Sole Proprietorship V/s LLC: Which Legal Structure is Ideal For You?

Sole Proprietorship Vs LLC Which Legal Structure is Ideal For You

Choosing the right legal structure is the first and one of the most important decisions an investor has to make while planning to open a company in Dubai. Your decision will have a long-lasting impact on key areas of business setup including control of ownership and extent of liability. For this reason, choosing the legal structure of a company should be made after discussing with business setup consultants in Dubai. When it comes to the process of business setup in Dubai, investors often consider the differences between a sole proprietorship and a Limited Liability Company ( LLC) before arriving at a final decision.

Here are some interesting factors that will help you distinguish between an LLC and a sole establishment. Read ahead.

Sole Establishment in Dubai

Sole establishment or a sole proprietorship, one of the oldest forms of business, is also the most common legal structure available for company formation in Dubai. A sole establishment is an entity owned by an individual with a trade license issued under the owner’s name. It means the sole proprietorship doesn’t have a legal identity separate from its owner.

Limited Liability Company in Dubai

An LLC is an independent legal entity. Unlike a sole establishment, the LLC has a legal identity separate from its owner/shareholders. LLC is one of the most popular forms of company structures in Dubai mainland due to this reason. Also, the investors can limit their liability towards the company by setting up an LLC in Dubai.

Factors that differentiate an LLC from a Sole Establishment

In terms of structure and features, an LLC and a sole establishment widely differs from each other. However, we can differentiate both the legal structures based on the advantages and disadvantages of both structures. They are:

Extend of Liabilities

A sole establishment and its owner are considered as one entity. The trade license is issued in the owner’s name and not the company’s because the establishment doesn’t have a separate identity. This means you are responsible for not only the operations of the business but liabilities as well. The owner is personally liable for the debts of the company if it goes bankrupt. The creditors can go after the owner to recover the debt amount.

In an LLC, the company has a separate legal identity from its owners. The owner is not personally liable for the debts made by the company. The creditors will go after the company to recover the amount and not after you. If your product causes any legal issues, the victims can’t sue you personally. They can sue only the company.

Freedom of Decision Making

In a sole proprietorship, you are responsible for the operation of your establishment. You can make your own decisions about the operation or administration of the company. You can have unlimited freedom in the company’s operations by setting up a sole establishment in Dubai.

An LLC, on the other hand, is run by multiple shareholders. The decisions about the company have to be taken with the consent of all the shareholders. In most cases, the board members pass a resolution to decide about the important matters of the company. The number of shareholders in an LLC typically range from 2 to 50.

Range of Permitted Business Activities

A foreign investor can choose from over 2000 activities permitted by the Department of Economic Development (DED) in Dubai mainland. The activities spread across commercial, industrial and professional activities. Foreign entrepreneurs can enjoy 100% company ownership in commercial activities without having a local sponsor.

A sole proprietorship has limited access to business activities in Dubai mainland. Foreign investors are allowed to operate only in professional activities on a license issued by the DED. If you want to operate a business that sells goods in Dubai, sole proprietorship won’t fit the bill. Trading with goods can only be done on a commercial license. Consult with business setup consultants in Dubai to understand the type of activities you can select.

Cost of Incorporation

A trade license can be costlier for LLCs in the UAE. However, obtaining a license for sole establishment is cheaper. Consult with the best business setup advisers in Dubai to get a list of license costs.

Sole proprietorship vs LLC – An important decision for business owners

One can’t blindly recommend a legal structure to investors. It all depends upon the business activities, operating budgets, and investments. If you are aiming for commercial activities, it’s better to set up an LLC in Dubai. If you want to run a professional company with complete decision-making ability, then go for sole establishments. LLC is ideal for investors who want liability protection as well. If you want to start small and go big later, you can set up a sole establishment in Dubai and change the legal structure to an LLC. However, it is always recommended to get a consultation from the best business setup consultants in Dubai who are experts in guiding you through the right way on your requirements.

Choose the Right Legal Structure with Jitendra Business Consultants

When it comes to the process of business setup in Dubai, identifying the right legal structure is the most important choice you have to make. Choosing the wrong legal structure would derail your plans for company formation in Dubai. However, availing of the services of the top business setup consultants in Dubai such as Jitendra Business Consultants (JBC) would help you with the right legal structure for your company.

JBC has a team of highly qualified business setup consultants whose legal know-how and experience in handling officials at various government departments make the process of business setup in Dubai easier. JBC also provides efficient PRO services which effectively solves all the visa-related requirements of investors including visa application, medical tests, sponsoring of dependents, document clearance etc. JBC also takes care of requirements like VAT registration, VAT return filing, trademark registration etc. JBC’s able to support foreign investors can easily achieve their business goals in Dubai.

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