Starting a Company in Lebanon, UAE, and Saudi Arabia: Essential Information

1. What you need to know to start a company in Lebanon,the United Arab Emirates andSaudi Arabia To:Engineering Management 654 “Technology Entrepreneurship” American University of Beirut 8 April 2013 By: Rindala Beydoun Celine Bsaibes Magda Farhat

2. Section 1: Most Used Companies in Lebanon Section 2: Most Used Companies in the United ArabEmirates (UAE) Section 3: Most Used Companies in Saudi Arabia (KSA)

3. Section 1: Most Used Companies in Lebanon The most widely used companies in Lebanon are: • The limited liability company (known as SARL - Société à ResponsabilitéLimitée); and • The joint stock company (known as SAL - SociétéAnonymeLibanaise). Said forms of companies limit the liability of the shareholders to their capital contribution. In other words, in case of losses, the risks of a shareholder are those of losing the capital it contributed without its personal assets being at stake. SAL and SARL have different minimum capital requirements and shares are more easily transferred in a SAL compared to in a SARL. This usually reflects the main difference between the SAL and SARL which is that SAL is more anonymous in nature in the sense that the identity of the shareholders does not play an important role in the company’s business. Other forms of widely used Lebanese companies are the holding company andthe offshore company which are joint stock companies with certain particularities mainly related to the nature of the activities they exercise: • The holding company is defined as acompany that owns other companies' outstanding stock.The term usually refers to a company which does not produce goods or provide services; rather, its purpose is to own shares in other companies. • The offshore company is a company incorporated in Lebanon, but can only operate outside the Lebanese territory.

5. In addition to the general rules governing the joint stock company in Lebanon, the holding and the offshore companies are governed by specific rules set forth respectively in decree-law 45/1983 and 46/1983:

6. Section 2: Most Used Companies in the UAE • One of the most widely used companies in the UAE is the limited liability company (LLC) in which each partner’s liability is limited to the extent of its share contribution in the capital. The LLC can carry out all kinds of activities except insurance, banking and investment activities. • The private joint stock company (PJSC) is less widely used in the UAE. The shares of a PJSC cannot be offered to the public or for public subscription unlike the public joint stock company. Foreign ownership in both the LLC and the PJSC is limited to 49% of the share capital of the company. However, foreign investors can achieve near 100% ownership of LLCs via what is known as the “local sponsorship scheme documents”. • Free zone companies are defined as special purpose vehicles that can be suitably used as investment companies, holding companies, real estate holding companies, for investments purposes inside and outside the UAE and for international trading. Free zone companies can be 100% owned by foreign investors. • Offshore companies can be set up in some of the UAE free zones such as Jebel Ali Free Zone and Ras Al Khaimah Free Zone. No office is required.

8. UAE Free Zone Companies • A free zone company is subject to free zone regulations. This type of company can be established either as: • a free zone establishment (FZE) in which the sole shareholder is an individual or a corporate entity; • a free zone company (FZCO)composed of 2 or more shareholders (individuals or corporate entities); or • abranch of a foreign company. • The mainadvantages of free zone entities are as follows: • 100% foreign ownership (no local partner or sponsor); • Fast and easy incorporation process; • No minimum share capital requirement; • Guaranteed income tax exemption; • Duty free imports of goods into the free zone; and • Facilities concerning licensing, work permits and residence visa. • The main disadvantage: • Cannot sell goods or provide services inside the UAE. • Few examples of Dubai free zones: • Dubai Airport Free Zone (DAFZ) • Dubai Silicon Oasis • Dubai Technology and Media Free Zone (TECOM) • Jebel Ali Free Zone (JAFZ)

9. Offshore companies are allowed to: • open bank accounts in the UAE; • become shareholders in a new or existing company in the UAE and other jurisdictions; • hold shareholders’ and directors’ meetings within the UAE; and • carry out international trading. Offshore companies are not allowed to: • carry on business with persons resident in the UAE; • own an interest in real estate property situated in the UAE, other than a lease property referred to in the regulations or approved by the authorities; • carry on a banking business; • carry on business as an insurance or re-insurance company, insurance agents or insurance brokers; and • carry on any other business which may, by regulations, be prohibited by the authorities.

10. Section 3: Most Used Companies in KSA • One of the most widely used companies in KSA is the limited liability company (LLC) in which each partner’s liability is limited to the extent of its share contribution in the capital. • The joint stock company (JSC) is less widely used in KSA. The shares of a JSC can be offered to the public or for public subscription provided that the capital of the company in this case should exceed SR 10,000,000 (around USD 2,666,540). • Foreign ownership in both the LLC and the JSC should be licensed by the Saudi Arabian General Investment Authority (“SAGIA”) which is in charge of regulating foreign investments in KSA and issuing the relevant licenses to foreign investors. Note that SAGIA is showing reluctance to issue licenses lately.

11. Eligibility of the foreign investor to invest in KSA • The main condition required for obtaining the SAGIA license is that the business related to goods, services as well as the methods of production, must comply with KSA industry regulations and Shari’ah. • Another important condition for obtaining SAGIA’s license is that the amount of capital invested should meet the minimum capital required by SAGIA that varies according to the project of the investment: • For industrial development projects, the capital invested must not be less than SR 2 million (around USD 533,300) • For other investment projects, the capital invested must not be less than SR 500,000 (around USD 133,320) • Subject to the above capital requirement, foreign investors are allowed to invest in all KSA business activities except certain activities that must be owned 100% by KSA/GCC nationals or wholly-owned KSA/GCC companies. Few examples: • Oil exploration, drilling and production • Manufacturing of military equipment • Manufacturing of explosives for civilian use • Services such as security, recruitment and employment, land transportation, printing and publishing • GCC investors are allowed to invest in all KSA business activities with few exceptions.

13. Contact Details BEIRUT OFFICE RIYADH OFFICE DUBAI OFFICE Level 41 Emirates Towers Offices Sheikh Zayed Road P.O. Box 72545 Dubai, UAE Tel: +971 4 319 9977 Fax: +971 4 330 3365 StarcoBldg, Block B 11th Floor Omar DaoukStreet P.O. Box 14-6137 Mina Al Hosn Beirut, Lebanon Tel: +961 1 376 016 Fax: +961 1 376 018 AltakhassusyStreet, across Prince Sultan Street, AlhakbanyBuildings Building No 5, 1st Floor P.O. Box 67677 Riyadh, Saudi Arabia Tel: +966 1 482 3733 Fax: +966 1 4811042 CORE TEAM CONTACTS Carlo Pianese Partner T:+971 56 603 4543 E: cpianese@t-lawadvisors.com RindalaBeydoun Managing Partner T: +971 50 553 2609 E: rbeydoun@t-lawadvisors.com Mothanna El-Gasseer Managing Partner, Riyadh Office T:+966 50 628 6942 E: melgasseer@t-lawadvisors.com