Mistakes while setting up new company

“The beginning is the most important part of the work” – Plato. The Company setup is the beginning of one’s business journey and hence deserves proper planning and guidance from experts. Any miscalculation and decision taken in haste might defeat the whole purpose of setting up the company.

Business owners tend to make mistakes while setting up a new company mainly due to unawareness and excitement. A single mistake can prove costly at times. Making yourself aware of the potential mistakes can help mitigate this risk.

In this article, we have highlighted some of the common mistakes while setting up companies in the UAE:

Freely available information on Internet

Do not fall prey to the unreliable free source of online information. These can be good for gaining knowledge but taking the decision on this basis can be risky. There are chances that the information available is not up-to-date or the source is unreliable. Pricing, licensing rules, and requirements of different Free Zones are different and dynamic. Hence always seek expert consultant’s help for business setup matters.

Wrong choice of Jurisdiction

Along with the option of Mainland and offshore, there are around 50 Free Zones in UAE to choose from. It is very important to choose the right licensing jurisdiction for your business. While taking this decision, primary weightage should be given to what suits the business model and fit the long-term objectives. Falling for cheaper jurisdiction options can prove wrong in the long term.

Mistakes in licensing

Choosing the right license type and activities can be a daunting task. Can service license and trading license be taken in one company? Can a company do any business with a general trading license? What are regulated activities and third-party approvals? How many activities are allowed in one license? Can one company have more than one license? The answer to none of these is straightforward and also varies between different jurisdictions. A very common mistake done by business owners is to carry out a business activity without having it under license and this may be subject to penalties and cancellation of license.

Premises requirements

Common confusion – Can I have a virtual office and do the operations from home? Am I allowed to share an office with another company? Can Free Zone Company have an office on the mainland? Possible to have an office in one free zone and a warehouse in another?
Business owners are seen as confused by such questions and often ended up renting or owning a premise which later is of no use resulting in a loss because of a lack of knowledge and improper planning.

Non-consideration of recurring cost

Recurring expenses are the ongoing operating expenses a company incurs regularly. These can vary from jurisdiction to jurisdiction, nature of business, office space, and license activities in this part of the world. Not giving due consideration to these recurring costs associated with any business can turn any business into a loss-making enterprise.

Violation of Employment agreements

Is an individual while working for a company allowed to legally open a business in his name? Is it allowed to hire part-time employees? Is having an unregistered employee without a visa under your company permitted? How can someone on a dependent visa be employed? Can an employer hire someone with a visit visa?

Any decision which is not in compliance with labor laws can get a business into litigation issues and may attract fines and penalties.

No written Partner’s agreement

Partners are very casual about understanding themselves. They fail to anticipate the possibility of a misunderstanding or disagreement in the future. Your once-happy relationship can suddenly turn bitter which leads to business disruption and costly legal settlements. Hence it is always prudent to record your arrangement into a legal agreement with the right exit clause.

Ignoring the future in the planning

Most businesses fail due to a lack of strategic planning at the start. Planning based on bygones and not future archetypes could prove fatal to your business. Setting up a company only basis of current requirements without taking into picture the future prospect can result in your existing setup becoming redundant and you may have to incur the cost of setting up the company again. Hence we recommend always keeping in mind the future growth prospects while planning now to save time and money.

We at ACE Patrons believe in providing the right and the best advice to business owners so a proper suitable option and lasting company structure are available for the business.

Feel free to reach out to us for more details at support@acepatrons.com

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