In the past few decades, the Middle East region has witnessed an impressive rise of business organizations in various sectors. This is due to the holistic and encouraging policies of the regional authorities, awareness and need for new developments, growing ambitious mindset of developing new innovative businesses and numerous multinational organizations eagerly stepping up to explore the regional markets. One of the key relatable aspect is the evolving nature of the corporate structures in the middle east.
The modern organizations have evolved with varied and changing corporate structures which have been developed to support the organizational objectives and balance the industry requirements. The entrepreneurs from the Gulf business world have been ambitious, progressive and innovative in expanding the businesses through sustainable and scalable models.
Understanding Corporate Structures in the Middle East
Corporate structures are often a mix of the traditional family-owned businesses, large state-owned enterprises, and lately, privately held limited liability companies (LLCs), heavily influenced by government regulations and having significant personal relationship bases in doing business; the common legal structures include sole proprietorships, civil companies, partnerships, public joint stock companies (PJSC), and free zone companies (FZC) depending on the country and jurisdiction.
- Family-owned business: A large majority of the large businesses in the region are family-owned, with high decision-making authority in the hands of a family network that ensures immense loyalty and continuity. In family-owned businesses, the control stays within the family with a high degree of trust factor and confidentiality maintained at a high level. In addition, all the internal processes and functions are controlled internally and thus contribute towards cost minimization and profit retaining within the family. This is one of the prominent corporate structures in the middle east.
- State-owned enterprises (SOEs): State-owned companies, which are primarily concentrated in the petroleum and gas sectors, dominate most of the economic activities in various Middle Eastern countries. It falls in the waterfalls structure for the dominant and critical corporate structure in the middle east where organizations are working. There are the state-owned business entities that strictly control the natural resources extraction, processing, trading, and distributing toward authenticity and uniformity under legal conformity. This structure, therefore, ensures a good scope of employment among the regional and international skilled and semi-skilled workforce.
- Limited Liability Companies (LLCs) : LLCs are in great demand because they are flexible and provide protection against liability in most modern business environments. LLC which stands for Limited Liability Company is common forms of corporate structures in the middle east. It is one of the most frequently chosen forms of business incorporation in the United Arab Emirates (UAE). It is a versatile structure that offers limited liability protection to the shareholders.
LLCs can have 2-50 shareholders. Shareholders can be either individuals or corporations. Shareholders liability is limited to their investment in the company. A local sponsor is required; that is a UAE national should own at least 51% of the company.
- Free Zones: one of the newer corporate structures in the middle east, Special economic zones with very relaxed regulations. Many multinational companies use them as a platform for establishing regional operations. In the GCC region, some of the largest SEZs include Saudi Arabian King Abdullah Economic City and free zones distributed across the United Arab Emirates, with Jebel Ali Free Zone being the most prominent. On the same note, GCC logistics offers incentives that range from 100% foreign ownership and tax breaks to investors.
- Sole Proprietorship: This is one of the forms of corporate structures in the middle east whereby a business is owned by one person with full liability. In the Gulf, a very large percentage of businesses have been classified as falling under the sole proprietorship business model. This has been the traditional business structure which is still prominent in several business sectors.
- Civil Company (Sharikat Mudaraba): Sharikat Mudaraba is the most frequently employed form of a business corporation in the Middle East. It is a partnership whereby one partner shall provide capital while the other shall manage the business. The former is called rabb al-māl and the latter, the entrepreneur or muḏārib. There are two varieties of mudarabah: unrestricted or unlimited and restricted or limited.
- Public Joint Stock Company (PJSC): A PJSC is one of the most prominent corporate structures found in the Middle East and refers to a publicly traded company with shares that the public can freely buy and own. It’s a business firm whose shares are quoted on any stock exchange including Dubai Financial Market or Abu Dhabi Securities Exchange; therefore, a person can have an interest in the company through buying the company’s shares available in the stock market.
- Free Zone Company (FZC); A free zone company is set up in declared free trade zones that enjoy tax incentives. Created to promote industrial investment in this region, is the latest new variant of the corporate structures in the middle east. Among various good examples that can be held as a sample of “Free Zone Company,” in the case of the “Gulf,” is one named company which existed within Jebel Ali Free Zone, inside Dubai, UAE. It is one among the largest free trade zones existing in the world and offers multiple industries to be established for any business. Situated in close proximity to Jebel Ali Port and Al Maktoum International Airport, Jafza offers easy access to all trade routes worldwide.
Examples of major Middle Eastern companies:
- ADNOC (Abu Dhabi National Oil Company): State-owned oil and gas company of United Arab Emirates
- SABIC (Saudi Basic Industries Corporation): A top petrochemical company from Saudi Arabia • Emaar Properties: Major real estate developer in the city of Dubai and Burj Khalifa end
- QNB Group: A major banking institution in Qatar
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