Choosing the right business structure is one of the most critical decisions for a business owner. Business structure can affect the security of personal assets, taxes and smooth running of the business upon ownership change. Most of the businesses in Dubai are started as sole proprietorship or LLC (Limited Liability Company). Let’s dive into the difference between sole proprietorship and LLC to find out which one might be the best choice for your business.
What is a sole propreitorship?
A sole proprietorship is one which allows a single business owner to have 100% ownership. This business structure can work with both individuals and businesses.
The UAE offers tremendous benefits for professionals who wish to start a sole proprietorship company in Dubai, such as options to set up a virtual address and allocation of visa quota, so you can save space rental costs and employee hiring. The activities under sole proprietorship are mainly related to the professional service industry. This is the best choice for foreign entrepreneurs who wish to set up a 100% ownership company with the assistance of a local service agent.
If you wish to conduct trading activities such as buying and selling goods, you cannot use the sole proprietorship business license.
What is a limited liability company (LLC)
LLC or a limited liability company is one of the highly demanded company structures amongst business owners in the UAE. It can be formed with multiple owners. For a mainland company, a trade license in Dubai is issued by the economic department, it has no restrictions on where to trade in the UAE, unlike a free zone company. Another incentive for an LLC is its minimum investment, there is no minimum share capital requirement from the shareholders. Additionally, there is no limit on the number of visas for hiring employees. The shareholders of an LLC are not liable for the company debts or financial claims, hence they are protected from personal liabilities.
According to recent amendments to the UAE CCL (Commercial Companies Law), foreign business owners can have 100% of an LLC for many economic activities including general trading. Before, it was only a 49% stake for business setup in Dubai.
Sole proprietorship vs limited liability company
The key advantage of an LLC over a sole proprietorship is that the owner’s liability is limited to their investments in the company, therefore they are not individually liable for any debts of the company. A sole proprietor would be liable for the debts of the company depending on the rules associated with it, which is a vital monetary aspect to consider. However, it is a viable option for many professionals and start-up companies. For a sole proprietorship, there are no liability protections. In particular, the creditors are able to go after a sole proprietor’s personal assets to compensate their debts while an LLC company can protect your personal assets.
Sole proprietorship vs LLC – an important decision for business owners
The only answer to this kind of question is: it depends. It depends on various factors like your business activity, type of trade license, scope, number of employees and more. The most important thing you need to keep in mind is that for an LLC, the liabilities are limited to your company investments but for a sole proprietorship, it is unlimited including your personal assets. If you are concerned about this financial exposure, LLC would be the better option. But it is always recommended to get a free consultation from our business setup consultants in Dubai who are experts in guiding you through the right way on your business requirements.
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