Individual vs Corporate Sponsorships for a Limited Liability Company in Qatar
Individual Sponsorship: This is a common type of sponsorship in Qatar. A Qatari national (local sponsor) in their individual capacity, becomes your local sponsor whilst holding a 51% share of your company.
Corporate Sponsorship: This is a lower risk alternative to individual sponsorship. A Qatari national company (local sponsor) also holds a 51% share of your company but the business is sponsored by a company rather an individual.
What to consider with individual sponsorships?
To set up a mainland business in Qatar, foreigners must be sponsored by a Qatari national. In the case of an LLC (Limited Liability Company), the local sponsor must hold at least 51% shares of the company. The Qatari 51% shareholder(s) must be shown to have some share of the profit of the company and some share of the loss.
Below we cover key elements that you should consider before choosing an individual local sponsor:
- Always get to know your local sponsor before you finalise a partnership: When forming a company in Qatar it is important that you do your due diligence to ensure a smooth and efficient business set up. It is relatively easy to source a local sponsor. You must be careful to not just choose anyone out of ease, there is much at stake and it makes sense to take the time to acquire a deep understanding of your future partner(s) background and knowledge before officially signing any contract or the Memorandum of Incorporation.
- Look for any hidden costs in the partnership: Ideally, the sponsorship fee structure would be transparent and clear, unfortunately, the majority of individual partners will not want to participate in lengthy complicated contracts. It is a legal requirement, that the Memorandum of Incorporation shows a profit distribution between the 51% Qatari and the 49% foreign party, ideally, this should read 99% of the profit to the 49% shareholder and 1% to the 51% shareholder, if the local partner will agree. Ideally, this is superseded by an agreement to pay the local partner an annual fee. To avoid any misunderstandings, it is best to ask for a complete breakdown of the fees before agreeing to the contract terms. Additionally, there should be a clear agreement concerning an ‘exit’ from the agreement, if this is not present, many local sponsors will demand a payment to exit the agreement.
- No legal contract only a sponsor’s word: In Qatar, verbal agreements are a frequent occurrence in addition to written contracts. If you want to build a business partnership based on trust, it can be very tempting to accept the word of your sponsor, however, this would be a mistake. Verbal agreements do not stand up in court, in the case of a dispute. Sufficient evidence is required to support any dispute claim and only legally binding written contracts would be taken into consideration.
- Delays in getting a sponsor’s signature: When starting a new venture, it is understandable that you are eager to get things started right away, however, one of the biggest stumbling blocks you will come across is waiting for your local sponsor’s signature. All legal paperwork pertaining to company set up, visa’s etc., must be signed by your local sponsor before the company can be established, this can be a challenging process.
- The sponsor attempts to claim ownership or seeks greater input in to the running of the business: Although this is rather unlikely, there have been some cases in which local sponsors have attempted to force their will over or take full ownership of a business. This of course is a worst case scenario, but should be considered as it could threaten everything you have worked so hard to build. This is yet another extremely important reason to ensure that legally binding contracts are introduced from the beginning.
- The unexpected death or retirement of a local sponsor: The unexpected death or early retirement of a local sponsor, can cause many issues. In the event of death, company shares become the legal property of the sponsor’s nearest male heir under Sharia Law, this could be quite simple if the heir takes on the sponsorship, however, they may not want to be a sponsor or they may want different terms to those previously agreed. In the case of retirement, this may be more straightforward but a new relationship would have to be formed with the new 51% holder.
- When a sponsor disappears without a trace or is absent for long periods of time: There have been cases reported where sponsors disappear, this is a rare occurrence, what is more likely, is that your sponsor spends extended periods of time abroad, sometimes for medical treatment. If your sponsor is absent, this could disrupt your day-to-day running of the business. In truth, a very small percentage of local sponsors who advertise their services online, are likely to disappear but it is not uncommon for sponsors to spend some months abroad each year. There are few safety nets in place here, which means that it would fall on you, as the business owner, to seek legal advice and assistance but this can be a costly affair both financially and in lost business.
How to source a reliable local Qatari sponsor?
You may have realised that many of the issues arise due to lack of time, experience, research or resources that is why it is imperative to do the necessary research, ask as many questions as possible and build relationships with key individuals. Finding a credible sponsor who is trustworthy, transparent and with whom you have a direct line of contact with, can help you avoid the issues mentioned above. If you do not know of a reputable Qatari sponsor, or would prefer to work with a corporate option, rather than an individual then Venture Partner Qatar is a reliable corporate option.
The benefits of corporate sponsorship
Although individual sponsorship is common, many businesses are not aware that they can also set up a company with corporate partner’s sponsorship. Corporate sponsorship offers the same benefits as an individual sponsor but also offers services to ensure a risk free solution. Some of the core advantages of this type of sponsorship are as follows:
- No interference from the sponsor: With corporate sponsorship, entrepreneurs maintain complete control over their business, despite the sponsor holding 51% of shares. Corporate sponsors do not get involved in the day-to-day running of the business, which allows company owners to have full management of their staff, clients and other company related matters.
- Companies Law: Limited Liability Companies, established with a corporate partner are governed by Companies Law and therefore issues of succession are not faced i.e. the corporate partner never dies and therefore there are no succession issues under Sharia Law.
- 100% of the financial benefits: A corporate partner will ensure that the foreign party has full control of the financial affairs of the company and that the owners retain 100% of the financial benefits, after payment of the annual partnership fee.
- In-depth protective contracts: Corporate sponsors offer detailed contracts drafted by experienced legal counsel, so that the rights of business owners and their shareholders are fully protected. It is normal to have a Shareholders Agreement and a Service Agreement which can be executed efficiently.
- Exit Strategy: An exit strategy with no penalties for the foreign partner will be written into the Agreements, individual sponsorships rarely offer this clause and normally insist upon payment in order to transfer the 51% interest.
Venture Partner Qatar have immense experience in offering corporate sponsorship, for more information please contact us on email@example.com or +974 4478 8765.
— Venture Partner (@venturepartnerq) May 8, 2019