The United Arab Emirates is a top destination for foreign entrepreneurs and investors looking to establish their dream businesses due to its progressive business environment. In the UAE, there are two primary business structures sole establishment and an LLC, each offering distinct advantages. The choice between them depends on the owner’s preferences, available capital, need for liability protection, and financial objectives.
Choosing the right business structure between the two is an important task for any business owner while company setup in dubai. The decision influences personal asset protection, taxation, and the ease of transferring ownership.
In this article, we describe the sole establishment (or sole proprietorship) and Limited Liability Company (LLC) along with their pros and cons, highlighting the difference between the both. We explain which business structure is best for you according to your requirements. With the expert guidance of Now Consultant, you can easily establish your company in one of the above-chosen structures.
What Is Sole Establishment or Sole Proprietorship In UAE?
A sole establishment (also known as a sole proprietorship) is a business structure where one person owns 100% of the company shares. This structure can be used by both individuals and businesses.
Starting a sole proprietorship in the UAE offers many benefits for professionals. By setting up a virtual address and managing visa quotas, you can save on staff recruitment and office space costs. The primary focus of sole proprietorships is professional services. A sole owner is responsible for all the business’s profits and losses.
Pros and Cons of Sole Establishment:
Pros | Cons |
No partner conflict | No liability protection |
Minimal paperwork | Hard to raise business fund |
Possible tax deductions | Challenges in securing loans |
Visa benefits from the UAE government | Lower market credibility |
Virtual address allowed(No need for physical office space) | Restricted access to commercial activities in Dubai’s mainland |
Lower operational expenses | a sole proprietor may be held accountable for the company’s debts |
Easy to wind up |
What Is a Limited Liability Company (LLC) In UAE?
An LLC, or Limited Liability Company, is a highly popular business structure among entrepreneurs in the UAE. It can have multiple owners and is particularly favored by mainland companies. In Dubai, the Economic Department issues trade licenses for mainland companies, allowing them to operate anywhere in the UAE.
One of the key benefits of an LLC is that there is no minimum share capital requirement for shareholders. Additionally, there is no limit on the number of visas available for hiring employees. Shareholders in an LLC are also protected from personal liability, meaning they are not responsible for the company’s debts or financial claims.
Recent changes to the UAE Commercial Companies Law (CCL) now allow foreign business owners to own an LLC fully for many economic activities, including general trading. Previously, foreign ownership was limited to 49% for businesses set up in Dubai.
Pros and Cons of Limited Liability Company:
Pros | Cons |
Protection against business debts | Requires significant legal paperwork |
Safeguarding of physical assets and properties | Decisions must be made collectively with other owners |
Increased opportunities for raising funds | No tax deductions are available |
Support available in emergencies | Costs associated with completing tax returns |
Difference Between Sole Establishment and LLC?
The main difference between a sole proprietorship and a Limited Liability Company (LLC) is how they handle financial risks. In an LLC, members are protected from personal losses if the company faces bankruptcy or debt issues, and their personal assets are safeguarded. In contrast, a sole proprietor is personally responsible for all business debts and losses. Additionally, setting up a sole proprietorship requires minimal paperwork, while forming an LLC involves more extensive legal documentation.
Which Business Structure is Best For You?
The right choice depends on factors like your business type, trade license, number of employees, and more. With an LLC, your financial risk is limited to your business investments. In contrast, a sole proprietorship may expose your personal assets to liability.
If you are concerned about this risk, an LLC might be a better option. For personalized advice, consult our business setup experts at Now Consultant, who can help you with all your business needs and help you choose the most suitable business structure for you.
How We Can Help You?
If you’re looking to start a business in the UAE but are confused about which business structure is best for you, you are in the right place. Now Consultant has helped create numerous businesses across the UAE using various business structures. If you are unsure whether a sole proprietorship or an LLC is the best fit for you, our business setup experts help you guide each and everything from start to end.
Our experts decide the business structure for you based on your business type, size, investment capital, and targetted audience. We help you complete the process of company setup by meeting all the regulatory requirements and mitigating any risk of fines and penalties.
In short, we assist you throughout your trade license application and even manage your financial affairs to play a significant role in the success of your business.
FAQs:
Can The Sole Establishment Be The LLC In Dubai?
Yes, it is possible to convert a sole establishment to an LLC in Dubai. However, this process requires reconstructing and obtaining new legal documents such as MOA, and approval from the DED. You will need to open a corporate bank account in the name of LLC and require local sponsorship.
Is It Easier To Set Up a Sole Establishment Than an LLC?
Yes, setting up a Sole Establishment is generally easier and more convenient than forming an LLC. Starting a sole proprietorship requires just a few trade licenses from the local government and some initial funding. In contrast, establishing an LLC involves more complex legal paperwork and procedures.
Which Business Structure Is Better For a Small Startup In The UAE?
For small startups in the UAE, sole proprietorships are often the preferred choice due to their simplicity and autonomy. This structure allows owners complete control over all business decisions and operations, making the setup process straightforward.