Difference Between LLC and Sole Establishment in Dubai

When setting up a business in Dubai, an entrepreneur has multiple options to explore, such as a Joint Liability Company, Limited Partnership Company, Limited Liability Company (LLC), Public Joint Stock Company, Private Joint Stock Company, and Sole Establishment

With numerous avenues to explore, it can be confusing to select the proper business structure for managing costs, tax liability, and establishing a management structure that controls and grows the business.

In this expert guide by Kayrouz & Associates, we will explain the difference between the two most common business entities: an LLC and a Sole Establishment, in Dubai.

What is a Sole Establishment and an LLC in Dubai?

A sole establishment, also known as a sole proprietorship, is a method of conducting business in Dubai where the trade license is issued in the name of the proprietor. This is typically selected by small businesses with minimal investment amounts and is usually run by a single individual.

Meaning of an LLC in UAE

A Limited Liability Company (or LLC) is a form of business incorporation, where the business obtains a separate identity from the owner or shareholders. Its primary benefit, which makes it a popular business structure in Dubai, is that the liability of the business is distinct from the owner or shareholder’s personal assets.

Setting up an LLC in Dubai: Features and Benefits

The provisions governing the incorporation and management of an LLC in Dubai are provided under Title 3 of the Federal Decree-Law No. (32) of 2021. The key features of an LLC are:

1. Limited Liability: The liability of the shareholders is restricted to the amount of capital as set out in the Memorandum of Association (MoA)
2. Ownership and Control: To set up an LLC in Dubai, a minimum of 02 shareholders and a maximum of 50 shareholders are required.
3. Succession and Credibility: Unless the trade license terminates or expires, an LLC in Dubai can conduct business in Dubai indefinitely (in accordance with applicable laws and approvals). Additionally, an LLC brings credibility to a company and provides the option to engage experienced managers, making the process of loans and investments easier.

Business Incorporation Services: If you are looking to set up an LLC in Dubai, Kayrouz & Associates can provide strategic advice on business formation and incorporation and government licensing and approvals.

Registering a Sole Establishment in Dubai: Meaning and Advantage

Sole establishments are generally exempt from the provisions of the UAE Commercial Companies Law, unless they engage in commercial business and not professional services. Here are the key features and advantages of a sole establishment in Dubai:

1. Minimum Approvals: Since the scale and investment of a sole establishment are relatively less, only approvals from the relevant ministries and authorities are required. There aren’t even any paid-up capital requirements, and the business winding-up process is straightforward as well.
2. 100% Foreign Ownership: Even after the recent business law reforms in Dubai, there are certain reasonable restrictions on 100% foreign ownership for mainland business activities. In the case of sole establishments, qualified foreign professionals can retain 100% ownership even in Dubai’s mainland without any limitation.
3. Set Up and Profits: The set-up costs of a sole establishment are low, and the owner can retain all the profits, as there are no other shareholders.
4. Active Management: The owner of the establishment, or the ‘proprietor’, manages the business without the intervention of any managers (unless hired by choice).

Critical Note: A sole establishment in Dubai is not a separate entity, and the owner’s personal assets can be at risk, giving rise to unlimited liability.

Choosing What’s Best: Sole Establishment vs LLC Dubai

Still not sure which option is right for you? Book a consultation with Kayrouz & Associates’ Corporate and Commercial Law team to discuss your case further.

Alternate Options: One Person Company in Dubai

A One Person Company (OPC) in Dubai can be understood as a hybrid of a sole proprietorship and an LLC. Its primary features include:

1. Limited liability and separate identity
2. Incorporated business
3. Provisions for a sole shareholder help in retaining the feature of a single owner
4. Easy application process for residency visas
5. Increased access to loans and investment as compared to sole establishments
6. Operational scope and flexibility
7. Recognised option for succession

Crucial Note: Since an OPC in Dubai is a corporate entity, it has enhanced capital requirements and regulatory procedures that must be complied with to avoid penalties and cancellation of its trade license.

How Can Kayrouz & Associates Assist With Business Setup and Company Incorporation in Dubai?

Kayrouz & Associates is a leading full-service law firm with top-rated legal experts in Dubai, serving across 12 practice areas since 2006. Kayrouz & Associates provide end-to-end legal services for start-ups, global companies and individuals in Dubai and beyond.

If you require a trusted legal partner to assist in LLC or sole establishment setup in Dubai, Kayrouz & Associates’ experienced legal team can provide strategic advice backed by real-world experience in:

1. Structuring your business
2. Obtaining necessary licenses and approvals
3. Formulating business contracts and instruments
4. Complying with the Dubai company incorporation rules and regulations
5. Resolving shareholder disputes

In addition to the above services, Kayrouz & Associates can help ensure legal compliance and minimise legal and financial risks at all stages of business growth in Dubai. Visit our central office in Dubai or send us a message for a free consultation.

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