Living In UAE

Starting a business in the UAE 2022: Which option is better - sole proprietorship or LLC?

Cost, operational benefits and financial liabilities that you should consider.

Published: June 15, 2022 17:32 Huda Tabrez, Living in UAE Editor

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Looking to start a business in the UAE? If you are opting for setting up your company on the mainland, as opposed to a free zone, you may have come across a few options for business licences that are available to you. — Mainland companies are given a licene by the economic department of the Emirate. Image Credit: Pexels

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Should you set up a company under a sole proprietorship licence? Or would an LLC be a better option? It is important to understand what each business licence brings to the table, for you as an entrepreneur. — What are the pros and cons for each of the options? Image Credit: Pexels

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Sole proprietorship refers to a business licence that allows a single individual to own 100 per cent of a business. — Sole properietorship Image Credit: Pexels

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As it is a business licence – as opposed to a freelance licence, which is a work permit – it allows the person to work with other businesses as well as individuals. — Freelancers apply for a work permit, which has its own set of limitations. Read more here: gulfnews.com/1.1619076730746 Image Credit: Pexels

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After recent amendments to the UAE Commercial Companies Law (CCL), foreigners are allowed to own 100 per cent of an LLC for several economic activities, including general trading. — Image Credit: Pexels

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This includes the option of having a virtual office, which reduces rent costs, and the allocation of a visa quota, which can allow you to hire employees. The set up costs are as low as Dh12,500 per year. — Image Credit: Pexels

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However, if you wish to conduct trading activities, which includes the buying and selling of goods, you cannot do so using a sole proprietorship licence. — Image Credit: Pexels

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The economic activities that are permitted under the sole proprietorship licence mainly include activities in the service industry. — Image Credit: Pexels

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Also, because the business has a single owner, it also means that you have to assume all the financial responsibilities, and your personal assets can also be used to fulfil any financial liabilities that the establishment may have. — Image Credit: Pexels

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LLC Setting up an LLC or a Limited Liability Company is a more elaborate procedure compared to setting up a sole proprietorship. — Image Credit: Pexels

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The cost, too, can be more, with licences costing upwards of Dh20,000. However, LLCs are still a popular option in the UAE because of other benefits. — Image Credit: Pexels

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An LLC licence is issued by the economic department of an emirate. As it is a mainland company, it has no restrictions on where it can trade in the UAE (unlike a free zone company). — Image Credit: Pexels

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There are also no minimum share capital requirements from stakeholders, which means that as long as you can pay for the business set up and licensing and operation costs, you can set up an LLC with minimal investment. — Minimum share capital refers to the initial investment that shareholders need to put in to set up a company. Image Credit: Pexels

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Also, there is no restriction on the number of visas that can be obtained for workers. Additionally, as it is an LLC, the shareholders are protected from personal liability. — While there is no restriction on the number of visas that can be obtained, the visa quota for your company may depend on other factors, like the size of your company and office space. Image Credit: Pexels

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