Local sponsor is a generic term used in Dubai and the UAE to refer to nominee shareholders or sleeping partners and local service agents in mainland companies that have foreign investments in the area. It is important for the sponsor to be Emirati and possessing a family membership card or Gincia. It is mandatory to appoint a local sponsor when you are setting up a business in mainland Dubai.
The Nominee Partner or Sleeping Partner’s Role in LLCs
According to the Company Laws and Civil Law in the UAE, to set up a limited liability company or LLC in the mainland, which means that the company is non-offshore and non-free zone, it is a must to have local equity of at least 51 percent. Despite having foreign equity that does not exceed 49 percent, both concerned parties can still agree on the distribution of profits. Complete operational ability is also given to the foreign partner or partners or even a third party as stated on the memorandum of association. It is only UAE nationals or companies that are 100 percent owned by UAE nationals will be considered as a nominee partner and will be paid a lump sum amount every year.
The Role of the Local Service Agent
The local service agent is necessary for branch of foreign companies and civil companies or single owner of a partnership with foreign investments for them to comply to the business regulations. These agents are not required to share in the company, and they are not also involved in the company’s operations. They are paid a lump sum amount annually.
On Market Practices of Sponsors
Sponsors under normal circumstances do not interfere in the business operations. Operational powers are given to the managing director or manager, but the local sponsors still have power to sign on any immigration and labor-related affairs of the business. They also have no limit on the number of companies that they can sponsor. There are UAE nationals who are sponsors of hundreds of companies.
There are some business owners who do not have direct access to local sponsors. They have lawyers, consultants, or PROs to help them with it. The relationship between the lawyers, consultants, and PROs and the client are significant. There are also instances when the local sponsors have too busy schedules and they are not available when their presence is required.
The E-Signature Card
Majority of the company owners are not registered with the labor department. This is why sponsors’ e-signature cards are required for work permit applications.
The Corporate Nominee Sponsorship
All LLCs across the UAE can have the corporate nominee sponsorship. In this case, the sponsor must be a corporate entity and not an individual. The benefit of this arrangement is the difference between the personal relationship-based traditional sponsorship and that of an agreement-based new system. The entity functions as a nominee which is chosen by the board of directors and he or she holds the power of attorney to act on the company’s behalf.
This implies major benefits for a foreign party particularly in succession planning from the viewpoint of corporate governance, transparency, and other aspects. It is the usual worry of companies when they enter the market if the local partner is accountable enough or else they might suffer the ramifications of the local partner who is losing his or her mind. In the case of the corporate entity, the contractual terms are still binding. This translates to more robustness in the arrangement compared to having an individual local partner.
Corporate nominee sponsors are only allowed for LLCs and not for foreign company branches or civil partnerships.