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5 April, 2021

Why Do I Need A Local Sponsorship for My Business Setup in Dubai?

The great dream of entrepreneurs is to foster their idea and turn it into a profitable business venture. A market like Dubai provides a wide set of opportunities due to its heterogeneous and cosmopolitan population, thereby rendering business ideas lucrative. In fact, UAE presents multiple investment options with a foreseeable return for individuals and businesses. The first and most important step in successful business venturing is to complete your business setup in Dubai. In order to complete your business setup in Dubai, a critical step is to bring in a local business partner (or local sponsorship).

What is Local Sponsorship in Dubai?

A local sponsorship is an individual or a company that is mandated to be a partner (or service agent) for a company that completes the business setup in Dubai. The definition of a business sponsor is derived from the Companies Law of Dubai. The local business partner (local sponsorship) can either be an Emirati individual with a passport, or can be a fully-Emirati-owned organization with a valid trade license. The Government companies’ law treats both of these entities alike in all matters corresponding to business setup in Dubai.

Local Sponsorship in DubaiRegulatory Compliance for Business Sponsorship Dubai

The role of the local business partner (or local sponsor) is to provide the much-needed support in the form of regulatory compliance. As mandated by the companies law in UAE, every business setup in Dubai (in mainland) must involve a local business partner (or local sponsorship), who will be owning majority shares in the entity. In case the business activity involves professional services allowing 100% business ownership, then the role of local business partner will be that of a local service agent.

What Is the Difference Between Local Business Partner And Local Service Agent?

The main difference between these two terms of “local business partner” and “local sponsorship” depends on the extent of involvement on the trade license. A simple grid showing the differences is as below:

DESCRIPTION

TYPE OF BUSINESS SPONSORSHIP
LOCAL BUSINESS PARTNER LOCAL SERVICE AGENT
Will the trade license require business sponsor to hold 51% or more? YES NO
What type of trade license will require the business sponsor? COMMERCIAL OR

INDUSTRIAL

PROFESSIONAL
Will the business sponsor be involved in profit-sharing DEPENDS NO
Will the business sponsor have voting rights? DEPENDS NO

How Can the Involvement Of Business Sponsor Be Limited?

Professional corporate consultancy services like CBS would typically curtail the involvement of business sponsor. While regulatory compliance mandates the need for a business sponsor to own majority shares on the trade license, the corporate service provider like CBS will help facilitate an internal agreement between the business owner and the business sponsor.

This internal agreement will clearly demarcate the role of the business sponsor, and usually limit it only to providing the name on documentary requirement. The profits, voting rights and ownership would all remain with the business owner. We have highlighted this difference in our earlier column here.

What Is the Advantage Of A Local Business Partner?

In order to continue the activities of the entity and to receive any grants and government subsidies, the local business partner is required to act as a local coordinator, an entity authorized by the appropriate authorities to act in the interests of the organization. It is important to reiterate that usually a local business partner will be a partner on paper and not in reality.

Some additional roles of a local business partner are:

  • To support in business development by providing access to their network
  • To aid in market intelligence, by providing important news and updates on Government and regulatory changes
  • To lend strong credence to the business
  • To provide support and information regarding important tenders and bids, especially with Government or semi-Government organizations
  • To provide the ability to obtain contacts of highly important and senior management professionals
  • To support the entrepreneurs and business b giving access to important events
  • To help increase visibility and awareness about the business, merely by being associated with it. In some cases the business sponsor also promotes the business on their own platforms

How You Can Maximize Your Benefit from Your Local Sponsor

  1. The most effective way to approach your local business partner, is by viewing and treating them as a strategic partner and a key stakeholder in your business.
  2. The local market expertise is a strong asset of the business sponsor – utilize it as a way to obtain important advice for your business from time to time
  3. Another recommendation will be to utilize the services of the local business partner for important administrative functions. In most cases, the business sponsor would help your firm by providing outsourced corporate services such as marketing, accounting, bookkeeping, payroll processing and other ancillary services.
  4. Use the business sponsor as a key element to gain trust for your business. For important meetings, especially with Government entities, it would help to take the sponsor along, as this would add the much needed weight.
  5. The local business partner also provides important information (and in some cases the ability) to join business groups and councils.

In sum, the local business partner can add strategic importance to your business. While the business sponsor is an unavoidable requirement for certain types of businesses, the benefits of the local business partner far outweigh the challenges. To obtain your maximum benefit, make it a point to spend more time in engaging with the right corporate consultancy services provider. Reach us for a free consultancy session.

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