There two way one can distinguish entities in UAE, first is based on the jurisdiction and second is based on the type of share holding that is most commonly used across the world. However, in UAE the implication of those shareholding based entity types can differ on the basis of their jurisdiction which is further explained in the article.
Jurisdictionally there are three types of entities -
1. Mainland Company
A company that is registered under the Economic Development Department of the respective emirate (province) of UAE such as DED (Dubai Economic Development Department), ADDED (AbuDhabi Department of Economic Development) etc
2. Free Zone Company:
A company that is registered in any of the free zones across the country and operates within the free zone.
3. Offshore Company:
A company that is registered under an offshore authority in UAE but conducts business activities outside of UAE or used only for the investment holding purpose within the UAE for instance, real estate holding, financial investment or parent holding company of the group.
Further, the entities can be distinguished based on the shareholding pattern.
Firstly, an entity with single share holder on mainland is called Sole Establishment but a similar set up in a free zone is called FZE (Free Zone Establishment) and if the activity under the sole establishment is professional in nature then it is called Professional License. The important part one should bear in mind is that the professional licenses are usually comes with unlimited liability and can pose a liability risk in case of any legal suit due to professional negligence.
Secondly, if there are 2 or more shareholders in an entity on mainland it is called an LLC company however, due to local regulations 51% has to be held by a local Emirati citizen who is popularly know as Local Sponsor for the company. Whereas if there are two or more foreign (expats) shareholders in a mainland company of professional nature like engineer firm or consultancy services then it is termed as Civil Company and just like professional license it comes with unlimited liability. Therefore it required a professional for ensure you structure your activities and entity type in a manner so that you minimize the professional liability and business risk in you company. However, in a Free zone it is not mandatory to have a local sponsor and that it how it differs from the mainland company which means the company in a free zone is a company limited by shares usually know as FZC (Free zone Company). The suffice may differ for each free zone but the nature of the entity will remain the same.
Lastly, one of the other popular form of entity type used but multi national corporations are branch offices which remains same in mainland and free zone. basically it merely means an extension of an existing entity whether with the country or from abroad. However, if it is a branch of a foreign entity then the documentation requirement increases along with the international legalization of the documents as well as additional approval from the Ministry of Economy for a branch of a foreign company license.
Hopefully this provides you with an overview of legal structures and entity types across UAE. If you looking for more clarity on which is the right one for your business then drop us a query by filling up the contact form and we would be happy to arrange a consultation call.