One of the most critical decisions while starting a company in Abu Dhabi is choosing the right business structure. This decision has a great impact on the security of personal assets, taxes, and the smooth functioning of the business. Apparently, the most common structures chosen by business owners are sole proprietorship or LLC (Limited Liability Company). Being the most prominent choice, it is important to learn the difference between sole proprietorship LLC Abu Dhabi in order to make an informed decision for your company.

Sole Proprietorship

A Sole Proprietorship, or Sole Establishment, is a legal entity owned and operated by a single owner. The owner has complete control over operations and makes all the decisions. It’s a simple setup where the owner solely owns all the assets and profits and bears all the liability for debts and losses.

Individuals who wish to establish a sole proprietorship Abu Dhabi can enjoy tremendous benefits such as the freedom to set up a virtual address, allocation of visa quota, reduced rental costs, and more. Additionally, most of the activities carried out in a Sole Establishment are related to the service industry. Therefore, professionals who wish to start a company with 100% ownership can consider this structure in Abu Dhabi.

Advantages: –

• Full control over company operations and business decisions
• Involves less paperwork and lower setup and maintenance costs
• Simplified tax handling due to tax exemptions

Disadvantages: –

• Unlimited liability that would be recovered from the owner’s personal assets
• Difficulty in raising funds from banks or investors
• Limited expansion opportunities and succession planning

Limited Liability Company (LLC)

Limited Liability Company is one of the most preferred legal structures in the UAE. Unlike a Sole proprietorship, this requires the collection of multiple business owners for its formation. It can be formed in both the Mainland and in the Free Zone. However, Mainland LLCs have no restrictions in trading in the UAE market, whereas free zone LLCs cannot.

Another advantage of an LLC is there are no such policies regarding the minimum share capital requirement from the shareholders. In addition, there are no limitations on the number of visas for employees. Moreover, the shareholders are protected from personal liabilities as they are not liable for the company’s debts or financial claims.     

As per the new amendments in the Commercial Companies Law in the UAE, foreign owners can enjoy 100% ownership of their LLCs in the UAE for many economic activities such as general trading. Previously, they were required to appoint a local sponsor who would hold 51% of the company shares.

Advantages: –

• The liability of the shareholders is limited to the extent of their share in the capital
• Protection of personal assets from business risks
• Attracts more substantial funding from banks and investors due to minimized risks
• Allows company management by directors or managers
• Increases customer and supplier credibility

Disadvantages:

• Profit sharing according to the proportion of ownership
• More stringent regulatory requirements, such as audits and intricate compliance issues
• More costly and time-consuming than sole proprietorship Abu Dhabi

Sole proprietorship LLC Abu Dhabi – Basis of Differences

Sole proprietorship LLC Abu Dhabi widely differ from each other in terms of structure and features. Each structure has its own benefits and risks. Here are some key differences between a Sole proprietorship and an LLC that will help you choose the right legal structure for your venture:

Efforts for incorporation – A sole proprietorship is aeasier and more convenient setup compared to an LLC. The proprietor requires a few licenses from the local government and start-up funds to initiate the business. On the contrary, LLC setup is a complex procedure due to the involvement of typical legal paperwork.

Investments – The proprietor is solely responsible for arranging investments to set up a sole establishment, whereas, in LLCs, multiple owners invest and arrange for the business’s needs. After registering their company name, they can even apply for loans from third parties.

Extent of Liabilities – When the company goes through financial failures and debts, the owner of the Sole proprietorship has to solely bear all the debts. However, in an LLC, the owners and their physical assets like home and property are protected against commercial debts.

Operational costs – In an LLC, owners manage the finances, whereas, in a Sole Proprietorship, the sole owner independently handles the capital investment and the operational expenses.

Business goals – The dreams of the sole proprietor are the future goals of the Sole Establishment, while in an LLC, all the owners together modify and bend the plans and determine the future goals of the company.

Documentation requirements – The paperwork required in setting up a Sole Proprietorship is less as it involves only one owner and no physical storefront. However, an LLC form involves debt protection clauses and typical legal paperwork.

Decision making – Since the Sole proprietorship form involves only one owner, the burden of operations and the right of decision-making for the company rests on their shoulder. On the other hand, LLCs are run by multiple shareholders. Therefore, the decisions are taken with the consent of all the shareholders.

Permitted activities – Although the DED (Department of Economic Development) has permitted over 2000 business activities, sole proprietorship has limited access. They can operate only in professional activities. Nevertheless, for activities like trade, setting up an LLC is the best option.

Incorporation costs – LLCs are a costlier form of setup compared to a Sole Proprietorship, which is cheaper. The business setup advisors at Shuraa can help you with the estimates to acquire a license for Sole Proprietorship LLC Abu Dhabi. 

Important tips to choose the right structure for your business

The below guidelines will help you understand and navigate the important aspects required to decide on a business structure for your company in Abu Dhabi –

• Business Landscape – There are different types of business structures in the UAE, each with its own strengths and weaknesses. The most common ones include LLCs, partnerships, and branches. You need to study and understand each pattern and choose the one that fits your business and marketing goals.
• Ownership – With the recent changes in the UAE corporate law, local investors can now enjoy more flexibility in choosing their business partners in the UAE. You must consider your business objectives, structure, and interests, and determine whether you want to be an owner or partner.
• Flexibility and future growth – The scalability and flexibility of your chosen business structure will help you determine the scope of expansion and growth of your company in the future.

Make the right choice with Shuraa Business Setup

Thus, the decision to choose between sole proprietorship LLC Abu Dhabi mainly depends on the business needs, industry, and growth ambitions. Those favoring complete control and are willing to accept personal liability can go for Sole Establishment, while those aiming to minimize personal risk and planning for considerable growth through external financing can opt for an LLC.

Whichever structure you choose, navigating the incorporation process can be challenging due to the complex legal requirements. Shuraa Business Setup offers comprehensive services that help businesses through every step of incorporation, including handling legal formalities and business support services. The company formation specialists at Shuraa understand the complexities of corporate law in the UAE and therefore, offer tailored solutions that fit the specific needs of their clients.

So, set up your venture in Abu Dhabi or anywhere in the UAE efficiently and compliantly with the help of Shuraa. Get a free consultation at www.shuraa.com