Joint Venture Agreement in Uae

A practice has developed in the United Arab Emirates where sub-agreements are concluded on the management of a joint venture. This practice is usually applied outside of the actual joint venture scenario, where a local shareholder is required due to foreign ownership requirements, but is not intended to be involved in the management of the company. As a result, these ancillary agreements often reflect provisions other than those contained in the statutes. However, the basic position is that any provision aimed at circumventing the relevant laws would not be enforceable and that if a case were brought before the local courts, the provisions of the constitutional documents would prevail in the event of a conflict. VAT on start-up costs should generally be exempt provided that they are properly invoiced to the joint venture and that the supporting documents are kept. Similarly, exemption from VAT for initial transactions between the joint venture and the shareholders may be granted by application for the composition of VAT. All parties to a VAT group are jointly and severally liable. There are several aspects to consider when structuring a joint venture in the UAE, including: A joint venture agreement often creates a public company that acts as a joint venture vehicle. Alternatively, a joint venture agreement can be entered into between a UAE company and a foreign company to simply enter each other`s markets. Once the first approval with the DED has been obtained, the joint venture must proceed in several steps in order to be able to start operations. The following documents must be submitted to the Dubai Commercial Register: Similarly, the applicable law of the joint venture agreement must be carefully examined.

In many cases, it may be more appropriate for the agreement to be governed by foreign law, even though the company`s operations will take place in the United Arab Emirates, especially if disputes between the parties to the adventure are to be submitted to arbitration. The term “joint venture” can have different meanings. The country attracts critical foreign investors, so they might consider partnering with UAE nationals or local companies. Joint ventures are no longer the only area for large multinationals carrying out large-scale projects. SMEs are increasingly using joint ventures to enter new markets and/or to use the know-how of the joint venture partner to develop new products. However, regardless of the scope of the project, joint venture agreements require careful review and development by experts. We strive to provide practical legal advice that fits your budget and reflects economic conditions. Regardless of the structure and purpose of your joint venture, our in-house lawyers have the multi-jurisdictional knowledge and experience to advise you on its structure and draft and negotiate strong and comprehensive joint venture agreements. How are intellectual property rights generally treated when forming, operating and terminating a joint venture in your jurisdiction? In the United Arab Emirates, it is not uncommon for the parties to enter into ancillary agreements regarding the management of a joint venture. Although the general position is that any agreement to circumvent the relevant laws would be unenforceable, it is still often logical to reflect the intentions of the parties in these agreements, especially if the agreements are subject to a law that recognizes these agreements and the parties have agreed to resolve any dispute through arbitration.

Federal Law No. 4 of 2012, as well as a number of implementing regulations (Competition Act), aim to regulate market behaviour, in particular with regard to abuse of a dominant position, merger control and the regulation of restrictive agreements. A joint venture is usually about obtaining an organization that is independently considered a joint venture vehicle. However, the most important step for any organization is to choose between setting up a joint venture with a company on the UAE mainland or a company registered in the free trade area. Free zones allow the shareholder to hold 100% of the company`s shares, compared to 49% on the mainland as a foreign investor and a mandatory 51% stake in the local company or individual from the UAE. However, under the new Foreign Direct Investment Law, foreign investors are allowed to hold a 100% stake in the company, provided that it meets the criteria established by the government under the law. Drafting joint venture agreements is not as simple as it seems. The contract defines the life cycle of a joint venture and two or more companies associated with the formation of such a company. Therefore, it is important to appoint dubai`s best corporate lawyers for the legally secure project of a joint venture agreement. Under joint venture agreements, it is common for the parties` shareholding to be subject to mechanisms that modify them, for example.

B one shareholder may subscribe to shares as part of a capital call, while the other may not dilute the latter shareholder in this way. It is therefore important that the provisions relating to the composition of the board of directors take into account the possibility of changes and allow the appointment rights of the board of directors to vary when a shareholder`s proportionate participation has increased or decreased. A VAT charge, if due, could be avoided if the parties are placed in a UAE VAT group, if all conditions are met and if the consolidation is approved by the federal tax authority. All members of a UAE VAT group are jointly and severally liable. In any joint venture, the financing arrangements must be carefully adjusted to reflect the method(s) chosen by the parties to finance the joint venture. There are several options, but a typical process would involve the joint venture`s board of directors (or senior management like the CEO) deciding that funding is needed. Following this “call for financing”, an agreed mechanism will determine from whom the financing is to be obtained (e.g.B. loans from banks or other third parties or equity/shareholder loans from shareholders). This would often be subject to shareholder approval, using the impasse resolution mechanism when shareholders are unable to agree on relevant issues within a set time frame (see the section on resolving impasses below for more details).

We are recognized in the market as experts in structuring and advising on joint venture agreements and believe that the following key factors clearly distinguish us from our competitors: What controls do you have in your jurisdiction with respect to directors appointed in an incorporated joint venture? How should a designated director balance the potentially conflicting interests of the joint venture and the shareholder appointing him or her? Are there certain factors in your jurisdiction that determine how a joint venture is structured? In addition to our structuring expertise, we also have extensive experience in advising on relevant joint venture documentation. Depending on the circumstances of the joint venture, various documents are required, but the main document is usually the joint venture or shareholder agreement. Important provisions in joint ventures or shareholder agreements If shareholders are required to contribute (usually in proportion to their holdings), the agreement should clearly specify what happens in the event of a default by one of them. For example, should the other shareholder be able to finance the deficit and receive additional shares, thereby further diluting the defaulting shareholder? Or should the other shareholder have the right to provide a shareholder loan up to the deficit and, if so, should that shareholder loan be ahead of all other shareholder loans and attract a preferential interest rate? Failure to comply with a financing obligation would also normally constitute a default, triggering the mandatory transfer provisions under which the non-defaulting shareholder can acquire the shares of the defaulting shareholder at a discount to market value (sometimes an option for the non-defaulting shareholder to sell his shares to the defaulting shareholder at a premium to market value is also included). These types of clauses are designed to incentivize shareholders to meet their financing obligations by providing the joint venture with the financing it needs to successfully operate its business. What are the most common governance issues that arise in joint ventures? How is this handled? The dividend policy must be clearly defined in the joint venture agreement in order to reduce the likelihood of litigation in the future. One possibility is to provide for the distribution of an annual dividend equal to a certain percentage of the annual profit of the joint venture. A more flexible option is to give the joint venture`s board of directors the ability to set an appropriate dividend amount on an annual basis. In both cases, it is important to include certain reserves – for example, dividends should only be payable to the extent that they comply with applicable laws (e.g. B as regards distributable reserves or minimum reserves) and should not result in the breach by the joint venture of any of its banking arrangements. Where it is envisaged that the parties will grant loans to shareholders to the joint venture, the agreement on joint ventures should specify that no dividend will be paid until all such loans to shareholders have been repaid in full. Payment of dividends would often be subject to shareholder approval, with the impasse resolution mechanism being used if shareholders are unable to reach an agreement within the allotted time (see the section on the impasse solution below for more details).

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