6 common business setup mistakes | setting up your business in the Middle East
Time and time again we hear stories of business going back because of situations that could have been avoided if owners had followed proven company formation practices. To help shed some light on how to successfully navigate business in the Middle East, we’ve compiled a list of the 6 most common mistakes that new businesses in Qatar and the Emirates can easily make, and how to avoid making them yourself.
- Local Partnership: Choosing an individual rather than a company
One of the most critical company formation decisions you need to make before you begin setting up a business in the Middle East, is whether to pursue a local partnership agreement with a company or an individual. There are several things to take into consideration, including many risks that you need to be aware of.
Perhaps the most critical factor you must consider when deciding between these options, is the matter of business continuity. When entering a partnership with an individual, the agreement that you make with this person will be between you and this individual only. As such, in the unfortunate event of death, under Sharia Law, the shares held by your local partner will be handed over to a member of his or her family, and the original terms of the agreement will automatically dissolve.
While the specific terms of the original agreement may cease to exist, the agreement itself will continue, survived by the chosen family member. This means that the 51% stake in your company will be held by someone who you may have never met. As a 51% shareholder, this individual will also be at liberty to change the original terms of your agreement, which is an extreme risk for your business, as there is no guarantee that this individual will be willing to uphold the same terms as agreed in your original contract.
However, with a Limited Liability Company structure as your 51% shareholder, for example, you are assured business continuity, as your company will be secure under the terms and agreements put in place between the two entities. Therefore, no matter what happens within either company, you will be protected by the corporation agreements.
To recap, before entering a partnership agreement make sure you ask yourself the following:
- Will this agreement ensure Business Continuity for my company?
- How secure is this agreement?
- How easily can I exit this agreement?
- How trustworthy is this company or individual?
- Choosing the incorrect setup type for your business
Seeking a company setup option for your business that allows you to maintain 100% foreign ownership, is something that most – if not all – businesses ultimately aim to secure in the Middle East. However, this ambition can often lead to business owners making a short-sighted and consequently incorrect choices concerning their company establishment.
While there are several company establishment options which will allow you to operate under 100% foreign ownership, this is not something which is freely available to all foreign investors. 100% foreign ownership is only available under certain circumstances such as within the Qatar Financial Centre.
One of the more common mistakes that can be made when choosing a company establishment type is to set up your business as a Branch Office, to maintain 100% foreign ownership, when the future intended activities for your company include working with private companies (which you can’t do under this establishment type).
So, how do you know what the right company set up is for you?
- Do your research on all the available business set up types available in the region
- Make sure you have a clear business plan
- Don’t rely on second-hand information; every business has unique requirements that need to be considered when forming a company
Get a free consultation from an expert, so you are fully equipped with the right information for you and your business.
- Not including appropriate exit clauses in your partnership agreement
When embarking on a new business venture, no one likes to think that perhaps things won’t work out the way they planned. However, amid all the excitement and possibility that future holds, it’s imperative that you give some consideration to your exit strategy, should the need arise to have one.
However, it’s not all doom and gloom. Business agreements end for a number of reasons, and often these are amicable. Nonetheless, it’s important to be prepared for all possibilities so that you don’t find yourself trapped in a situation that could cost you money, time and ultimately your business.
We always recommend that you seek sound legal advice and expert business set up assistance when considering a company formation in the Middle East to guarantee that you are protected in all circumstances.
3 key things we recommend keeping in mind while you draft your agreements:
- Discuss exit clauses
- Ensure that your local 51% shareholder is a corporate entity
- Pay attention to the profit share, as this can be different to the shareholding
Contact our team who can walk you through the end-to-end company formation process and intricacies of what is required to form a secure agreement.
- Approaching business in the same way that you would in your home country
Time and time again, companies rush into Qatar or the Emirates with big ideas, aggressive short-term targets; so much to achieve, such little time. Whatever your reasons are for setting up a company in the Middle East, it is critical that you to adapt to the local way of doing business if you are going to be truly successful in this market.
Qatar and the UAE are culturally rich and vibrant places to live and work. As such, the local way requires a certain level of open-mindedness, creativity and flexibility in your style toward managing relationships, time and, discussions about finance. Not to mention, the way you dress and how you conduct yourself.
Across the Middle East, perhaps the biggest readjustment you’ll need to make, is how you manage your time. Not only is the working week in Qatar and the UAE different to places like the UK or USA – most countries recognize Friday and Saturday as the weekend – but the pace of business is vastly different, too. At different times of the year, religious holidays and events will also have an impact on the speed of business. For instance, during Ramadan, the holy month, local companies will work reduced hours. It’s important to note that during this time, Muslims also fast from dawn until dusk, completely forgoing eating and drinking.
Organising meetings can also present another spectrum of challenges, as business is often conducted in a “last minute” manner.
Business is Personal
Building personal relationships with the people you work with is very much part of the Arab culture. A future business partner, should also be considered a potential friend. You shouldn’t expect that one brief “fly-in” meeting will get you the result you need. Quality time needs to be spent face-to-face with your business partners to establish a certain level of trust and respect.
Without a physical presence in the region, this will only impose limitations on how far you can penetrate the market effectively. Many locals will expect to meet and build a relationship with a senior member from your company. Therefore, having this kind of physical presence is paramount for your business development.
When doing business in Qatar or the UAE, the general idea of modesty is the best rule to follow for both men and women. For men, this means they can expect to dress similarly to how they would at home, wearing a smart business suit; while women should always make sure to dress conservatively, covering arms at least to the elbow, legs below the knee, and avoiding displaying any cleavage.
As a general guideline, the top 3 things to be mindful of when doing business in the Middle East are:
- Understanding the pace of business
- Building your business relationships in a personal manner
- Dress conservatively
To help take the stress out of keeping across the ever-changing rules, regulations and guidelines in the Middle East, having a local partner in either Qatar or the UAE can also help. This way, you’ll receive on-the-ground support and guidance on how to manage these cultural differences in the Middle East, and will be ensured that you don’t miss any important changes that could affect your business.
- Lacking sufficient capital to support cash flow
Evaluating the cost of doing business in the Middle East, should involve much more than just the initial set up costs. It’s important that your potential ongoing costs are factored in to your business plan. Although the Middle East presents many lucrative opportunities for foreign businesses, like any market, things can change quickly and you will want to ensure that you are in a cash positive position to keep your business running effectively in the face of unexpected adversity.
As mentioned earlier, the pace of business in the Middle East is vastly different to many markets such as the UK and the US. Not only will you find that meetings and project schedules can be effected at times, but it’s not uncommon for delays to extend to the processing of payments, too. This reinforces how truly important it is for you to build personal relationships with your local business partners.
Before entering a partnership agreement of any kind, we recommend that you always seek sound financial advice from an expert to ensure that you are confident with your financial position before proceeding with your venture.
- Choosing to set up your company in Dubai thinking you can easily do business in Qatar – and vice versa
It’s a common misconception that foreign businesses will be able to set up in Dubai, using this as their hub for the Middle but still conduct business in Qatar easily, and vice versa. However, this is not necessarily the case.
Based on their close geographic proximity, it’s understandable why foreign businesses can be easily lead into this false belief. Despite a short 1 hour flight time between Qatar and Dubai (or Abu Dhabi), working between Qatar and the UAE is not as straightforward as some may think, as there are many factors that make doing business in Arab cultures vastly different from markets such as the UK or US.
As mentioned earlier, there is utmost importance placed on face-to-face meetings, particularly when developing new business. Taking the time to properly invest in these personal meetings will be imperative for you to successfully penetrate either market.
Arranging and ensuring commitment to meeting times can also present several challenges, as it’s common for meetings to be organised or rescheduled at the last minute. These scheduling changes can come at a significant time and financial expense to any business, especially if you have travelled for the meeting.
If you are planning to set up your business in either Qatar or Dubai, it’s important for you to:
- Spend some time visiting both locations
- Evaluate more than just the upfront cost of doing business in each location
- Speak with an expert who can assist you with local know-how based on your specific business needs
Are you ready to get started in the Middle East?
We understand that running a business holds challenges. However, navigating your way through foreign processes, laws and regulations should not be a challenge you have to face alone. As your local partner, we’re on hand to deliver business solutions and services that help lighten your load.
We have a long and distinguished track record of delivering premium company formation and corporate services. We have successfully partnered with more than 90 clients, from 18 countries, who operate within 24 different industries.
At every step, we facilitate our clients’ success, by providing them with all the tools they need to establish and run their business here in Qatar, and within the UAE.
We offer honest advice, friendly support and much-needed security to investors. At least, that’s what our clients tell us!
Get in touch with us today, to find out for yourself how we can help you in your business venture.