7 big reasons LLC company formation is the best

26 October 2017 Category:
7 big reasons LLC company formation is the best onshore option in the UAE mainland

Launching new businesses is a popular activity here in the UAE.

In Dubai alone, the Department of Economic Development (DED) issued a staggering 21,146 new business licences in 2016. Among these new businesses – and the 125,000+ licence renewals issued every year – the most popular company type is the tried and trusted Limited Liability Company, or LLC.

An LLC structure here in the UAE looks the same as anywhere else: an independent legal entity owned by multiple shareholders. But there are plenty of good reasons why LLCs are so popular in this part of the world. Not only is the setup process both fast and affordable, but the LLC structure also allows entrepreneurs to trade directly with the local market in the Emirates – something the free zone setup, also hugely popular with company owners here, does not offer.

Setting up in the UAE mainland – why choose an LLC?

So, if you’re looking to get started and still considering different ways you might set up your new business, here are seven reasons why LLC company formation is the best onshore option in the UAE mainland.

1. Limited liability protection: Perhaps the main reason behind the popularity of LLCs on the UAE mainland is that they offer entrepreneurs complete personal protection from liability. Essentially, should anything go wrong and the business get into trouble, you are not personally liable as the owner or shareholder. In total, your liability is capped at the amount you have invested in the business. This protects you from liability for any bad debts or court injunctions incurred by the limited company – since it is regarded as a separate legal entity.

Perhaps the main reason behind the popularity of LLCs on the UAE mainland is that they offer entrepreneurs complete personal protection from liability.

2. Low startup costs: LLCs are also very attractive to first-time entrepreneurs, not least due to the low cost of setting up. As well as minimal application costs, starting at just AED 17,000, there is also no requirement for paid upfront share capital.

3. Great tax breaks: When talking about different methods of company formation in the UAE you have to mention the incredible tax environment that exists here. In short, LLCs in the UAE are 100% tax free – paying no tax whatsoever on all profits.

4. Range of permitted business activities: Unlike some other company types, LLCs allow you to undertake a broad and extensive range of business activities. Entrepreneurs can apply for a licence to trade in any of the 2,000 activities permitted by the DED, from agriculture to finance.

5. Set up anywhere in the UAE: As LLCs are permitted to trade directly with the local market – unlike free zone companies – you can take on office space and set up your business anywhere in the UAE mainland.

6. Branch out: Forming an LCC can be one of the fastest and most effective ways to gain a foothold and build momentum in the UAE. Once your business is established, not only can you trade directly with the local market, but you can also open additional branch offices throughout the Emirates to establish a greater presence across the mainland.

7. Set up with multiple shareholders: LLCs are popular with businesses of all sizes as they allow for company formation with multiple shareholders – anywhere between two and 50. These shareholders can be either individuals, corporate entities or a combination of the two.

Setting up in the UAE mainland – as easy as LLC

So, we’ve covered the benefits of setting up an LLC. But how do you go about doing it in practice?

The first thing to keep in mind is that you’ll need to find a UAE sponsor. As LLCs do not allow for 100% foreign ownership, you’ll need to work with a local Emirati to trade locally in the UAE. Your local sponsor will officially hold a 51% stake in your business. However, they have no say in day-to-day company decision making and you are able to keep 100% of profits.

Local sponsors are usually paid a set fee for their service and must be professionals, business owners or government employees – and must be citizens of the UAE. As this process can be complex, it is advisable to engage the services of a company formation specialist at this stage.

Local sponsors are usually paid a set fee for their service and must be professionals, business owners or government employees – and must be citizens of the UAE.

Once your sponsor is secure, you can begin the licence application process. This begins with you choosing your business activity from the DED list – a company formation specialist can help you decide on the most suitable.

Next, you need to choose and reserve your company name. There are a few things to keep in mind here. Offensive language is forbidden, and company names cannot contain religious references, or indeed references to any known organisations – which covers anything from ‘FBI’ to ‘Mafia’. And only full personal names can be included in your company name – meaning both first name and last name are required if you are using your personal name for your company name. When it comes to your company name in different languages, all names must be written as they are sounded out, rather than translated.

Once your name is registered, you are ready to apply for your licence. To do this, you’ll need to provide the DED with certain documents, including your licence application, memorandum of association detailing sponsor arrangements and ownership percentage among all partners, a certificate of incorporation (if one or more shareholders are corporates), the board resolution approving the LLC, and copies of shareholder passports and visas. You can also apply for your immigration card and any additional visas that may be required at the same time.

Keeping it simple

It’s as simple as that. Once your application has been reviewed, you’ll usually receive your licence in a matter of weeks. All that’s left to do is open your corporate bank account – a company formation specialist can help you with this step too – and you’re ready to set up your business anywhere in the UAE.

Virtuzone Mainland is dedicated to helping clients open a company on the UAE mainland, providing advice and assistance with every aspect of the company formation. To set up a consultation, please call us on +971 4 457 8200, send an email to maria.capin@vz.ae or click here.

About the author: John Hanafin, CEO at Virtuzone Business
About the author: John Hanafin, CEO at Virtuzone Business

With 25 years of experience in the company formation industry, John Hanafin is well known in the UAE and beyond as a specialist in corporate services, and shares a passion for helping others establish and grow their own businesses across the UAE and wider region. John joined Virtugroup in 2017 after spending 12 years with The Sovereign Group as their Global Sales Director, and two years as CEO of Arton Capital.