Nominees in UAE business: risks and protection of beneficiaries

The United Arab Emirates has long attracted foreign investors with the opportunity to use nominee directors and shareholders to register and conduct business. This made it easier to set up companies, confirm economic presence in the country, simplify paperwork, and, in some cases, enhance reputation, especially for newcomers to the market. However, the introduction of mandatory disclosure of beneficial owners for many types of organizations has significantly changed the situation, making the use of nominee persons much more risky.

Let's consider why nominees were popular in the Emirates:

Foreign investors wishing to do business in the UAE were often required to have a local partner or director. The use of a nominee allowed them to circumvent this requirement without losing control of the company.
Creating the appearance of local participation in the business, which was important for obtaining certain licenses and permits.
Optimizing administrative processes. A nominee can perform formal tasks such as signing documents and interacting with government agencies.
Ensuring the confidentiality of beneficial owners.
In some cases, attracting well-known and respected nominees could positively influence the company's reputation and the trust of partners and customers.

However, with the tightening of legislation and requirements for the disclosure of beneficial owners, the use of nominees has become associated with high risks:

Fines, confiscation of assets, and even criminal liability for violating the rules for maintaining a register of beneficial owners and providing relevant information.
If nominee directors or shareholders can make management decisions, the owner risks losing control of the company.
Problems when using a bank account, if disclosure of the ultimate beneficial owners is refused.
Reputational risks and deterioration of relations with partners and investors.

To minimize risks and ensure the protection of the rights of the actual beneficial owner, it is extremely important to follow these recommendations:

Conclude a detailed agreement. A comprehensive agreement must be concluded between the actual owner and the nominee founder/director, clearly defining the rights and obligations of each party. The agreement should specify: the decision-making procedure, profit distribution, business management methods, the procedure for transferring shares, methods for terminating the agreement, and the settlement of possible disputes. The agreement should be drafted by a qualified lawyer specializing in local law.

Use of collateral. The actual owner can use the collateral of shares or stakes in the company as a tool to protect their rights. In the event of a breach of the terms of the agreement, this will allow them to more effectively protect their interests in court.

Conclusion of option agreements. These give the actual owner the right to buy shares from the nominee at any time, allowing them to control the situation and ensure their control over the organization.

Drawing up a will. The nominee's will must state that their shares in the company will pass to the actual owner after their death. This eliminates potential inheritance issues and ownership disputes.

Although the use of nominee directors and shareholders in the UAE has become significantly less profitable and risky due to tighter legislation, with a competent approach and compliance with all legal formalities, it is possible to minimize risks and maintain control over the business. However, it is recommended to consult an experienced lawyer specializing in UAE law for professional advice and to prepare the necessary documents to avoid undesirable consequences.