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FORMS OF BUSINESS

ORGANIZATION

COMMERCIAL LAW &

PRACTICES IN THE UAE

Slava Liachenko

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SOLE PROPRIETORSHIP

Unlimited and personal liability for the debtsof the business

All the property may be seized and sold If the business goes bankrupt so does the

owner The proprietor is only one person who

manages the business

Profits considered as personal income of thebusiness owner

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SOLE PROPRIETORSHIP

Profits are taxed as personal income

Termination when the proprietor dies or cease

doing business A person is required to register sole

proprietorship and paid the required fees for

registration and update each year when this

person DOES NOT use his own name as thename of business

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GENERAL PARTNERSHIP

When 2 or more people agree to operatebusiness together they produce verbal orwritten CONTRACT OF PARTNERSHIP

Personal unlimited liability for the debts Partners are solidarily liable for the debts any

one or more of the partners may be required topay all or part of any debt

Profit is considered personal earnings of thepartners (depending on their shares) Profit is taxed as personal income

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GENERAL PARTNERSHIP

Only one arrangement is NOT permittedwhich excludes a partner from any share

of the profit so, the partner MUST havesome shareThe partners will agree between

themselves in how to manage the

business everything is usually reflectedin partnership agreement (written one isnot required by law but suggested)

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GENERAL PARTNERSHIP

Termination can be done when any partner becomes

dead or bankrupt, by accomplishments of the

objectives, bankruptcy, or by agreement between

partnersAll partnerships are required to register a Partnership

Declaration. This document becomes public

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LIMITED PARTNERSHIP

LIMITED PARTNERSHIP differs in the liabilityfor debts and in the right to participate inmanagement

The general partners are unlimitedly andsolidarily liable Special partners are liable only to the extent of

stipulated amount that they have contributed. Ifthe amount is NOT stated they are alsosolidarily liable

Special partners are not permitted to take partin day-to-day management no active role

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LEGAL DISTINCTION BETWEEN

OWNERSHIP AND BUSINESS

In proprietorship and partnership there is no

LEGAL DISTINCTION between the owners and

the business -- they are one and the same, and

unlimited personal liability is a result Usually because the business is small, the

owners of these two do not object to be

exposed to debt that is not great enough to

wipe them out

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LEGAL DISTINCTION BETWEEN

OWNERSHIP AND BUSINESS

If the business owners, however, speak about

hundreds of thousand and millions of dollars,

there is not many people who are prepared to

bear this kind of risk Therefore, before letting the business to grow,

the owners usually look for the way to limit their

liabilities for debts

In CORPORATIVE form of business, ownershipand business itself are separated from each

other

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CORPORATION: MAIN

FEATURES

The main difference a corporation is created by thegovernment as a separate legal person. This person is afiction of the law because it does not exist PHYSICALLY

The form Articles of Incorporation with the fees are sentto the Government, and if the form is filled correctly, verysoon the owners receive Certificate of Incorporation.This way, a separate legal personality is created

If the corporation does not have the funds to pay thedebts, no creditors can come to the owners and ask themto pay the balance. The creditors simply have to take theloss. Therefore, creditors usually take great care beforethey extend credit to corporations

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HOW OWNERS PARTICIPATE IN

A CORPORATION?

1.They can be employees and receive salary 2.They can hold small units of ownership

(shares)

Owners invest money by buying shares The balance of the shares remains in the

treasury of the corporation to be sold in thefuture if the corporation requires additionalcapital

The profits from the shares (dividends) aredivided between the holders of the shares orreinvested

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LIMITED LIABILITY FOR DEBTS

A person who invests money in the

shares is protected against the loss of

any further funds, beyond the amountpaid for the shares

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TRANSFERABILITY OF SHARES

The ownership in sole proprietorship or inpartnership is a personal matter

In corporation an ownership is objective since it can

be transferred to one or more other persons SHARE CERTIFICATE is the evidence of

ownership

The transfer of persons shares does not in any way

affect the legal existence of a corporation. Thecorporation continues to operate

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IMMORTALITY

A corporation will exist forever unless:

The shareholders decide to end its

existenceBankruptcy

Violation of law order of a court

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DISADVANTAGES OF

CORPORATION

more complex forms and financial structure

that usually requires professionals and lawyers

expensive to start (usually a lawyer or a notaryis needed to ensure that everything is done)

must observe government requirements

double taxation

difficult to keep operations and results secret

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STRUCTURE OF MANAGEMENT

Shareholders delegate their authority to operate thecompany to a group elected by them Board of Directors

That directors of companies are not required to holdshares, and there may be any number of directors.However, if the shares are distributed to the publicgenerally, there must be at least 3 directors, 2 of whomare neither officers nor employees of the corporation

The majority of the directors must be resident

The appointed officers can be from inside or outside ofthe corporation

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THE POWERS

POLICY-MAKING VS .

IMPLEMENTATION Board of Directors

vs. President and other officers