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What are the advantages of LLC company formation in Dubai, UAE

Located at the south-east of the Arabic Peninsula Sultanate of Oman is the gate to the Arabian Gulf through the Strait of Hurmuz connecting to the Arabian Sea. One-third of petrol traded by sea passes through the Strait of Hurmuz, making it an important place in the world for international trade.

The Sultanate has a coastline of 2,092 Km open towards the Indian Ocean. This enables the establishment of free and industrial zones in cities along the coast as well for other countries, presenting Oman as a secure place for investment. Oil and gas are the main source of income for the Oman government. Besides this, Oman is developing in the sectors of fishing, mining, tourism, manufacturing, logistics, other sources of income as well as encourages foreign investors to invest in these fields.

The Oman government has been making huge investments in the public transportation network that includes a railway project to connect Oman with other GCC member states providing an option for the movement of goods and people between the Gulf states.

Oman has an increasing number of international agreements like FTA and WTO agreements with the United States. The additional FTA is negotiated with the European Union for contributing to the enhancement of the legal framework to invest in Oman. The agreements provide incentives to investors from countries to those agreements having lower tax rates, customs exemptions, and similar treatment to put these investors on par with nationals.

Here we outline the various structures and corporate forms for setting up the business in Oman that depends on products or services the business offers. Two main options for investors to start the business are: mainland Oman and the free zones of Oman.

Table of Contents

The Legal structures

Three main legal structures are available to companies that provide a direct and indirect business presence in Oman. For a direct perspective, it comes through a sole proprietorship or a corporate entity. From an indirect perspective, business gets carried out through commercial agents.

The Sole Proprietorship

A sole proprietorship has a simple business method where an individual trades on his account under a trade license issued in his name. This type of business entity is said as ‘establishment’ beside the company and the sole proprietor is liable to the full extent of his assets for the liabilities of the business. The establishment does not have an independent legal entity from that of the owner.

The Omani nationals and the nationals of GCC countries are permitted to form sole proprietorships in Oman. The practice has arisen in recent years, where an Omani national obtains the trade license for a sole proprietorship and leases to expatriates who take the management functions of the business and retain all profits. This kind of arrangement is not recommended as it is unlawful and problems arise if the business relationship between the parties break down.

A legal holder of the license has 100% liability for debts about a third party, they don’t know about private arrangement. The procedure for establishing a sole proprietorship is by applying the relevant documents to the One-Stop-Shop at the Ministry of Commerce and Industry. Here the Chamber of Commerce and the Municipality would have representation to issue relevant licenses with the main trade license issued by the Ministry of Commerce and Industry.

The Corporate Forms

Several legal forms are available for establishing a business presence in Oman. Overview of various corporate vehicles are available to set up in Oman along with certain comparative features of each that are based on the provisions of the Commercial Companies Law, Sultani Decree number 4/1964, as amended, the primary law governing corporate entities:

You have to apply with relevant documents to the One-Stop-Shop at the Ministry of Commerce and Municipality with representation to issue relevant licenses like the main trade license issued by the Ministry of Commerce and Industry.

The corporate forms: It has various legal corporate forms available for the establishment of a business presence in Oman. Overview of various corporate vehicles are available to set up in Oman and comparative features of each that are based on the provisions of the Commercial Companies Law and Sultani Decree number 4/ 1947 as the primary law governing corporate entities:

The personal name

The company must be confined to the relationship between the partners and would not be effective towards third parties. The existence of such a company is restricted to the arrangement between the partners and not to be made known to third parties. The arrangement would essentially be a partnership. Every partner who conducts the business will do in his name and would not declare the interest of other partners. The liability of partners who conduct business is unlimited, related to the liabilities of the company. When the liability of other partners is disclosed, the venture will be treated for every purpose as a general partnership.

The joint participation ventures seems popular with foreign companies who wish to set up in Oman on a short-term basis for carrying a specific project. They are formed when there is some participation by the government bodies. No registration formalities are needed for this type of company, as it does not have a distinct legal entity.

The Joint Stock Company

The Joint Stock Company (JSC) is governed by Commercial Companies Law (CCL), which defines a JSC as a ” company whose capital is divided into equal value negotiable shares.” The shareholder’s liability gets limited to the paying of the value of shares that have subscribed, which is answerable for the debts of the company on the extent of the nominal value of shares to which he has subscribed. The JSC can be closed or public by the Commercial Companies Law (CCL).

The Public Joint Stock Company (PJSC)

The PJSC is similar to the public limited company in the United Kingdom. Based on CCL, the shareholders of PJSC are liable to the value of their shares in the capital of the company. The nominal value of each share of a PJSC must be less than 100 Baiza and not more than OMR 1, the minimum share capital requirement is OMR 2 million for a general company. The OMR 20 million for a banking entity and OMR 5 million for the insurance company.

The Closed Joint Stock Company

The closed joint-stock company is the same as a PJSC with differences like:

The minimum capital requirement is OMR 500,000.
Shares of a closed joint-stock company can’t be offered to the public.
Shares of a closed joint-stock company are listed on the third market, while the shares of a PJSC are listed on the primary market.

The lower capital requirement of OMR is 500,000, and the closed joint-stock companies are popular with foreign investors. The procedures for setting up a closed joint-stock company are similar to a PJSC.

The Limited Liability Company (LLC)

The LLC is governed by the CCL. The LLCs seem to be a popular and suitable method of establishing business in Oman by foreign investors. LLCs are similar to private limited liability companies in the United Kingdom. The intended business has insurance, banking and investment activities conducted on behalf of third parties.

An LLC is not legally permitted to practise these activities. A PSJC must be established in this case. The CCL defines LLC as a company with a limited liability. The number of partners should not exceed forty and should not be less than two. Each partner must be liable to the extent of his share in the capital. The partners participation must not be represented by negotiable certificates.

The following steps about an LLC:

The public subscription for raising capital is not permitted
The foreign partner is permitted to own a maximum of 70 per cent of the capital of the company and the day-to-day management of the company may be vested in a foreign manager
The managers would be one or more of the partners or other parties that includes foreigners
National partners often play no part in the operations of the company and would give the foreign partner a power of attorney authorizing him to vote in the general assembly on behalf of matters permitted by CCL
It provides in the Memorandum (called the Constitutive Contract under CCL), the profit and losses will be shared in a ratio different from the share capital ratio
Appoint an auditor who are accredited in Oman
The auditor must be appointed by the general assembly (the meeting of all the shareholders of the company).

The Holding Company

The holding companies are not popular due to the high capital requirement and structure which is OMR 2,000,000.

The objects of a holding company should include the following:

managing subsidiary companies, or participation in the management of other companies which has shares
investment of its funds in bonds, shares, and securities
the provision of guarantees, loans and funding to its subsidiary, other companies and holding of trademarks, patents, concessions and other incorporeal rights, the exploration and the leasing out of the same to its subsidiary and other companies.

The rules are issued by the Ministry of Commerce and Industry, which regulates holding companies and their subsidiaries. The foreign investors don’t choose the legal form during their initial investment until the business develops and there is a requirement to include one from the mentioned points.

The Branch Office of a Foreign Company

The popular way for foreign companies is to benefit from 100% foreign ownership and establish a branch office of the parent company.

The initiation of Foreign Capital Investment Law by Sultani Decree number 102/94, contains provisions that regulate the establishment of branch offices of foreign companies in Oman.

The branch office is legally part of an extension to its parent company; it does not have a legal identity from its parent company.

The name of a branch office is the same as that of the company of which it is a part. To establish a branch of a foreign company, the foreign company must have a contract with one of the government entities or companies wholly owned by the government.

The foreign company should provide an undertaking with the registration documents, that stipulates to bear the liabilities of the branch and the acts of its manager of the branch.

Usually the branch period is limited to the period of the project that is sufficient for its execution in Oman, and that is not permitted to carry out any other type of work for any third parties.

Activities of the branch must be similar to the activities of its parent company and it is not permitted to carry out any other activity until approved first by the parent company and then registered with the Ministry of Commerce and Industry.

The Representative Offices of Foreign Companies

The representative offices are governed by the Representative Office Regulatory Law, initiated by the ministerial decision number 22/2000. The representative office of a foreign company is legally distinct from a branch office of a foreign company, which is permitted to promote its parent company’s activities.

If the parent company deals in the sale and production of certain products and opens a representative office in Oman, the office will be able to market and promote the sale and production of such products and facilitate contracts in Oman, distinct from conducting the sale and production themselves.

It is noted that in addition to the mentioned limitations, representative offices have other restrictions that are not allowed to obtain credit facilities or put forward offers.

To establish a representative office in Oman, the parent company should provide a certified copy of the articles of association, authorization for the manager of the representative office and a certified copy of the commercial registration certificate to manage the office and a letter of undertaking to bear all liabilities of the office.

The Commercial Agents Foreign companies would trade in Oman through importers and traders. Such arrangements are not well suited to continuous, high volume trading.

The overseas manufacturers or traders wishing to import goods into Oman in large quantities and regularly can appoint a local trader or commercial agent through the establishment of a commercial agency.

The commercial agencies are registered in the commercial agency register maintained by the Ministry of Commerce and Industry.

The Registered Commercial Agent

The Registered Commercial Agency is defined by the Commercial Agency Law, Sultani Decree number 26/1977 as amended, (Agency Law), “the agreement by which a merchandise or a commercial company undertakes to promote or sell a product or provide services either his, or it’s capacity as an agent or a representative or a mediator on behalf of the supplier or the principal in consideration to a commission or profit”. This would apply in particular.

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