In brief
A new company can solve a genuine structural problem. It can separate an operating business from an investment, admit investors to one venture, establish a local presence, or create a clean perimeter for financing or a future sale.
It also creates a separate legal person to own, govern, fund, account for, maintain, and eventually sell or close. The right question is therefore not only, “Can we create another company?” It is, “What problem will this company solve, and is a separate entity the best way to solve it?”
The decision should be based on the entity's full lifecycle cost and obligations—not only the incorporation fee.
Start with the entity's role
Every entity should have a clear and defensible job. Common roles include:
- an operating or distribution company;
- a holding or investment vehicle;
- an intellectual-property or property owner;
- an employer or regional headquarters;
- a joint-venture company; or
- a special-purpose acquisition or financing vehicle.
The role does not have to be limited to one activity. It should, however, explain why the company exists separately from the rest of the group.
A useful role statement identifies what the company will own, contract, employ, invoice, manage, and fund. “We may use it for something later” is not a role. If the commercial purpose cannot be explained before incorporation, the company may be premature.
Obligation 1: Formation and renewal
Establishing an entity may require activity and licence selection, a legal form, name reservation, constitutional documents, premises or a registered address, regulatory approvals, ownership and management information, due-diligence documents, and authority or professional fees.
The obligation does not end when the licence or certificate is issued. Depending on the jurisdiction, legal form, activity, and regulator, the company may need renewals, maintained premises, refreshed identification documents, insurance, filings, regulatory fees, and updated authority records.
Compare structures using their recurring and closure costs as well as their setup price. Management time is part of that cost.
Obligation 2: Ownership and beneficial-owner records
Every entity adds a layer to the ownership chain. The group should be able to identify:
- direct shareholders or members;
- the natural persons who ultimately own or control it;
- the basis of ownership or control;
- nominee or representative arrangements;
- changes in ownership; and
- the relationship between the entity and the wider group.
UAE Cabinet Resolution No. 109 of 2023 requires legal persons within its scope to identify and maintain prescribed real-beneficiary, shareholder or partner, and nominee-board-member information. Its scope and exclusions must be checked for the entity concerned; financial free zones and certain government-owned entities are treated separately.
Complexity does not remove the need to identify the individuals who ultimately own or control the structure. If the founders cannot explain the ownership chart, banks, authorities, investors, and counterparties are also likely to struggle with it.
Obligation 3: Governance and decision-making
A company needs its own decision framework. The group should identify:
- who owns and manages it;
- which matters belong to shareholders, the board, or a manager;
- who may represent it and sign contracts;
- who may instruct its bank;
- how conflicts and related-party decisions are handled;
- who maintains its records; and
- what happens when a decision-maker is unavailable.
The same founder may hold offices in several group companies, but the founder acts in a different legal capacity for each. An approval for one company should not be treated automatically as approval for another. Separate records become particularly important where companies have different investors, creditors, duties, or commercial interests.
Obligation 4: Banking and funding
A new company does not automatically receive a bank account. A bank may assess its purpose, activities, ownership and control, management, signatories, source of funds, expected transactions, trading countries, counterparties, and relationship with the wider group.
Before incorporation, decide how the entity will be funded. Capital, shareholder contributions, shareholder or intercompany loans, revenue, and external finance may require different approvals, documents, accounting, and tax treatment.
Group bank accounts should not be treated as interchangeable. For every movement of funds, the records should show:
- which entity earned or incurred the amount;
- why the money is moving;
- whether it is capital, debt, consideration, or reimbursement;
- who approved it;
- how it is recorded; and
- whether and when it must be repaid.
Undocumented transfers weaken the accounting trail and make tax, audit, banking, and investor explanations more difficult.
Obligation 5: Accounting and financial information
Each legal entity should have records that distinguish its own assets, liabilities, income, expenses, capital, bank transactions, contracts, commitments, and shareholder or intercompany balances.
A non-trading holding company may still incur formation, renewal, banking, and professional costs; receive dividends; hold investments; obtain shareholder funding; and face valuation, impairment, filing, or tax questions. “Dormant” and “obligation-free” are not synonyms.
The group may also need consolidated or management reporting, but group reporting does not replace entity-level records. Accounting responsibility should begin with the first cost or transaction, not at the first filing deadline.
Obligation 6: Corporate Tax and VAT analysis
A new UAE legal person requires its own Corporate Tax assessment. The FTA states that juridical persons subject to Corporate Tax must register and obtain a Corporate Tax Registration Number under the applicable registration timelines. UAE branches of a domestic juridical person are not separate legal entities and generally do not register separately from their head office.
The group should establish:
- the registration deadline and first tax period;
- whether an exemption, relief, or tax-group treatment may be relevant;
- the expected income, expenses, and related-party transactions;
- the records, return, and payment responsibilities; and
- whether and how transactions between group entities should be charged and invoiced.
A free-zone company should not be assumed to have no Corporate Tax obligations. Its treatment depends on the current legislation and its actual activities, income, transactions, and compliance with any applicable conditions.
VAT requires a separate analysis. Incorporating a company does not itself trigger VAT registration. For a UAE-resident business, mandatory or voluntary registration depends on the applicable taxable-supply, import, and expense tests and thresholds; grouping rules and the treatment of branches may also affect the result.
Obligation 7: Intercompany arrangements
Once a group has more than one entity, transactions between them need a commercial and documented basis. These may include:
- management services, staff secondments, or cost sharing;
- shareholder and intercompany loans;
- intellectual-property licences;
- distribution, marketing, technology, or procurement services;
- premises or asset use and transfers; and
- guarantees or other financial support.
For each arrangement, identify the provider, recipient, benefit, pricing method, risks, approvals, invoicing or settlement process, and supporting evidence. A journal entry labelled “intercompany” is not a complete explanation.
UAE transfer-pricing rules can apply to transactions and arrangements between related parties or connected persons, including domestic dealings. Documentation thresholds determine some formal requirements, but the arm's-length principle is not limited to cross-border transactions or to companies that exceed those thresholds.
Obligation 8: Function, management, and operational substance
An entity should be capable of performing the function assigned to it. Consider who manages its activity, where decisions are made, who performs the work, which contracts and assets it controls, which risks it assumes, what premises and systems it uses, how it is funded, and how its performance is monitored.
The answer should reflect the role. A passive investment vehicle may need limited operational infrastructure; a regional headquarters, distributor, or service company usually needs more.
“Substance” is not satisfied by adding the same generic feature to every company, nor is it shorthand for one universal legal test. The relevant requirements depend on the entity's facts, licence, jurisdiction, tax position, and activities. Contracts, income, assets, and risks should not be allocated to a company that has no realistic ability to manage them.
Obligation 9: Contracts and third-party records
Decide the correct contracting party before an agreement is signed. Depending on the entity's role, its own records may include customer and supplier agreements, employment contracts, leases, insurance, finance documents, technology licences, data-processing terms, regulatory approvals, and intercompany agreements.
Using the wrong company can mean that:
- the licensed entity does not hold the customer contract;
- the company receiving revenue is not delivering the service;
- an employer does not control the employee's work;
- an insurance policy covers a different legal person;
- an invoice is addressed to a company that did not incur the cost;
- intellectual property is used without a documented right; or
- bank transactions do not match the account holder's stated activity.
The contract structure, operational activity, invoice flow, accounting records, and bank transactions should tell the same story.
Obligation 10: People, systems, and internal control
Assign responsibility for the company's bank access, payment approvals, accounting entries, invoices, government portals, original records, renewals, contracts, authority requests, and financial reporting.
Using the same employees across several group companies can be efficient, but each person should know which entity they represent for a particular decision or transaction. Shared systems should preserve legal-entity separation: one platform may support several companies, but each transaction, document, approval, and user action must remain attributable to the correct company.
Obligation 11: Exit and closure
Every entity will eventually be sold, merged, transferred, liquidated, or otherwise closed. That may involve corporate approvals, final accounts and tax filings, deregistrations, bank-account closure, employee and immigration matters, contract termination or transfer, regulatory clearances, settlement of liabilities, distribution of assets, licence cancellation, and record preservation.
Leaving an unused company in place can preserve renewal, filing, tax, banking, and record-keeping responsibilities. The group should periodically confirm that each entity still performs a useful role and compare the cost and risk of retention with an orderly closure.
When another entity may be justified
A separate company may create a meaningful boundary where there is:
- a distinct investor group or genuine joint venture;
- a materially different liability or insurance profile;
- an activity requiring a specific legal person, licence, or governance framework;
- a new country requiring a local presence;
- a separable business line with its own assets, management, and strategy; or
- a planned financing, investment, acquisition, or disposal.
Limited liability and structural separation are not substitutes for legal, regulatory, tax, contractual, or insurance analysis. Guarantees, shared conduct, inadequate documentation, and other facts may affect how well a proposed boundary works.
When another entity may be unnecessary
Warning signs include:
- the company has no clear activity or purpose;
- another group entity already performs the proposed role;
- it is intended to compensate for a disorganised process;
- the founders assume that more entities automatically produce tax savings;
- the same contracts, assets, people, and bank account will be used without separation;
- no one owns its management, accounting, or compliance work;
- the expected intercompany transactions cannot be explained;
- the plan depends on a bank account that has not been assessed;
- the recurring and closure costs have not been calculated; or
- there is no plan if the underlying project changes or stops.
A new entity cannot fix a missing operating model. It gives that missing model another legal person to maintain.
A pre-incorporation decision test
Before approving another company, answer these questions:
- Purpose: What exact commercial, legal, or operational problem does it solve?
- Role: What will it own, contract, employ, invoice, fund, and manage?
- Alternatives: Could the objective be achieved through an existing company, contract, branch, division, distributor, or another arrangement?
- Ownership: Who will own and control it now and after future investment?
- Management: Who will make decisions and be accountable for it?
- Banking: How will it be funded, and what transactions will pass through its account?
- Accounting: Who will maintain its records and produce financial information?
- Tax: What registrations, returns, and intercompany issues require analysis?
- Operations: What people, premises, systems, assets, licences, and approvals are required?
- Cost: What are the formation, recurring, management-time, and closure costs?
- Exit: What happens if the venture succeeds, changes direction, or stops?
If these questions cannot be answered, the incorporation decision is not ready.
The Kapiti view
A good structure does not aim for the fewest possible companies or the greatest possible number. It uses the entities required to support the business, with each company performing a clear function.
Before incorporating another entity, compare its expected benefit with the complete operating burden it creates. Purpose, ownership, governance, funding, banking, tax, accounting, contracts, controls, recurring administration, and eventual exit should form one decision—not a sequence of problems discovered after formation.