The UAE Laws have a robust legal framework for setting up a business and shutting down one. The process of canceling a business license and liquidation in the UAE may be similar to other countries; however, some differences and additional steps are involved. Trade License cancellation in Dubai and other emirates have their respective procedures. Businesses in the UAE have to adhere to every necessary step required during the company's closure as it may lead to unnecessary legal action of the Government Authorities.
What is the difference between cancellation of License and Liquidation in the UAE?
A business may have to cancel its trade license for specific reasons. It is also known as deregistration of trade License, where the company no longer wishes to run the business. However, Company liquidation in the UAE was established under the Federal Law of 2015 for commercial companies and cancellation of trade license forms a part of the liquidation process. In a company liquidation in Dubai, the business will have to cease its operations, and its assets are audited and shared with the company shareholders and creditors.
Further, there are two types of liquidation in the UAE
While running a business, there is always a priority given to financial leverage, and creditors are introduced in the companies finances. Therefore, a voluntary liquidation involves presenting the fact and financials that the company doesn't have enough money to pay its creditors. Upon closure, the creditors prioritize settlement, and the company's shareholders take a liquidation decision.
When a company repeatedly fails to pay its creditors, shareholders, staff, etc., due to no income or other valid reasons, a court order gets issued for the company stating the seizing of its assets, and the proceeds are distributed from the highest to the lowest priority of claims.
Read also: Voluntary Liquidation Procedure in UAE
Steps for cancellation of a Trade License in UAE
Depending on the type of the trade license, the process of the closure of the company and the cancellation of its trade license is determined. Companies in the mainland and free zones have a similar Trade License cancellation procedure, but the free zone requires some additional documentation and clearances. For cancellation of a sole proprietorship, the business owner has to have:
- A clearance from the Ministry of Human Resources and Emiratisation for a sole proprietorship.
- Directorate of Residency and Foreigners Affairs
- The relevant water and electricity authority
- Valid NOC from the Ministry of Labour and Social Affairs
- The leasing Entity
In addition to the above clearances, free zones require businesses to apply for closure through their official portal. Once the submission of the request is accepted, an announcement of business closure is made in local newspapers and gazettes in Arabic and English upon a successful closure.
Three ways a Freezone company can apply for cancellation of its license due to business closure is summary winding up, creditors winding up, or filing for bankruptcy. Depending on the company's size before the closure, the warehouse and the plot facility of the company will require clearance from the free zone authorities. Employees of the free zone company are liable to receive a minimum of two months' notification before the company's closure as paid notice period. The business cannot cancel a trade license if they haven't paid the employee's remuneration and canceled their work permits in the UAE.
What are the necessary steps for company liquidation in the UAE?
General Partnership, Limited Liability Company, simple limited partnership, public joint-stock, and private joint-stock company are the types of companies in the UAE that can apply for liquidation. The company Liquidation process is lengthier and more complex than the simple license cancellation.
- The company must conduct a general assembly, and an independent liquidator is appointed. An appointment letter is to be provided by the partners or shareholders on the appointment of a liquidator.
- The liquidator submits an independent publicly notarised liquidation report to the pertaining authority. In such cases, it can be the department of economy and the free zone authorities.
- An in-depth study of the liquidation report is conducted at the Dubai Economic Department and the relevant authorities to cancel out any chance of misinformation or manipulating data.
- Once the liquidation application is approved on the DED website, the business will receive a liquidation certificate. The companies notify the general audience and debtors about its liquidation and closures through two local newspapers based on these certificates. A total of forty-five days is allowed for debtors to file any claim against the company.
- The business must cancel the firm card from the Ministry of Human Resources and Emiratisation once the clearance for DEWA/ SEWA etc., is received.
- Depending on each case, the DED sets its fees, and upon paying the same, a certificate of deregistration or cancellation is issued.
Deregistration or cancellation of license and clearance from the liquidator can be tedious. Farahat and co can assist you with the legal framework and provide you with the best financial advisory on cancellation of license in the UAE or Company Liquidation in Dubai. We have garnered decades of experience and compiled a team of both local and expatriate employees. We try to make the process of liquidation an easy and smooth transition. Our team of expert auditors has been regularly appointed for various such cases in the UAE due to our accurate and punctual work ethics. If you seek more information about a trade license cancellation process, contact us today for a free consultation.
Read also: Process of Liquidating a Company in JAFZA