In Business – to freeze or liquidate your license?

Today, let’s talk about the difference between freezing the company’s license and closing down the company.

Many of us don’t know that we can freeze a license for at least a maximum of 3 years if the company undergoes a restructuring of its financial liabilities. A company is like a live entity that has a life cycle, it lives and it dies as well. Closing the existence of any legal entity in the UAE is a multi-step procedure that involves liquidation of the company and assets, paying creditors, and more. It is understandable in terms of company termination, so let’s find out what is freezing the company’s license.

Well, freezing the company’s license means that you can keep your license inactive for a specific period of time. For sole establishments registered in DED license suspension cannot exceed one-year but other types of companies can have their license frozen for up to three years. The three years period cannot be extended.

Please note that this option is not applicable in all emirates and free zones, therefore it’s worth checking such availability prior to any action taken. The license can be frozen in the Dubai Department of Economic Development for example.

Once the license is frozen, it is illegal for a company to practice any of its activities. At the same time, it is worth mentioning that the owner of a frozen license or shareholder is allowed, during the suspension period of his expired license, to apply under his name, for a new license and is able to set up new companies and businesses in Dubai.

What are the most common situations when the owner can freeze the license?

The option of freezing a license is like a helping hand for those companies that would like to suspend the license to avoid liquidation and prevent losses.

As you know, if the company’s owner does not renew his license, a non-renewed license fine will apply. All emirates and free zones have different fines, let’s say DED licenses are fined after a grace period of 30 days for AED 200/month. A frozen license can stop the accumulation of fines during the suspension period of an expired license.

If the license is not renewed 5 years in a row, then it will be canceled automatically.

Moreover, any partner that did not timely renew his license and has a company with the expired license will be blocked from renewing or registering any additional new or currently existing license unless all fines have been settled.

Therefore, the most common situation is when a business owner does not want to lose his license as it costs a lot. You can apply for a licensing freeze only one time during the period of the company’s existence.

Note upon freezing your license

Before you start the procedure of freezing the license, make sure there are no pending legal actions against your company at the time of application. You should be aware that creditors do not lose their right to claim against a company and initiate a court case against a company with a frozen license. In case of a court claim, the Department of Economic Development will de-freeze the license.

The license freeze can only be deactivated only once throughout the duration of the freeze period even if the license is being frozen just for a day.

As opposed to freezing, company closure, or company liquidation is the process in which the legal status of the company is completely terminated. The liquidation is also known as the winding up of the company after which the company is finally wound up completely and stops existence. A company can be liquidated in a compulsory or voluntary mode. The reason can be the shareholder’s decision, financial instability, or any other reason. Remember, that the main advantage of freezing a license is helping the non-active company with expired licenses to keep the license, suspend business and prevent from paying license non-renewal fines. This temporary solution is a real helping hand for some companies in difficult times to avoid liquidation, and the chance to renew operations, restart businesses, and avoid going through the new setup procedure with relevant new setup costs.

Disclaimer: Corporate Services in Dubai is not affiliated with any particular government or legal entity. Corporate Services in Dubai does not give professional legal advice nor any other professional advice subject to a public office in the government. This article merely sets out a simple and basic idea regarding the freezing of a license. Corporate Services in Dubai in no way holds nor imposes any official governmental or legal authority and the article herein is only to be taken as a guide. All further governmental or legal issues should be addressed to the corresponding authorities.