Law assignment Essay Example
Law Assignment: Establishing Restaurant Business in Abu Dhabi
Best Form of Company for the Restaurant
The Best form of company to create would be a limited liability company. For this form of company, the DED ascertains that the number of partners should not exceed a maximum of 50 and not less than two persons at any given time. The immediate number of directors cannot surpass 5 people or be less than one person and considering the restaurant venture at hand is made up of a team; then this is entirely possible. The DED further requires that the restaurant have a memorandum of association that should constitute the following aspects; name of the restaurant, goals and its overall head office; the amount of capital that has been contributed by each of the partners as well as a statement of shares in kind in conjunction with their immediate values and contributors; the technique that would be used for purposes of profit and loss distribution as well as possible capital shares that are held by Emirati partners should be more than 51% of the overall total shares upheld at any given moment in time.
The restaurant should adopt a limited liability company form because of the numerous advantages that comes with this form. The form provides an opportunity for limited liability functionality so that the owners would enjoy the aspect of financial security that arises out of this business model. In addressing the financial liability, it should be ascertained that the shareholders would only be liable for any possible debt that the restaurant accrues only according to the degree of their own investment or rather capital and nothing more than that. This is expected to offer comfort relations in regards to the level of security that these investors enjoy within the company at large.
In essence, another benefit of this business model and that further assists in addressing the legal liability of operations of the restaurant lies with the fact that it operates as a separate entity with its owners. Considering its overall nature, a limited liability company is perceived to be a separate legal entity from its underlying owners meaning that the restaurant would exist beyond the life of the member in case they decide to retire or even die. In this regard, operating the restaurant, as a limited liability company, will certainly provide imminent level of security for both the workers and other senior management team; a facet that other business models like partnerships lack. Another important aspect of this company form rest with the taxation and tax advantages that comes with it. Profits that will be posted from the company can only be taxed on their immediate profit and as a result of this; they are not subjected to higher personal tax rates that are impacted on individual companies or even partnerships.
Comparison to Partnership, One-Person Limited Liability, Private Joint Stock & Cooperative Society
Unlike in limited liability Company; a form of company model that the restaurant would adopt, in the case of adopting a partnership model, the restaurant owners would not enjoy any form of limited liability. It is worth to note that all partnerships are subjected to unlimited liability meaning that each of the owners would share the liabilities and financial uncertainties of the company in an equal way. It means that the members’ owners are not in any way protected from liabilities that equates their capital investments. In this company model, the owners share profit equally, which leaves a broader room for inconsistencies especially when one or more of the partners have not strived to put more efforts to warrant a fair share of earnings. Subsequently, a limited liability restaurant would be better and fairly positioned than partnerships because of the taxation effects since current policies dictate that both sole proprietorships and partners be subjected to self-employment taxes. This does not compare to a limited liability company form where only salaries and never profits of the operations are subjected to taxes. Current DED provisions requires that in the event that partnerships and thus, the partners record more than a specified level they will likely be subjected to intense degree of personal taxation than they would likely be effected in the case of a limited company.
The adoption of a cooperative society as a company form for the restaurant would not be workable and efficient especially since the DED requires that even after the issuance of trade name has been ascertained and completed the company will still have to seek approval from the Ministry of Social Affairs. This means that the business will be expected to offer certain levels of social services while in the real sense the restaurant seeks to make profits and maximize wealth for that matter.
The restaurant cannot operate as a one-person limited liability company since it is made up of several members. It also means that as a one-person limited liability company, the restaurant owners will not enjoy the share of liabilities in the event that it accrues debt in the future periods.
Notably, the restaurant cannot adopt a private joint stock company form since it requires that the minimum initial capital raised for operations should not be less that 2 million Dirham’s, which is way above the 200,000 AED being offered to the team as seed money. It also requires that there should be a founder’s committee that should be composed of between 3 and 5 members that are formed for the purpose of integrating procedures required by both DED and Ministry of Economy. Engaging in all of these requirements to develop a provate joint stock company is much more expensive and inefficient especially since none of the starters of the restaurant is willing and able to inject some of the money into the business.
Legal Procedures for Opening the Restaurant in the Emirati of Abu Dhabi
The process of starting a business and thus, the restaurant and acquiring a new business license in compliance with the underlying rules and regulations set in Abu Dhabi is dependent on the stipulations set forth by Department of Economic Development.
Basically, there are currently six phases or rather phases that should be adopted in the process of starting a business in Emirate of Abu Dhabi and are discussed as below;
Determining The New Activity
At this phase of the process, the potential owners of the business are required by law to specify the form of activity or activities that the business license is expected to cover. The underlying business at hand should thus be specified as being a restaurant considering the fact that the legal requirements, conditions and fees that are subjected to different activities; specific and special conditions and stipulations are also linked to the aspect of location of the activity, which entirely ascertains that these activities can only be conducted in some locations under special postulations. To ensure that there is no level of conflict of interest relating to this stipulation and in conjunction with the international intentions to standardize economic operations, the DED in Abu Dhabi has ensured to utilize the existing International Standard Industrial Classification for all economic activities that have been put forth by United Nations. ISIC4 has continued to be a crucial tool in comparing possible statistical informational data on economic activities at the international platform.
Determination of the Legal Form
The DED provides a distinctive range of legal forms that are directly linked with the immediate needs of the business activities. In our case, the legal form of company for the restaurant is identified and settled to be a limited liability company. It is important to note that the immediate laws, requirements and stipulations of these legal forms are certainly different and are closely attributed to the overall nature of the business operations at hand. The restaurant business at hand, adopts a limited liability company legal form hence will be subjected to its requirements as set out by DED. This leaves room for us as the investors analyze the best possible company form to adopt and further our business goals and objectives.
Registration of Trade Name
It is quite clear and concise that immediately when there has been determination of the economic activity that and legal form, potential owners should be engage in choosing a trade name in order for the business to be distinguished from its immediate competitors or from other establishments that have been already incorporated. It is important that this trade name resonates well with the nature of the activity in place and its overall legal placement. It is upon the members of the team to come up with a distinctive name that should be given to the restaurant to identify its unique operations in the business environment in Abu Dhabi. It is crucial to note that the DED has a database with all business/ trade names that operate within the Emirate hence it will be quite impossible for the restaurant to select a name that has already been awarded or booked by other potential investors.
Issuance of Initial Approval
At this stage, the DED offers an initial approval that comes in form of a certificate that permits the investor to go ahead with the rest of the procedures that relate to accessing and securing trade business license that is required in practicing economic activities. However, this stage does now for the practice of the economic activity only unless when a commercial license has been issued. At this stage, the investors are asked to pay specific fees and obtain the immediate approval of the Department of Naturalization and Residence in cases where the composition of the owners is made up of foreign-based investors
Securing Approval of Concerned Authorities
This the second last phase of the legal procedure in Abu Dhabi DED business registration process. After the investors have acquired initial approval, they are then asked to seek further approvals from concerned authorities. This is especially allowed when all terms and conditions of the business registration process have been adhered to the latter. The issuing government agency is merely dependent on the immediate form of activity that is expected to be conducted, which in this case is a restaurant business. Most of the Abu Dhabi government-based agencies provide electronic services that permit their application on an online platform. I do not think that stage is relevant for the restaurant business at hand since the concerned authorities for which investors are required to seek further clearance and approval do not touch on our area of business operations.
Issuance of Commercial License
This is the very last stage of the legal procedures. It ascertains that the stipulations and requirements needed for the issuance of commercial licenses will certainly focus on the legal form of the facility at hand. DED identifies only four legal forms of business operations in Abu Dhabi and they include; establishments; company; branch and cooperative societies. In our case at hand, the company legal form has been identified as being a limited liability company that should exist by the virtue that there has been an agreement that has already been set out between two or more people that should partake to contribute in profitable economic projects. Under this legal form, the profits or even losses incurred are distributed amongst the partners according to a specified rationale set out prior to commence of operations.
Other notable form of permit that the restaurant would require lays in the signboard fees. This license offered to allow the establishment to erect signboards that seeks to advertise the business to the public domain in relation to their immediate business operations and services for that matter.
Department of Economic Development. N.d. Service guide: How to start a new business in the Emirate of Abu Dhabi. Retrived from https://ded.abudhabi.ae/en/our-services/Pages/start-new-business.aspx
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