Recently, a client asked us, “Could it be more cost effective to set up an entirely new business rather than renewing one’s existing licence?” – and upon enquiring the source of this information, it turned out that this was from a marketing ruse being used by certain fly-by-night company formation agencies to line their own coffers, at the expense of their customer’s best interests.
YOUR EXISTING TRADE LICENCE IS FAR MORE VALUABLE THAN YOU THINK! If you’d like to know the intangibles associated with the longevity of your trade licence, read on!
1. Credibility with banks and regulators
The first and most immediate requirement for a business is a corporate bank account. With increasing compliance requirements at Central Bank level, and the banks themselves becoming increasingly stringent with their account opening procedures, the regulators and banks are more comforted with existing businesses that are long-established and have a proven track record. Remember that to the eyes of the bank, a new licence means a new company. Do not believe that you can switch your bank account from your existing licence to a new licence. This is a UAE Central Bank requirement and isn’t even governed by the banks themselves. Anyone telling you otherwise does not have your best interests at heart.
Dhiraj Kunwar, Managing Director, Business Banking at one of our partner banks, RAKBANK, clarified that they are following the Central Bank guidelines on KYC (know your customer) and all business account holders need to update their legal documents such as trade licence every year. If the account holder changes the legal entity, jurisdiction or business activity and a new trade licence is issued as a result of that, then a new account should be established and the bank account pertaining to an expired or surrendered trade licence should be closed unless there is a specific government approval.
2. Market reputation and stability
Imagine if every time you dealt with a vendor, they kept changing their name and trade licence – how confident would you be if you had to give them an advance? Not very comfortable we’re sure. A licence that has been renewed year-on-year shows stability of the business and gains the confidence of your vendors and customers as they see your business as someone they can rely on for their requirements and their money. Jumping jurisdiction be it from BVI to Mauritius to Cayman or one Emirate or Free Zone starts alarm bells ringing within compliance departments and you can scarce afford that in the best of times, let alone now.
3. Mismatch between trade licence duration and visa duration
A well-known fact is that a trade licence is renewable annually whereas a visa is renewable once in every two or three years. A growing business always needs a team of skilled staff who often have family or dependents. If you were to follow the misinformation of conflicted company formation entities and set up a new company instead of renewing your existing licence, soon you would find yourself spending almost 50-70% more on visas than if you had stayed with your existing trade licence.
4. Boosts business growth
To scale up to the level of a Facebook or an Amazon, businesses need funding. Whether you raise money from banks/financial institutions; private equity; angel investors; or are in the process of being acquired, they all seek confidence in the legal ownership and long-standing presence of the business to ensure the security of their investment. Needless to say, with a new trade licence or if you’re seen to flip companies rather than maintaining a consistent track record by renewing your existing licence, it’s quite unlikely that you would build the trust that a bank or an investor would need when placing their hard-earned money into your business.
5. Save time and reduce your exposure to changing regulations
Sometimes, some businesses undergo a tedious process to obtain specific activities in the trade licence and the last thing they would want is to be misguided into opening a new company and not only undergoing the tiresome process all over again but also, not being guaranteed the required activities in your licence, which would bring the business to a grinding halt. By renewing your existing trade licence, you can save the most important commodity of all – TIME – by not having to obtain initial approvals and also, allowing yourself to focus on running your business.
6. Uninformed cancellation charges
What the misinformed company formation entities might not tell you, is that the costs associated with cancelling your business licence and visas when coupled with the cost of a new licence, will likely far exceed the fees of simply renewing your licence. Hence, keep aside the intangible aspect, even financially it makes more sense to renew your existing trade licence.
By now, you will have realised that the perceived value of your existing licence is far more than what you would have imagined and because we understand the tireless effort, time and investment that goes into starting and growing your business; we don’t want you to fall prey to the incorrect information which could risk the future of your business.
As a closing note, being the frontrunners of the company formation business with more than a decade of experience, we’d like to advise you to beware of such tenuous information and remember; if something sounds too good to be true, it probably isn’t true!