Sole Proprietorship vs. Other Business Entities in the UAE: Comparison of Legal Structures, Setup Process & Advantages

The business setup process in the UAE is an exciting affair, but choosing the right business structure holds the utmost importance. This has left many entrepreneurs confused about their options. Some wonder whether a sole proprietorship is the right choice, ranging from LLCs and free zone companies to civil companies or branch offices. These different structures exert rules and benefits of varying types. Therefore, understanding these differences becomes important.

This guide seeks to enumerate everything in the most basic manner. It will compare a sole proprietorship versus other business types so that you can know the best option for your business needs.

1. Sole Proprietorship (Sole Establishment)

A sole proprietorship is a single-member business entity. So, it gives the owner full control. The structure is simple and inexpensive to run.

Features of Sole Proprietorship

• A sole proprietorship is a business entity owned by a single person and therefore grants the owner full control, along with the full weight of responsibility for its operational decisions.
• The sole proprietor essentially bears the entire risk in the business and is responsible for all debts incurred by the business during operation. In the advent of financial trouble, there may be a ripple effect on the owner, for, in worst-case scenarios, personal assets may be seized.
• There is no distinction between the personal and business assets of the owner. Personal finances and business finances are the same.
• A sole proprietorship can function on the mainland or in free zones; however, the latter will have restrictions on trade.
• This structure serves the purpose best for such professionals as consultants, doctors, and freelancers to whom independence matters.

Sole Proprietorship Business License

You require a business license to operate a sole proprietorship. Firstly, the type of license needed varies based on business activity. Therefore, you must check the requirements first. You can apply through the Department of Economic Development (DED), which will review your application. Finally, if everything is approved, you will obtain your business license and start operations.

Best Business for Sole Proprietorship

Some few kinds of businesses suit perfectly as sole proprietorships:

Freelance and consulting

This is a great option for freelancers and consultants because they operate completely on their own. This form of business is flexible, requires minimal investment, and is quite easy to initiate for professionals.

Small retail shops

For small businesses, the ideal type of business is a sole proprietorship. It saves costs, simplifies the situation when it comes to operations, and has fewer legal formalities as only one person is looking after everything.

Online businesses

Online businesses need little investment. Therefore, a sole proprietorship is perfect. It also allows for easy set-up and control and requires less registration by entrepreneurs.

For home-based businesses

Many home-based businesses operate as sole proprietorships owing to low costs, easy registration, and fewer rules.

Professional services such as law firms and medical clinics

Doctors, lawyers, and consultants greatly benefit from the involvement of a sole proprietorship. Since they operate distinctly, this structure gives full authority to make decisions and reap business profits.

Sole Proprietor Business Documents

Required are:

Passport copy

Your passport copy is required. This is because it acts as proof of your identity. Hence, a crucial document for business registration.

Visa copy

Your visa copy is also required. The visa has to be valid. This proves your residency status in the UAE.

Local service agent agreement (for foreign owners)

A local agent agreement is required for foreign owners. This is because it gives you the legal authority to conduct business. So, it is very important to have a reliable agent.

Approval of business activities

Your business activity must be approved. Otherwise, you cannot operate. So, check for the permissibility of your activity.

Trade name registering

The name of your business needs to be concrete. It has to be unique. You should register early enough to avoid issues.

Advantages of a Sole Proprietorship

Complete control over decision-making for the business

All decisions are made by the owner. There are no partners. So you have complete control over operations and profits, and there’s no requirement to share any business developments with a partner.

Low live costs

In setting up a sole proprietorship, you do not spend much. This is because there is no need for huge startup capital. Consequently, it is a great option for small businesses and freelancers.

Easy Registration Process

As mentioned, these are fairly easy processes. Only a handful of documentation is required. And hence, less time and effort are spent on starting one’s business.

No Corporate Tax

Sole proprietorships do not pay corporate tax. Hence you save money. This, thus, allows you to invest in the growth of the business.

2. Mainland Limited Liability Company (LLC)

The Limited Liability Company (LLC) is the most popular business structure in the UAE.

Benefits of LLC vs Sole Proprietorship

LLC protects the owners against personal liability

The LLC protects the owners from personal liability. Any debts owed shall not extend to the owners. Hence, it keeps the personal assets safe. A nice financial buoy to have around.

More Credibility with Banks and Clients

Clients and banks will trust, more than sole proprietorship firms, an LLC. This makes it easier to get loans. Thus choose an LLC for long-term growth.

Able to operate in different activities

LLCs can conduct several operations under various trade licenses, given the added opportunity. Owners can also make a straightforward expansion without legal restrictions.

Able to have multiple owners

It allows for many owners who can share the responsibilities and, hence, create a good partnership for a larger business.

Sole Proprietorship LLC UAE

It must be noted that an LLC is different from a sole proprietorship LLC because here only the company assets are liable while in a sole proprietorship, all debts are accounted to the owner.

3. Free Zone Company

Free zone companies are perfect for international business. This is because it allows for tax benefits and has full foreign ownership.

Sole Proprietorship LLC Dubai vs Free Zone

A sole proprietorship is registered in the mainland

A sole proprietorship is therefore a commercial establishment and is along the lines of mainland laws of the United Arab Emirates. It shows the owner has full authority over the business establishment. Therefore the owner enjoys more flexibility in establishing a business while being able to trade in the local market.

A free zone company operates from within special economic zones

Free zone companies can only be allowed to operate within designated geographic areas. They have various layers of legal exemptions. Thus they enjoy substantial tax advantages and considerable foreign ownership.

Free zones impose restrictions on local trade.

In the UAE, Free Zone businesses cannot sell directly in the market. A second distributor must be appointed; hence they have limited access to local markets.

Sole Proprietorships may conduct their business anywhere in the UAE.

Not limited to one area alone, sole proprietorships can work with local and international clients. This gives them a greater leeway for further business growth.

4. Civil Company

These companies are set up by doctors, engineers, or lawyers. A civil company allows multiple partners.

Sole Proprietorship vs Civil Company

• A sole proprietorship has one owner, but a civil company is owned by partners.
• Private limited company: shares and loan: greater liability
• It is easier to get going as a sole trader.

5. Branch Office

A branch office is a continuation of the parent company. It is thus an extension of the parent company and has no separate identity.

Sole Proprietorship vs Branch Office

• One cannot use the sole proprietorship as an extension because it is an independent commercial entity.
• A branch office is a subsidiary of a parent company.
• Fewer procedures are essential to set up a sole proprietorship.

Setup Process for Sole Proprietorship in UAE

Specifying the type of business activity

Defining your business activity is very important for licensing. So, choose your category wisely.

Registering trade name

Choose a unique business name. Then, adhere to much UAE legislation. You better move ahead with the registration of your business name with the authorities to safeguard your brand identity.

Initial approval

Submission of the approved application and authorities further check government requests. When approved, you will easily go to the next step.

Submission of the required documents

Gather documents needed on behalf of others. Next, submit it to the respective authorities. This is the step that will ensure you get registered with as little hassle as possible.

Apply for a business license.

After that, pay the fees and receive the license, allowing you to operate legally in the United Arab Emirates.

Business Setup PRO Services in Dubai

PRO services in Dubai exist to make it easier for you to set up your sole proprietorship, with areas of assistance including:

• Developing documents
• Business license applications
• Visa approvals
• Company registrations

FAQs

What is a sole proprietorship in the UAE?

Sole proprietorships are businesses owned by an individual and are the easiest to set up and with full control.

What documents are essential to set up a sole proprietorship?

You require a passport copy, visa copy, trade name registration, activity approval, and a local sponsorship agreement if you are a foreigner.

Can a sole proprietorship do business anywhere in the UAE?

Yes, a mainland sole proprietorship can do business anywhere. However, Free zone companies can conduct business only within the free zone with restrictions.

Where to choose PRO services in Dubai for business setup?

PRO Services Dubai takes care of documents, visas, licenses, and approvals. So, they save time, eliminate stress, and ensure smoothness in the establishment.

Final Thoughts

A sole proprietorship is the most straightforward and cost-friendly option for entrepreneurs. Other business structures, however, such as LLCs, free zones, civil companies, and branch offices offer other benefits. It is very important to make your choice according to your business needs. Seek consultations from business setup consultants in Dubai if you have one. They will guide you through the process and promise a good start for your business.