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

Setting up a business in the UAE makes for an exciting journey. There are different business setups available to choose from; among them, sole proprietorship is a common choice. It is simple and easy to establish. But what does it compare to the other business structures? This guide will fully explain it. Furthermore, we will discuss the legal structures, the steps to set them up, and the advantages you may consider.

If you are an entrepreneur, freelancer, or small business owner, this guide is for you. Knowing the differences will help you arrive at the right choice.

What is a Sole Proprietorship?

A sole proprietorship is an entity owned by one person. This one person has total control of the business; starting a sole proprietorship is relatively easy. Most stakeholders begin this way in the UAE because of its simple procedure and ease.

Features of Sole Proprietorship

One owner

A sole proprietorship is a business with only one owner. The sole owner thus makes decisions, manages the day-to-day business, and holds total control over the business operations.

Complete control

The owner of a sole proprietorship will do all the financing, regulation, and decision-making. They will have full command of all aspects of management.

Easy and fast to set up

The setting up of a sole proprietorship is simple. This is because it does not require paperwork and approvals. Thus, starting up is fast.

All profits go to the owner

Every single penny earned goes directly to the self-employed owner. So it is really rewarding because neither partners nor shareholders are in the business.

The owner takes on all debts and losses

The owner of this type of business is solely liable. He thus bears all debts, financial liabilities, and losses.

What is a Sole Proprietorship LLC?

A sole proprietorship LLC is slightly different. LLC stands for Limited Liability Company. This means that the owner has some protection against business debts.

A sole proprietorship LLC UAE is separate from its owner. It is all the more different from a simple sole proprietorship business.

Benefits of LLC vs Sole Proprietorship

• An LLC separates personal and business financing. So, the owner will not be personally responsible for business debts. This is plainly out of consideration regarding the sole proprietorship.
• It is easier to grow an LLC. So, it attracts partners and investors. A sole proprietorship, however, depends only on the owner for the creation of capital.
• The level of engagement or participation can be shared in an LLC; different people can therefore invest and share responsibility. A sole proprietorship, however, underscores that it is one person’s business.
• Many clients and investors place more trust in LLCs. Thus, it becomes easier to secure deals and draw contracts compared to sole proprietorships.
• An LLC will keep operating even if the owner vacates; however, a sole proprietorship ceases with the owner leaving or dying.
• There is more creditworthiness with LLCs than with sole proprietorships, as banks prefer LLCs. Loans might be easily secured from banks.
• An LLC will provide a myriad of tax choices which could lead to lower taxes. Sole proprietors have to pay personal taxes from earned profits.

The distinction will depend on their business requirement. It could also be said that a sole proprietorship is recommended for someone wanting total control, while an LLC would like to protect itself from other debts of the company.

Sole Proprietorship vs. Other Business Entities

In the UAE, there are different business structures. Let’s differentiate sole proprietorship from any others.

1. Sole Proprietorship vs. LLC

• Sole Proprietorship: Owned by one owner only, does have full control, and the owner is responsible for debts.
• LLC: Could have multiple owners, limited liability, and improved business growth.

2. Sole Proprietorship vs. Free Zone Company

• Sole Proprietorship: Quick and easy to set up, affordable start-up costs, limited business scope.
• Free Zone Company: More conversations for business, tax advantage compared to others, but with higher costs.

3. Sole Proprietorship vs. Partnership.

• Sole proprietorship: owner, with full control.
• Partnership: Two or more owners sharing control.

These are the simple forms of businesses that run into benefits in perhaps more than one way, depending on the needs of the business.

Setup Process for a Sole Proprietorship

Setting up a sole proprietorship business is very straightforward in the UAE. The procedure:

Decide on the name of your business

• It must adhere to UAE regulations.
• It shouldn’t be offensive.

Choose your business activity

• It must be legal in the UAE.
• Some businesses need extra approvals.

Get a Sole Proprietorship Business License

• You need a license to operate.
• Apply through the Department of Economic Development.

Submit Sole Proprietor Business Documents

• Passport copy
• Emirates ID copy
• Business plan (if necessary)

Internal Approval and Beginning of Business

• Pay fees.
• Receive your business license.

That is it! You’re free to begin your business.

Best Business for Sole Proprietorship

These businesses work well under a sole proprietorship. The following business types suit it best:

Freelancing (culture, writing, graphic design, IT services)

Freelancers would usually take up any project on their own, on their timelines.

Consultancy: legal/business/financial

A consultant is someone hired on an hourly or project basis to evaluate or comment on a particular business project.

Digital Marketing

Whatever business goes online to expand its reach is digital marketing. Therefore, they provide the services of managing social media, SEO, and advertising. Additionally, it helps businesses grow faster.

E-commerce

Selling products on the web generally leads to profitability. Platforms such as Amazon or Shopify can be used, or entrepreneurs can create their websites. Additionally, it is easy for e-commerce businesses to provide services to global customers.

Coaching and tutoring

Teaching online or face-to-face is rewarding. Tutors and guides can also be used to benefit students, professionals, or athletes. They can, thus, create their plans.

Real estate agents

Agents assist clients in buying, selling, or renting out properties; commissions are earned from these deals. Not forgetting, a great advantage is that the ones involved in real estate have kept a steady market forever, hence steady income.

Such firms do not require large investments. So, they can be easily run as essentially an individual enterprise.

Advantages of Sole Proprietorship in UAE

Fast & easy registration

Among the simplest and quickest, a sole proprietorship allows the owner to file for registration with minimum red tape, fewer approvals, and, therefore, no complex legal procedures.

Full control over decision-making

Whatever decisions may be required for the proper running of the business is the responsibility of the sole proprietor. There is thus no waiting for other partners or shareholders to approve the proposals or strategies.

Few costs with less bureaucracy

The initial costs to establish are relatively small compared to other personalization business registrations. There are also fewer legal requirements, which allows the aspirant to start a business without having to stretch.

Full enjoyment of profits

The profits made will not be shared by any partners, investors, or shareholders, thus getting full benefits for his or her sweat and profit.

No local partner requirement

A sole proprietorship does not need a UAE national partner; unlike others, the entrepreneur can fully own and operate the business.

Easy to run

The owner will not need to harass board members or run around after partners. Moreover, where fast changes need to be made, there will be no delay.

Flexible ways of living

The owner can work from home, or online, or may even rent an office. In that case, he can adjust his way of life without restrictions.

A sole proprietorship LLC Abu Dhabi, or sole proprietorship LLC Dubai can give you better protection. So, it is good for growing businesses.

Role of Business Setup Experts in Dubai

The task of setting up a business in Dubai can be tricky. Luckily, there are business setup experts in Dubai to take care of the issue and ease the whole experience. They assist in the following ways:

• Business licensing
• Choosing the best structure
• Dealing with legal paperwork

The hire of a business setup consultants in Dubai saves time. Moreover, they know the rules, can help you avoid common mistakes, and always have some tricks up their sleeve if an issue arises.

FAQs

What is a sole proprietorship?

A sole proprietorship is a business run by a single person. It is popular because it requires little investment, and is easy to start and manage.

What’s the difference between a sole proprietorship and an LLC?

Sole proprietors have no liability protection. LLCs, on the other hand, protect their owners from the losses of debt. In this case, LLCs would be a safer option for growing businesses.

Can a sole proprietorship hire employees?

Yes, a sole proprietorship can hire employees. However, the sole proprietor is fully liable for salaries, work permits, and visa processing.

Why use a business setup expert in Dubai?

Because experts handle the paperwork, approvals, and licenses. So, the process will be faster, smoother, and stress-free for new business owners.

Conclusion

Choosing the right business structure is key. Moreover, a sole proprietorship suits a small business and freelancers well. It’s efficient and inexpensive. However, if you want more protection, an LLC would fit better.If you would like to gain assistance, hire a business setup in Dubai. Therefore, they smoothen your journey and put the stresslessness back into setting up a business. Furthermore, setting up a business in the UAE is a great step forward. So, choose the right structure and start working on it now.