Business

Choosing Between Sole Proprietorship and Limited Company

Entrepreneurs and investors have plenty of options when it comes to incorporating a company in Dubai, UAE. Here we will discuss the choice between a Sole Proprietorship vs a Limited Liability Company. You need to choose the one that is right for you.

Sole Proprietorship vs Limited Company

A sole proprietorship is a suitable option for entrepreneurs willing to start a business alone in the UAE. The cost of a startup is usually low in Dubai, so you can form a company with just one shareholder if it is a sole proprietorship.

However, it is a little different in the case of an LLC business setup, as you will need to hire a local sponsor with a 51% stake in your business to start a company. Though local sponsors or service agents do not have any decision-making power, profits are also shared along these lines.

The key difference between the two is that Limited Liability Companies can be formed with multiple shareholders, while sole proprietorships cannot. Therefore, sole establishments may have unlimited liability for the owner, which could be challenging to manage when businesses run into a financial or legal crisis. However, both have their own advantages and disadvantages. Let us understand it better through the below few points to decide which one is the right option for you.

Easier to Set Up

Setting up a sole establishment in Dubai (UAE) is easier to establish than other types of businesses. Simply select your licence type and business activity and apply directly to the Department of Economic Development (DED). The whole process can be accomplished quickly. Several initiatives have been introduced to make it simpler and more manageable, providing you meet all the necessary criteria. As a result, it takes just 90 minutes to register with the DED after application.

Affordable

The process for incorporating a sole proprietorship in Dubai is not only fast and easy but affordable too. However, it may differ on various factors like location, size of setup, etc. Usually, the price is very low as you are unlikely to acquire large premises. In contrast, an LLC’s setup cost is much higher than a sole proprietorship. Therefore, it would be better to consult a professional business setup consultant to understand the cost factor before making your plans.

Local Sponsor

When you plan to set up a business in the Dubai mainland, you will require a local sponsor (UAE national) with no less than a 51% stake in your company to enable you to trade directly with the local market. But, while setting up a sole establishment, an LSA will serve the purpose. Contrary to local sponsors, LSAs do not own any stake in your business and allow you to maintain 100% ownership. Also, LSAs do not interfere in everyday business or any decision making. Their role is limited to administration like licence, visa and permit applications, and they are paid a fixed amount for the same. Also, LSA should either be a UAE national or a corporate enterprise entirely owned by UAE nationals.

Corporate Bank Account

You can open your corporate bank account in Dubai as soon as you have established your sole establishment and obtained your business licence. The process is quick and straightforward. It is almost the same for LLCs in Dubai, except that the paperwork is a little lengthier than a sole proprietorship.

Sponsor Dependants’ Visas

As the owner of a sole enterprise in the UAE, applying for your own visa and sponsoring your visa applications is simple and easy. If you need a visa for a spouse, child, maid or driver, the process includes four simple steps: entry permit, status adjustment, a medical fitness test and finally, UAE ID registration and visa stamping. This process is usually a little easier for men than women. Most women willing to sponsor dependants will need a divorce certificate, though this depends on a case-by-case basis. In the case of LLC, you are entitled to unlimited visas depending on your business size and activities. If you find the process complicated, you can get advice from an expert in setting up businesses in Dubai to ensure your application process is smooth and hassle-free.

Which One is the Right One – Sole Proprietorship vs LLC?

Investors looking forward to establishing their business in mainland Dubai have two options: Sole Proprietorship vs LLC. Which one you choose depends on factors like business activity, licence type, company size, affordability to invest in a larger enterprise and personal circumstances? So, you will need to decide which one you need and whether it will meet your business need or not.

Both have their own advantages and disadvantages. However, if you do not find any specific reason for choosing sole proprietorship, LLC is the best option on any given day. Make sure you sit and consult with expert business setup consultants and friends before making any such decision. An expert will be able to guide you along the most suitable path.

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