LLC or sole establishment: which is right for you?

11 October 2017 Category :
LLC

When setting up in the UAE, entrepreneurs have a number of options.

You could choose to set up in one of the many free zones – and take advantage of 0% corporate and personal tax, 100% company ownership, 100% repatriation of capital and profits, no currency restrictions, and 100% import and export tax exemption.

Or you could opt for setting up in the mainland with its myriad benefits – which include being able to trade directly with the local market in the UAE. It’s true, establishing a mainland business may seem a little more complex at first glance than starting up in a free zone but it doesn’t have to be that way. With the right guidance, setting up on the mainland is very straightforward.

The first step is to decide on the type of business you wish to start. There are two main choices here: form a limited liability company (LLC) or set up a sole establishment. The latter – also known as sole proprietorship – can be a good option for entrepreneurs wishing to go it alone in the UAE, as startup costs are generally low and you can establish your business with just one shareholder. Plus, with the assistance of a Local Service Agent (LSA), it is possible to retain 100% ownership of your business.

Sole establishment – also known as sole proprietorship – can be a good option for entrepreneurs wishing to go it alone in the UAE, as startup costs are generally low and you can establish your business with just one shareholder.

This is not possible with LLCs, which must be set up with a local sponsor who holds a 51% stake in your business – though they usually have no decision-making power and profits are not split along these same lines.

The major difference between the two is that LLCs can be formed with multiple shareholders, while sole establishments cannot. This also means that sole establishments have unlimited liability for the owner – which could be very costly should your business run into financial or legal trouble. While there are many benefits to setting up a sole establishment in the UAE, this is an important point to keep in mind. If you’re worried about exposure to unlimited liability, then forming an LLC may be a better option.

Setting up a sole establishment – what you need to know

With all that in mind, if you’re set on starting up small and by yourself, a sole establishment could well offer the solution. Below is everything you need to know to decide if it’s the right option for you.

1. Easier to set up than you think: Setting up a sole establishment in the UAE is as easy as establishing any other type of business. In fact, applying to set up on the mainland can be less complex than starting up in a free zone. Simply select your licence type and business activity and apply directly to the Department of Economic Development (DED). The whole process is incredibly fast – recent initiatives have made setup so easy that, providing you meet the entry criteria, you could be registered with the DED within just 90 minutes.

2. Affordable setup: The process for setting up a sole establishment in the UAE is not only quick and easy but affordable as well. The starting price for licence applications is AED 17,000 and, as you’re unlikely to require large premises, total startup costs are usually exceptionally low.

3. Working with a sponsor: When setting up any type of business in the UAE mainland, you’re required to find a UAE national to sponsor the business and give them a 51% stake in order to trade directly with the local market. In the case of a sole establishment, an LSA will suffice. Unlike local sponsors, LSAs do not hold any stake in your company, allowing you to maintain 100% ownership. LSAs are not involved in the day-to-day running of your business, nor any decision making. Their role is confined to administrative tasks such as licence, visa and permit applications, for which they are paid a set fee. Your LSA must be either a UAE national or a corporate entity entirely owned by UAE nationals.

4. Easy to arrange your corporate bank account: As soon as you’ve set up your sole establishment in the UAE and received your business licence, you can set up your corporate bank account. The application process is quick and simple. If you wish, a company formation specialist can advise on the best bank to suit your needs and can even arrange meetings in-branch for you. Alternatively, you’re welcome to approach any local or international bank on your own.

5. Sponsor dependants’ visas: As well as being able to apply for your own visa as the owner of a sole establishment in the UAE, it’s also very easy to sponsor your dependants for their visa applications. Whether you require a visa for a spouse, child, maid or driver, the process involves four simple stages: entry permit, status adjustment, a medical fitness test and finally UAE ID registration and visa stamping. Keep in mind, however, that this process is usually slightly easier for men than women. Most women wishing to sponsor dependants will require a divorce certificate, though this is reviewed on a case-by-case basis. As this is such an important process, it’s a good idea to get advice from an expert in setting up UAE businesses to ensure that, before starting an application, both you and those you are hoping to sponsor meet the entry criteria.

As well as being able to apply for your own visa as the owner of a sole establishment in the UAE, it’s also very easy to sponsor your dependants for their visa applications.

Decisions, decisions: sole establishment or LLC?

Entrepreneurs setting up in the mainland in the UAE are generally faced with two options: establish an LLC or go it alone as a sole establishment. There is no right or wrong decision here. The business type that’s right for you will depend on many factors: your business activity, licence type, company size, scope, and personal circumstances.

When making your decision, however, there are a few key points to keep in mind, the most important one being your financial and legal exposure. When establishing an LLC, your total liability is limited to the amount you have invested in the business; with a sole establishment, your liability is unlimited and includes all of your personal earnings.

Unless you have a specific reason for choosing sole proprietorship, setting up an LLC is likely to be the better option – and there’s a reason why it’s the most popular type of business setup in the UAE. Before making any such decision, however, take the time to discuss your requirements with a company formation specialist, who will be able to guide you along the most appropriate route.

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, or click here.

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About the author: Neil Petch, Chairman at VirtuGroup
About the author: Neil Petch, Chairman at VirtuGroup

With a history of business successes, Neil Petch is well known in the UAE and beyond as a visionary entrepreneur with a passion for helping others establish and grow their own businesses. Neil founded Virtuzone in 2009 and quickly established it as the region’s leading company formation expert, before launching VirtuGroup, a holding company that has a wider mandate of supporting startups from establishment; to successful market entry; and all the way through to exit.