Get a free consultation with a personalized review of your situation
By clicking the "Get a Consultation" button, you agree to the Privacy Policy
Nominee Director in the UAE: Risks and Ways to Protect Yourself
The United Arab Emirates is an attractive place to do business, offering a stable economy, developed infrastructure, and a favorable tax climate. However, using a nominee director (or founder) to register a company, while simplifying some procedures, carries significant risks. The tempting opportunity to avoid personal liability and simplify bureaucratic processes can result in serious financial and legal problems. In this article, we will examine these risks and suggest effective ways to minimize potential threats.
Several factors have contributed to the popularity of nominee persons in the past:
Opening a local company.
Until recently, opening a business in the UAE required significant local capital participation. Many foreign investors, wishing to avoid the complex procedures of finding and attracting local partners with real participation in the business, resorted to the services of nominee shareholders. These individuals provided formal ownership of the company's shares, allowing foreigners to control the business de facto, but not de jure.
Until recently, opening a business in the UAE required significant local capital participation. Many foreign investors, wishing to avoid the complex procedures of finding and attracting local partners with real participation in the business, resorted to the services of nominee shareholders. These individuals provided formal ownership of the company's shares, allowing foreigners to control the business de facto, but not de jure.
Confirmation of economic presence.
Having a director or shareholder who is a citizen of the Emirates could help demonstrate a real presence in the country and meet business localization requirements. This was particularly relevant for organizations applying for licenses or participating in government tenders.
Having a director or shareholder who is a citizen of the Emirates could help demonstrate a real presence in the country and meet business localization requirements. This was particularly relevant for organizations applying for licenses or participating in government tenders.
Simplification of paperwork.
In some cases, the use of nominees simplified the bureaucratic procedures associated with registering and conducting business. Knowledge of local legislation and the connections of nominees could speed up the process of obtaining the necessary permits and licenses.
In some cases, the use of nominees simplified the bureaucratic procedures associated with registering and conducting business. Knowledge of local legislation and the connections of nominees could speed up the process of obtaining the necessary permits and licenses.
Enhancing reputation.
In some situations, the presence of a respected (albeit nominal) person in a prominent position could increase the trust of potential partners and customers in the company. This created the illusion of a solid and reliable business structure.
In some situations, the presence of a respected (albeit nominal) person in a prominent position could increase the trust of potential partners and customers in the company. This created the illusion of a solid and reliable business structure.
In recent years, the UAE has been actively working to improve the business climate and simplify the procedures for registering and conducting business. Local capital participation requirements have become less stringent, and registration processes more transparent. As a result, the need for nominee directors has significantly decreased.
In the current situation, the main danger is associated with the dishonesty of the nominal director. Formal appointment does not guarantee reliability and honesty.
In the current situation, the main danger is associated with the dishonesty of the nominal director. Formal appointment does not guarantee reliability and honesty.
A nominee who has no real interest in the business may use their position to:
- Illegally withdraw funds. This is one of the most common scenarios. A nominal director may have access to the company's bank accounts and make unauthorized transfers of funds.
- Changes to the founding documents. Without the knowledge and consent of the beneficiary, the director may make changes to the founding documents, which may lead to a loss of control over the business and its assets.
- Fraudulent transactions. He may also enter into transactions on behalf of the company that are contrary to the interests of the real owner, such as entering into contracts with fictitious companies or transactions with undervalued assets.
To minimize risks, it is necessary to take a number of important steps, which consist of legally formalizing all agreements:
A detailed agreement between the beneficiary and the nominee.
This is a key document that clearly defines the rights and obligations of each party. The agreement should contain a detailed description of the director's powers, the decision-making process, the mechanism for controlling financial flows, the procedure for transferring management of the company to the beneficiary, and the liability of the parties in the event of a breach of the agreement. It is important that the agreement is drawn up in English and notarized.
This is a key document that clearly defines the rights and obligations of each party. The agreement should contain a detailed description of the director's powers, the decision-making process, the mechanism for controlling financial flows, the procedure for transferring management of the company to the beneficiary, and the liability of the parties in the event of a breach of the agreement. It is important that the agreement is drawn up in English and notarized.
Use of collateral.
For additional protection of the beneficiary's rights, the organization's assets can be pledged in favor of the beneficiary. This will provide a financial guarantee in case of dishonest actions by the nominee director.
For additional protection of the beneficiary's rights, the organization's assets can be pledged in favor of the beneficiary. This will provide a financial guarantee in case of dishonest actions by the nominee director.
Conclusion of option agreements.
An option agreement gives the beneficiary the right to buy out the company's shares from the nominee at any time under certain conditions. This provides additional control and the ability to respond quickly to adverse situations.
An option agreement gives the beneficiary the right to buy out the company's shares from the nominee at any time under certain conditions. This provides additional control and the ability to respond quickly to adverse situations.
Drawing up a will by the nominee owner.
Although this will not prevent unlawful actions during the nominee's lifetime, the will guarantees that in the event of his death, the shares in the company will pass to the legal beneficiary, bypassing the nominee's potential heirs.
Although this will not prevent unlawful actions during the nominee's lifetime, the will guarantees that in the event of his death, the shares in the company will pass to the legal beneficiary, bypassing the nominee's potential heirs.
Using a nominee director in the UAE can simplify business registration, but it can also involve certain risks. Thorough legal preparation and detailed agreements are key to protecting your interests. We recommend using the services of Openbiz lawyers, as well-drafted documents and the choice of a reliable partner will help you avoid serious problems in the future.
Get a free consultation
with an individual analysis of your situation
By clicking on the "Get a consultation" button, you agree to the Privacy Policy
Might be interesting:
«Legal and accounting services in UAE»
© Uae-openbiz. All rights reserved
BUSINESS SERVICES