Anyone considering UAE company formation should be aware of the three primary RAKICC company types. They are:
- Company Limited By Guarantee (CLG)
- Company Limited By Shares (CLS)
- Unlimited Company (UC)
The liability faced by shareholders is an essential difference between the three company types.
Selecting the appropriate entity type at the beginning of a new venture will help you achieve your goals while minimizing the risk of undesirable outcomes.
Company Limited By Guarantee (CLG)
Each CLG must have at least one guarantee member and may be incorporated to allow or prohibit the issuance of shares.
Membership rights of the guarantee members are not transferable.
Guarantee members may be required to contribute a specified amount to the CLG in the event of its liquidation. Liability of guarantee members is limited to the amount specified in the CLG’s memorandum and articles of association. Also, guarantee members remain liable to the company for one year after it ceases to be a member.
There are many uses for CLGs but they are commonly used for real estate projects. CLGs allow real estate developers to confer certain membership rights to apartment owners.
Company Limited By Guarantee (CLS)
The key feature of a CLS is that the liability of a shareholder is limited to the amount of capital they have contributed or have agreed to contribute.
A CLS must have at least one shareholder and one director. Shares may be jointly held. A CLS may issue shares with varying distribution rights.
Common uses include:
- Estate Planning
- International Business Company
- Holding Company
- Special Purpose Vehicle
- Project Company
- Segregated Portfolio Company
- Joint Venture Company
- Family Office
Unlimited Companies (UC)
UCs are similar to general partnerships in one important respect – the liability of the members is unlimited. Members have a joint, several, and unlimited obligation to meet and satisfy liabilities, debts, and settlements incurred by the UC in the event of its liquidation.
Unlike general partnerships, UCs are separate legal entities that are capable of owning assets.
The liability rules make UCs an effective way to reduce administrative costs by avoiding drafting shareholder guarantees regarding debts and liabilities. They’re also a powerful international tax planning tool.
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