Setting Up a Business in Dubai
If you’re an entrepreneur who’s ready to launch a business setup in Dubai, you have many options available to you. Some initial questions you’ll want to answer for yourself include where you want to conduct business, and what type of company formation in Dubai you’ll want to pursue.
As far as location goes, you can opt to set your business up in one of the available Free Zones. By so doing, you can take advantage of benefits like no assessed corporate or personal taxes, 100% foreign company ownership, full import and export tax exemption, and 100% expatriation of your capital and profits.
You can also choose to set up a Mainland business, if you’re interested in trading directly within the UAE local market. This option will require you to follow a few more business regulations set by the UAE authorities, but those can all be easily navigated with the right UAE business setup consultants, like MSZ Consultancy.
But you’ll also need to decide what type of business classification you’ll want to create; two popular options include sole proprietorship, and an LLC. Sole proprietorship can be a good option if you’re an entrepreneur that’s interested in “going it alone.”
How Does a Sole Proprietorship Work?
What is a sole proprietorship, exactly? It goes by many names, including sole trader, proprietor, or solo establishment. But no matter what you call it, a sole proprietorship is one of the simplest and most common vehicles for starting a business in Dubai. This is a great option for an individual who’s ready to go it alone, as the startup charges are typically minimal, and you can launch your UAE enterprise with just a single shareholder. A certified foreign investor that sets up a sole proprietorship to practice as a professional provider is also empowered to retain 100% of company ownership within the parameters of UAE guidelines.
Sole proprietorship for carrying out business activities may be conducted in conjunction with UAE nationals or GCC (Gulf Cooperation Council) nationals, with certain stipulations. Expatriates who wish to operate inside Dubai or the UAE can establish sole proprietorship for offering one of many beneficial services, including clinical services, engineering consultancies, business management consultancies, prison management consultancies, IT consultancies, and many others.
Establishments owned by foreign nationals are required to employ the services of a National Service Agent (NSA) to assist in obtaining licenses, visas, and other necessary requirements. NSAs are third-party providers who have no direct involvement with your business, apart from consulting you and guiding you through the necessary licensing process and required steps outlined by the governing authorities. This is also a service that MSZ Consultancy provides.
What’s an LLC?
An LLC (or limited liability company) is an independent legal entity. Unlike a sole proprietorship establishment, an LLC has a legal identity separate from that of its owner and shareholders. This legal distinction makes an LLC one of the most popular forms of company structure in Dubai and the greater UAE. One key advantage of this approach is that investors can limit their liability towards the company by setting up an LLC in Dubai. The LLC owner is not personally liable for any debts incurred by the company. If any creditors need to seek recompensation, they’ll pursue the LLC itself, and not you individually. And if any legal issues should arise, victims can’t sue you personally; they can only file suits against the company itself.
What Differentiates a Sole Proprietorship from an LLC?
There are benefits and risks to both business approaches; to that end, it’s helpful to consider all the ins and outs of both. Here are some things you’ll want to consider:
1. Business setup considerations
The sole proprietorship structure offers an easy, convenient setup for the owner. Only a minimum of startup funds and trade licensing with the local government authorities are required to get your dream business started. Setting up an LLC can be a bit more complicated, as it involves more in the way of legal paperwork. It really comes down to the type of business you want to create, and what the scale of your business will entail. Choose the business setup that makes the most sense for you!
2. Investment considerations
With a sole establishment, the primary owner is the single responsible party for making investment decisions for your business. As the only decision-maker, you can invest as much or as little as you like, without having to take into account any second- or third-party preferences. With a limited liability company, there can be multiple owners involved when it comes to making business investment decisions. But by registering under a company name, you also have more opportunities for landing loans from third-party lenders.
3. Securing business funds
In order to experience target expected growth, most businesses will benefit from the infusion of additional investment funds. In the LLC company business structure, required funds are typically raised by the owners and primary investing parties involved. But thanks to the additional market credibility that comes along with establishing an LLC company enterprise, LLCs also have more options for raising funds from third-party contributors and financiers.
4. Liability considerations
A sole proprietor establishment and its owner are considered as a single entity. The trade license is issued in the owner’s name, as the business establishment itself doesn’t have a separate identity. As such, a sole proprietor is responsible for the operations of the business, as well as for its potential liabilities. If there’s ever a bankruptcy issue, the creditors can go after the owner to recover the amount of resulting debt.
But with an LLC, the company has a separate legal identity from its owners. The owner/owners aren’t personally liable for any debts incurred by the company. Creditors will be forced to go after the company to recover any due amount, and they can’t sue you personally. They can sue only the company itself.
5. Decision-making considerations
As a sole proprietor, you get to call all the shots. You make your own decisions about the company operations, administration, everything! If you value unlimited freedom in decision making, then setting up a sole establishment makes sense for your business setup in Dubai.
But maybe you don’t WANT to have to make all the calls by yourself. Sometimes, there’s greater wisdom in numbers. An LLC includes multiple shareholders, typically ranging anywhere from 2 to 50. This is also a sound approach to company formation in Dubai.
6. Permitted business activity considerations
A foreign investor can choose from literally thousands of activities permitted by the Department of Economic Development (DED) in Dubai. These business activities spread across a wide range of commercial, industrial, and professional pursuits. In addition, foreign entrepreneurs can retain 100% of company ownership.
That being said, a sole proprietorship has more limited access to business activities in the Dubai mainland. If you’re interested in starting a business that sells goods in Dubai, sole proprietorship won’t get you there. Goods trading can only be conducted with a commercial business license. For this option, setting up an LLC in Dubai makes more sense.
7. Cost to incorporate
Obtaining a sole establishment business license is the cheapest way to go; LLC licenses in the UAE do cost a bit more. At the same time, an LLC license can also open up more business opportunities for you. Consult with one of the business setup advisors at MSZ Consultancy to help weigh the costs and benefits of various business license options in Dubai.
8. Goals to achieve
If your goal is to set out on your own as a solopreneur, then setting up a sole proprietorship could be the best business solution to meet your needs. On the other hand, if you’ve teamed up with a group of investors who are ready to start your own UAE business together, then setting up an LLC could be the right vehicle to get you where you want to go. The choice is up to you!
So, Which is Best? A Sole Proprietorship, or an LLC?
If you’re an entrepreneur that’s ready to set up shop in the UAE, sole proprietorship and LLC are two popular options. Which is the best for your situation? That really depends on you, and on what type of business you want to create. There are honestly pros and cons to each, and we’ve tried to highlight some of those for you in this blog. Key factors that should play into your decision include intended business activity or activities, business license type, company size and scope, investment considerations, financial liability, and legal liabilities.
MSZ Consultancy is Here to Help!
Not sure where to go from here? If the whole process still seems a bit confusing to you, don’t worry. MSZ Consultancy can come alongside to help you get started! We’re located right here in Dubai, and we know all the ins and outs for ensuring that the whole process will go smoothly for you.
Reach out today to book your free consultation! You can give us a call at +971 52 544 1248, or you can also get the conversation started by shooting us an email at firstname.lastname@example.org. Don’t wait any longer to make your UAE business dreams come true; let us help you to make it happen!