Are You Frustrated With Your Local Sponsor? Here's What You Can Do

11th August 2022

Business relationships are very much like marriages. The dating phase is like getting to the know the other party and building up trust. The wedding is like the notarizing of the documentation to seal the agreement. The early part of the marriage can be like the early days of the business relationship, i.e. finding out what it is really like being partners and all the things you wish you had known before. Then, sadly, when there is a breakdown in the relationship, which can’t be reconciled, things turn bitter and nasty and one party starts looking for a new partner, fully aware now of all the characteristics they are looking for in a new partner and the boxes that new partner needs to tick. The old relationship ends in divorce and a new marriage starts.

Background about local sponsors

Many Limited Liability Companies (LLCs) on the mainland in Abu Dhabi and Dubai have a local sponsor. The local sponsor can be either an Emirati individual or a company which is 100% Emirati-owned.

Until recently, foreign companies could only own a maximum of 49% of mainland LLCs in the United Arab Emirates and a local partner/sponsor was need to hold the balance of the shares (51%). As per the Foreign Direct Investment Law, Decree No. 19 of 2018, the restrictions on foreign ownership were relaxed for some business activities, allowing up to 100% foreign ownership. In such instances where a foreign company takes advantage of the ability to fully-own their LLC, they no longer need to engage a local sponsor, but are required to engage a local service agent, similar to foreign branches.

For new companies coming into the Abu Dhabi and Dubai markets for the first time, it can be difficult to identify and appoint a local sponsor, particularly if they have limited business connections, aren't really sure of what they should be looking for, and don't understand the true impact an ill-informed decision could have on their business. Therefore, it is not uncommon for such companies to meet a prospective local partner, hear all the good things they want to hear, not carry out proper due diligence, and jump into an agreement in haste, only to regret it later.

What goes wrong with local sponsors?

There are a variety of things that can go wrong, including:

unfulfilled promises of work and contracts
unfulfilled promises of introductions to industry connections in the local market
unresponsive when assistance is needed
suspended work permits, due to MOHRE blocks as a result of lack of management of their other sponsored companies
long term requirements change

The above are just a few things that can cause relationships with local sponsors to break down. They can have huge impact on the day-to-day running of the business, e.g. if the company is needing the local sponsor to sign a document and has to wait weeks (even months) with lots of chasing up along the way. They can also have huge impact on the success of the business, e.g. if the company has been promised work and is relying on it but it doesn't materialize, cash flow can quickly become an issue. In general, when the relationship breaks down, it usually causes a lot of stress and frustration, takes up time and distracts attention away from the running of the business. However, these can be mitigated if appropriately engaging a professional sponsor.

What is the solution?

For anyone feeling trapped in a business relationship, communication is key. But, when talking doesn't improve the situation, it may be time to look at terminating the local sponsor relationship and finding a new sponsor.

Unless the company has signed an exclusivity agreement with clauses restricting it to stay with that particular local partner for the duration of their time in the UAE and on any future registrations they might have in the UAE, it is possible to change your local sponsor.

Don't be surprised if the local sponsor suddenly starts co-operating and trying to resolve the issues to find common ground when they learn their sponsored company wants to move away from them. It's amazing how that can act as a catalyst and might prevent the need for changing. Wise companies should use their improved knowledge and experience of local sponsors to negotiate and document any new agreements reached to ensure they get what they need.

Changing a local sponsor is actually quite common and a relatively straightforward process. It can be completed in less than a month once the corporate documents are in order, assuming the incumbent local partner is co-operative. For any nasty or particularly difficult situations, legal assistance may be needed and Gateway Group can connect you with lawyers experienced in handling such cases to get you the outcome you need.

Gateway Group's experiences of changing local sponsors

From our own experience, when companies approach us to switch away from their local sponsor, it is usually due to a break down in the relationship. Surprisingly, it is rarely due to the fees they are paying. Often its as a result of their lack of research, market intelligence and due diligence up front, which has resulted in disappointment and unfulfilled expectations.

Changing your local sponsor in Abu Dhabi and Dubai

So, if you are not happy with your existing local sponsor, check your Memorandum of Association (MOA) and familiarize yourself with the termination clauses. If you aren’t sure, you can of course reach out to us for assistance. At Gateway Group we provide a nominee corporate local sponsor service designed to mitigate the risks whilst being proactive to support our clients and responsive when our clients' need assistance. By removing the unnecessary distraction and frustration which can be experienced with poor local sponsorship relationships, we are able to free up our client's time and make their lives easier so they can focus on their own businesses. If this sounds like what you need for your business, then get in touch to find out more about our local sponsor service.

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Gateway Group Of Companies

With offices in Abu Dhabi and Dubai, Gateway Group helps international companies get registered to do business in the United Arab Emirates (UAE). We are the authority on business licenses and visas for expats in Abu Dhabi and Dubai.

Founded and headed up by British husband and wife team, Nathan and Jenny Hunt, Gateway operates with it's core values at heart: Honesty. Trust. Integrity. We do what's in the best interests of our clients rather than what's best for our bottom line. After all, we are just like our clients - we've invested our own money into our business licenses, so we fully appreciate what a big investment a commercial license is. We believe this uniquely positions us to provide our services with understanding and empathy.

From our own first-hand experience and knowledge, generated from living and working in the UAE, as well as setting up companies and building relationships here, we are able to offer unique insight and guidance to help our clients successfully step into the market and do business in the UAE.

We value long-term relationships and our incredible client retention is one of our strongest assets, which is extremely rare in our industry.

Founding Partner, Jenny Hunt, has been setting up businesses in Abu Dhabi and Dubai for over 10 years and is ranked in FORBES' Top 100 Most Influential Women In The Middle East!

Connect with us for your international expansion into the UAE. Get the best company registration experience, as well as employment and residency visas for your expat staff and their families, in Abu Dhabi and Dubai.

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Gateway Group Of Companies

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Written by:

Nathan Hunt

CEO, Gateway Group, Abu Dhabi & Dubai, United Arab Emirates

and

Jenny Hunt