The Dh150,000 capital requirement for start-up companies has been scrapped by the Government to help small businesses get off the ground without the burden of expensive red tape. The change is expected to provide a boost to small and medium-sized limited liability firms which have been among the hardest hit by the global financial crisis.
"Smaller businesses are generally the main drivers of any economy and make up the bulk in terms of employment," said Robert McKinnon, the head of research at Al Mal Capital, a Dubai-based investment bank. "This is a step in the right direction." Under new rules announced yesterday, partners in new business ventures will be able to determine the start-up capital needed to run their businesses. The previous system required a minimum commitment of Dh150,000 (US$40,000).
The changes were contained in a decree issued by Sheikh Khalifa bin Zayed, President of the UAE, the state news agency WAM reported. It amends a federal corporate law dating back to 1984. The change may help entrepreneurs such as Sabri Pozam, 29, from Turkey, who moved to Dubai five years ago and is starting his own business. "It's a big relief, to be honest with you," he said. "It's going to speed things up and affect our initial investment so we have more money to invest."
Mr Pozam plans to establish a business called Jungle Models, an online modelling portfolio website aimed at the fashion industry. He said he was shocked by the costs involved in establishing a new venture. "It's very expensive. The system has been designed for medium and big companies, but not for small businesses. You can see the effects on the economy," he said. The removal of the capital requirement represents the latest attempt by the Government to provide assistance to small businesses and start-ups that have struggled to overcome tightening credit, late payments and declining orders across many sectors of the economy.
In June, the Federal Cabinet approved the creation of the Emirates Development Bank, aimed at helping small businesses owned by Emiratis, while Sharjah has also launched a stimulus package to encourage banks to lend to small and medium-sized firms. The Government has also made about Dh120 billion dirhams available to banks to stimulate lending. "The issuing of the decree is aimed at limiting bureaucratic procedures as the investor won't need any bank certificates, for instance. This will limit the process time to set up private business in the country," WAM reported.
Hamad Buamim, the director general of the Dubai Chamber of Commerce & Industry, said: "We believe the new decree will definitely help in enhancing the UAE's appeal to investments and will provide the private sector with the right impetus it needs in these challenging times." The changes could help the UAE become more competitive, according to Jitendra Gianchandi, who runs a company that advises start-up firms.
He had received about 200 inquiries a week from people seeking advice on forming their own businesses before the financial crisis hit the region last year. Since then, that number had halved. "Clients had started complaining about the UAE's high capital requirements for would-be partners," he said. "It was very high and used to put off many ventures." The change will affect companies operating outside free zones, enclosed business parks that allow companies to operate without a local sponsor and to repatriate 100 per cent of profits.
"So far, the law is for the LLCs [limited liability companies] which are outside the free zones. Different free zones have different requirements of capital for different classes of companies," said Mr Gianchandi. Sultan bin Saeed al Mansouri, the Minister of Economy, described the move as "a positive step to attract more investments to the country". He added: "This decree underlines our leadership's vision and strategy aiming at developing the investment environment in the UAE, diversifying sectors and activities of our economy to ensure economic prosperity."
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