new (never been registered; the trade name should be well-matched with the legal status and business activity; the name should not violate public order and law and must not have religious or other institutions name in it. (Abu Dhabi Government, 2016). The third step involves getting approvals, whereby the owners are required to make application for DED’s preliminary approval in order to procure other approvals swiftly and easily. Even though the majority of economic activities need just the preliminary approval, applicants seeking to open a restaurant would have to approach other authorities recommended by the Department of Economic Development. The validity of the preliminary approval according to Department of Economic Development (2014) is three months from the date of issuance. Upon expiring, the applicants have to get a new certificate prior to moving to the licencing step. Licensing is the fourth step where the applicants are offered a certificate that enables them to efficiently run their restaurant business according to the conditions and terms specified by DED’s laws as well as regulations. In Abu Dhabi, Law No (2) regarding licenses issuance regulates every form of commercial activities as well as the issuance of licenses. According to this Law, no person or legal entity is allowed to practice any form of economic activity before getting a license from the concerned authority. After the company has obtained all the important approvals, the applicants are supposed to pay some fees to the DED, finish all paperwork, submit documents, and obtain the business licence. The fifth step is establishment, which is a facility that has been licensed to practice the economic activity (restaurant). Commonly, the establishment financial liability lies on the owner bearing every financial obligation. The establishment could take different legal forms: Sole proprietorship, company, General Partnership, Limited Liability Company (LLC), or Limited Partnership Company. If the company is created by foreigners, they must hire a legal translator to translate their foreign documents into Arabic and should be verified by the Ministry of Justice. After the applicants have obtained approvals, the can now lease premises where to open the restaurant. Importantly, the business site must be approved by the Department of Economic Development and other relevant authorities.  While preparing for the final application and approval, Yap (2013) posits that the applicants should prepare the needed documents and make sure that they have met every legal requirement before submitting their final business license application. This normally happens after receiving the initial approval. The applicants should submit their final application within three months after obtaining the initial approval. It is crucially important for the applicants to take into account a number of requirements and stipulated under the UAE law before creating the company. For instance, the UAE Law states that foreign entities seeking to open a company in UAE only have five options: establishing a branch office; creating a permanent establishment; creating a business entity within the UAE’s free zone; entering into an agreement with the commercial agencies; or, creating a civil company (only in Dubai as well as Sharjah). As stipulated by the Commercial Companies Law (CCL), all companies created in UAE must have one or more Emirati partners holding not less than 51% of the company’s capital. However, the 51% requirement is exempted for companies created in the free zones only if some unique provisions regulate the company. Part B According to Sweeney (2013 ), business owners normally prefer Limited Liability Companies (LLCs) and corporations as their company’s legal form because it reduces their individual business’s debts liability; that is, in case the business collapses, the debtors are restrained from seizing the personal assets of the executives, directors, or members in order to settle debts. Sweeney (2013 ) maintains that both LLCs and corporations offer some form of protection; however, corporations normally experience some challenges because of the strict requirements set forth regarding how they make and report decisions. The best legal form for a restaurant the LCC because of the reduced risks and have fewer requirements as compared to corporations. Without a doubt, opening a restaurant is a challenging task since it involves creating a menu and looking for suppliers. Furthermore, a new restaurant needs a particular corporate structure in order for it to become completely legitimate. The process of legitimising the business normally influences the restaurant's liability and tax structure, as well as other crucial qualities. The restaurant can take numerous company layout such as limited liability company (LLC), sole proprietorship, S corporation, partnership, as well as C Corporation. With the view to these layouts, LLC is the most suitable legal form for the restaurants because it offers a cost-effective and secure solution to the owners. The LLC is normally protected against different forms of liabilities; therefore, in case the customers are affected by the food offered at the restaurant, the business would be responsible for business problems, but the owners would not be held personally accountable. Therefore, the idea that the owners are not held responsible for the damages caused by the business makes LLC the best legal for a restaurant (Farrell, 2007). A sole proprietorship is another legal form that can be espoused by the restaurant since there is no legal distinction between the owner and the business. However, this legal form is very disadvantageous because the business owner is personally as well as legally responsible for losses, loans, debts, and other issues incurred by the business. Furthermore, a sole proprietorship ties business liability directly with personal liability; therefore, in case the restaurant accidentally serves allergic food to the customer and a legal suit is filed against the business; the owner’s personal assets could also be affected. Therefore, a sole proprietorship is not suitable for the business because it has high risks. Even though, a sole proprietorship is considered somewhat inexpensive to start and offers the owner a complete control over the business, it has unlimited liability since it can affect customers relationships with the owner and could drain the owner’s life savings to pay some accidental damage. A partnership is another legal form that the restaurant can take, but it is almost similar to sole proprietorship apart from the fact that the business is owned by multiple parties or people rather than the one individual. In Partnership, Prakash (2015) posits that all the involve entities contribute capital, skills, labour or property to the business, and they will all share the business income according to their contributions. S Corporations are not suitable for the restaurant because they ate companies, which normally pass corporate credits, losses, income, as well as deductions to their shareholders which as a result, affect their federal taxes. This structure is not suitable because it is intended for large companies that have grown into the corporate scene, rather than start-up restaurant. Furthermore, owners of the s-corporations are accountable for workplace incidents: therefore, considering that accidents are common in restaurants’ kitchens, S corporations will not be a suitable structure. C Corporations is another form of structure not suitable for the restaurant since the owners must assets amounting more than $10 million, but it is suitable based on tax laws and liability. With the view to the abovementioned legal forms, it is clear that LLC is the most suitable structure for the restaurant since the owners’ assets would be protected in case of legal actions such as lawsuits. Partnerships and sole proprietorship are not suitable for a large restaurant because the owners are held responsible for any incident that arises at their business premises. Corporations are also suitable because they limit the business owners’ personal liability; however, the LLCs offer extra merits since they are flexible and simple and do not need managerial formalities such as shareholder meetings and a board of directors like in corporations (Farrell, 2007). As mentioned by Kashif (2016 ), to start a Limited Liability Company in UAE, the company should be coined from its objectives of the name of the partner. More importantly, the LLC should have adequate capital in order to accomplish its objectives and the shareholders have the right to know the value of their shares. In addition, the loss or profits made by LLC should be shared equally between the shareholders and the company’s managers should be selected by the partners or one of them. The ownership rule of LLC in UAE is that not less than 51 per cent of the LCC’s capital should be owned by an Emirati, but nationals from the GCC can own 100% of the LLC. In addition, the public cannot be offered the LLC shares and the company cannot secure loans or increase its capital by resorting to the public subscription (Kashif, 2016). The unsuitable structure for the restaurant include civil company, which normally is a professionals’ business partnership in the fields of accountants, engineers, as well as lawyers. Another suitable structure is the public shareholding company, which requires at least AED 10,000,000 as capital (Kashif, 2016 ). Part C To open a restaurant, the owners must undertake a number of legal and government procedure with the DED and other government agencies. First, the owners must obtain a restaurant licence from Abu Dhabi Tourism & Culture Authority. Then, the owners must obtain a trade licence from either DED or the Department of Tourism and Commerce Marketing. More importantly, restaurant owner has to select the suitable legal form of the business that could suit the type of restaurant that would be opened. Given that LLC has been selected as a suitable structure, the license would clearly highlight the activities that will be undertaken in the restaurant. After obtaining the restaurant licence and trade licence, the owner should apply for construction plans approval, which has to be in line with certain specifications. Such specifications are formulated by Abu Dhabi Food Control Authority, and the restaurant’s blueprint should contain information such as: Washing machine location Food processing and storage space Restroom The ventilation systems and windows The location of food processing equipment The passages for entry and exit More importantly, the restaurant should be positioned at least 30 meters from the location where wastes are disposed in order to avoid any form of contamination. To get food licence in UAE, the owners must submit a number of documents to Abu Dhabi Food Control Authority: the premises layout, DED’s first approval, and planning department approval in case the restaurant is positioned outside the shopping centre. Furthermore, the restaurant has to obtain a number of licenses in order to ensure food safety: Vehicle permits for the 10 delivery vehicles A release license for the food consignment Permit to handle and serve pork products To construct a restaurant or lease space in UAE, the owners must adhere to a number of requirements; the restaurant should offer suitable as well as enough equipment space, which will be utilised for this form of business activity. Furthermore, the building should offer enough space for cleaning, disposing wastes, and evacuating people in case of fire. In addition, the building should be pest-free and the flow of food should be only in one direction. Storage areas and toilets have to be separated from the cooking space. The process description to open a tourist restaurant includes; submitting the needed documents to the Abu Dhabi Tourism Authority (ADTA) head office or other related offices; paying the required fees; completing the classification and inspection procedures; and, getting the license. To apply for the restaurant license, the owners must submit copies of applicant’s passports, lease contracts and original copies of food control authority certificate, applicant's signature authorization, and trade name reservation. After paying the Tourist restaurant licence fees, the tourist restaurant can establish their business in certain locations; tourists’ locations, archaeological sites, and locations offered by the Council (Abu Dhabi Government, Tourist Restaurant Licence, 2016). In order to be a restaurant license holder, the applicant must be: 21 years of age, should not have hold expired licenses, must meet the criteria set out by DED for restaurant businesses. More importantly, the trade name presented to DED for approval should be unique, does not contain political connotation or breach the UAE’s traditions, customs and Islamic Sharia. In addition, the economic name should be harmonious with reality and should not contain details of UAE flag or other countries. The fees charged for trade name applications are grouped into four sets; AED1000 for the name of significance and name of the country, AED200 for Arabic Name, and AED3000 and Foreign name. In order to register the LLC restaurant, the owners must follow the following procedures set out by DED; Fill out the form for licencing Provide copies of passport of every partner for a foreign company or copies of identity cards for the UAE citizens. Submit a passport copy of the competent manager if he/she is not one of the partners. Provide evidence of capital by submitting original copies issued by a financial institution or a budget declaration that is in line with DED's requirements and approved by a certified accounting auditor. Search for approvals from other governmental bodies such as Abu Dhabi Tourism Authority, Abu Dhabi Food Control Authority, and Department of Tourism and Commerce Marketing. Approval from the Chamber of Commerce for foreign partners Providing original lease contract as well as the copy of the title deed for the property after Inspection Division provides approval for the site. A partnership contract endorsement from the Ministry of Economy and DED notary After following the procedures listed about, the restaurant will certainly get the licence to operate in any part of UAE as long as it follows the rules and regulations set out by the DED. References Abu Dhabi Government. (2016). Starting a Business. Retrieved from Abu Dhabi Government: https://www.abudhabi.ae/portal/public/en/business/business_startup_and_operationalisation/starting_a_business_in_abu_dhabi?_adf.ctrl-state=13nma74gx5_4&_afrLoop=11935242321561161#! Abu Dhabi Government. (2016). Tourist Restaurant Licence. Retrieved from Abu Dhabi Government: https://www.abudhabi.ae/portal/public/en/business/business_startup_and_operationalisation/commercial_licensing/service72?docName=ADEGP_DF_17406_EN&_adf.ctrl-state=sfq0gmzkh_4&_afrLoop=11938001414878154#! Department of Economic Development. (2014). Service Guide Details. Retrieved from Abu Dhabi Department of Economic Development : https://ded.abudhabi.ae/en/our-services/service-guide/start-new-business Farrell, M. (2007, February 2). How To Run A Restaurant: Legal Structure. Retrieved from Forbes : http://www.forbes.com/2007/02/02/smith-wollensky-llc-ent-manage-cx_mf_0202fundamentalscorp.html Kashif, N. (2016 , April 20). Legal forms of business and ownership rules in the UAE. Retrieved from InBusiness: http://inbusiness.ae/2016/04/20/legal-forms-of-business-and-ownership-rules-in-the-uae/ Prakash, P. (2015, May 12). Best Business Structure: LLC vs. S Corp. vs. C Corp. & Others. Retrieved from Fit Small Business: http://fitsmallbusiness.com/llc-vs-s-corp-vs-c-corp/ Sweeney, D. (2013 , November 13). LLC or Corporation? How to Pick the Right Business Structure for Your Startup. Retrieved from The Huffington Post: http://www.huffingtonpost.com/deborah-sweeney/llc-or-corporation_b_3916836.html Yap, L. (2013). Key Steps to Registering Your Business in the UAE. Retrieved from SME Toolkit UAE: uae.smetoolkit.org/uae/en/content/en/54808/Key-Steps-to-Registering-Your-Business-in-the-UAE Read More