UAE Company Acquisition Due Diligence
No matter the reason that you’re looking to purchase an existing company, it is possible to purchase active and inactive companies in each emirate in UAE in Dubai, Abu Dhabi, Sharjah, Al Ain, Ajman, Ras Al Khaimah, Umm Al Quwain, Fujairah.
There are a number of legal factors to consider and due diligence to be performed prior to finalizing the transaction.
Knowing how to check if a company has liabilities before you purchase it can save a lot of unnecessary future headaches.
Why is it important to perform due diligence on a company before purchase?
Sometimes, a company’s seller may not disclose hidden liabilities and it is up to the buyer to discover before the transaction is complete, or even starts.
Company sellers who currently have liabilities against them, may choose to omit certain information when discussing the status of the company, to ensure the company is sold.
Purchasing a company with liabilities means that the liability of the company will be transferred to the new owner.
The buyer of the company may choose to sign a purchase agreement with the seller, where the seller agrees to be resposible for any liabilities not disclosed to the buyer.
- To enforce such an agreement in court may require lawyers to be involved, which will incur additional fees.
- Therefore, it is best to avoid these situations from the start with proper due diligence.
Due diligence to perform when purchasing a ready made company
Whether you’re looking to purchase a ready made company, or an operational company, There are a number of factors to consider. Before buying the shelf or commonly known as shell company.
1. Financial Due Diligence
- Potential any tax liabilities (if any) owed to the tax department in UAE, known as FTA – Federal Tax Authority for Corporate Tax (CT) and Value Added Tax (VAT)
- Review any hidden losses and debt with accounts payable owed to creditors as liability can be transferred to the new company owner.
- Scrutinize the company’s audited financial statement to identify potential issues and understand any pending payments that are accounts payable or receivable.
- Obtain a fresh copy of the company’s credit report from the Etihad Credit Bureau, which is a report that can identify the company’s financial standing with banks that can identify issues such as:
- Cheques that the company have issued to suppliers or customers that have yet to be deposited
- Credit cards held by the company
- Number of bank accounts the company holds
- Outstanding loans owed to the bank
2. Legal Due Diligence
- Check to make sure the company’s obligations are current and up to date with the relevant stakeholders:
- Freezone or Mainland licensing authority responsible for issuing the company license.
- 3rd party approvals external with government entities, water and electricity authority of each emirate, telecom communication companies.
- Lease agreements such as car rental, apartment, office, warehouse.
- Various courts to ensure the company does not have any pending legal cases registered against them.
3. Employment Due Diligence
- Check with the Ministry of Human Resources and Emiratization (MOHRE) in Dubai and Federal Authority for Identity, Citizenship, Customs and Port Security (ICP) for other emirates, to ensure there are no outstanding cases against the company made by previous or current employees such as unpaid salary, arbitrary employment termination or pending end of service gratuity payments.
- Ensure all employees have valid visas or work permit for employees that have their own visas currently such as Golden Visa (GV), Investor/Partner Visa, Employment Visa or Dependent/Family/Spouse Visa.
- Make sure the Mainland company is register with Wages Protection System (WPS) and pays salary through this system.
- Freezone companies do not require employee salary payment via WPS and can pay monthly salaries direct to the employee’s bank account.