Complete guide about local sponsor

If you want to set up a business in the UAE, outside the free zone then local sponsor involvement is mandatory by law. As a new entrepreneur, you will have tons of questions regarding a local sponsor like who is this person, what the role of a sponsor is, and how you can find or change one.

Since you have so many questions, I decided to create an ultimate guide on this subject matter. The purpose of this guide is to answer all the questions you have. Let’s get started with the basic question.

Who is a local sponsor in the UAE?

A local sponsor in Dubai is an Emirati or UAE resident. This can be an individual or company. So, a local investor is a UAE National or company that provides guidance and support regarding efficient business setup to a foreign investor.

According to UAE Companies Law and Civil Law, if you form a limited liability company in the mainland, then you need to provide 51% of the share of the company to a local investor. As a foreigner, you hold 49% of ownership of this LLC. This share distribution is defined by law but as far as profit distribution is concerned, it will be mutually agreed upon by a foreign investor and the UAE national who is your sponsor.

There are some professional and civil companies where a foreigner holds 100% ownership of a mainland company formation in Dubai but still a local sponsor works as a Local Service Agent/ LSA.

Types of local sponsors in the UAE

There are three different kinds of local sponsors you can find in the UAE. Below you can find their complete details:

1. Corporate local sponsors

This local sponsor can be a company or government that holds a minimum of 51% equity in your business. What kind of corporate local sponsor you hire depends on your business type.

2. Individual local sponsors

A foreign investor usually prefers to make a partnership with a UAE or Emirate local. This individual isn’t involved in the business activity yet holds a minimum of 51% shareholding in a foreign business.

3. Local Service Agent as a sponsor

It’s a UAE national who works as a local service agent for you. This individual will deal with the government department on your behalf. LSA is usually a passive partner who provides support and guidance regarding local rules and regulations.

Role of a local sponsor in your business

As a foreign investor, you are required by law to share 51% of ownership with a local sponsor. Now you might be wondering what the role of this shareholder will be. So, let’s find out more:

Legal representation

A local sponsor will provide you with assistance during government deals and legal matters. The local investor will sign contracts and applications on your behalf.

Visa sponsorship

Sponsor will offer sponsorship for foreign company employee’s visas and work permits. This individual or company can cancel the labor status of your employees.

Compliance and licensing

You need to pick an experienced local sponsor who will help you in getting work permits, trade licenses, and approval for business. This expert is familiar with local laws and regulations, thereby the sponsor will streamline the application and approval process on your behalf. If your trade license needs renewal, the sponsor can handle this matter as well.

Local knowledge and network

You need to build new connections and networks in the UAE. So, a local sponsor will come to offer you valuable information and insight about the UAE business market.

Business setup guide

When it comes to setting up a business in the UAE, you can count on your local sponsor. This person will assist you regarding office space lease and business registration in the UAE. If your business has some outstanding debts, the local sponsor will address them. This individual or company can also handle closing of your bank accounts.

How to find a local sponsor in the UAE?

Since you are required by law to involve a local sponsor in your new business, thereby you must have to locate a local sponsor. Finding a reliable and trustworthy investor who is going to share a 51% equity of your business isn’t an easy task. But here is how you can do it right:

Step 1:  Find a trustworthy sponsor

If you are going to pick an individual sponsor, make sure that person has a good background and reputation. When you are confused or have some doubts about an individual, it’s a good idea to talk with business consultants like Prosper. We can help you find a reliable and trustworthy local investor or local service agent in the UAE.

In case you plan to go with a corporate sponsor, it’s a good idea to go with one that matches your business requirements. Background check is a must in both individual and company sponsor cases. Besides, investigate communication skills because that person is going to deal with authorities on your behalf. Lack of communication skills could be an issue.

Step 2: Decide about fee

Once you find a trustworthy sponsor, the next step is to discuss compensation, benefits, profit, and fees. There is an average local investor fee for some specific business of around 8000 AED per year, but this fee changes from business to business.

Try to maintain a proper record of your agreement. If you don’t know about the standard fee of a local investor, consult with our business expert at Prospr. We will guide you through the market competitive rate and ensure that you won’t pay more than the standard compensation.

Step 3: Sign the agreement

Once you decide about profit sharing and compensation. The next step is to sign an agreement. Sometimes sponsors claim that they have a vast network, and they make many different claims. Don’t take their word for it, instead, double-check their network and claims before signing any agreement.

How to change a local sponsor in Dubai?

Do you want to change your local sponsor in Dubai? Here are some steps you need to follow:

1. Talk with your current sponsor- You need to communicate this matter with your current sponsor. If there is any disagreement or issues, try to resolve them outside the court.
2. Discuss the matter with shareholders-You should involve other shareholders in this matter. They must know the main reason why you are changing your current sponsor. Try to reach a collective agreement for this change.
3. Prep the document- If you have decided to change the local sponsor after consulting with shareholders, you should start collecting the required documents such as labor and immigration documents, a notarized Memorandum of Association (MoA), etc.

4. Submit a court application-Share all the required documents confidential with your jurisdiction or court. You need to submit an application stating your request for changing your current local investor. This process will become legitimate after your existing local investor acknowledges this change. Authorities will file a new application for your trade license renewal after completing the verification process. Next, you need to find a new local sponsor.

Read the detailed guide about how to change or remove local sponsor in Dubai?

Propr helps you find a local sponsor in the UAE. Our business consultants are available to support and assist you regarding your company formation or local sponsor search in the UAE. Feel free to set up a meeting and start a prosperous business journey in Dubai.