The UAE is one of the most business-friendly countries in the world, so it follows that it offers a variety of business setup options for budding entrepreneurs. As well as deciding whether you want to set up on the mainland or in one of the UAE’s free zones, you’ll need to decide on a specific business entity. In this article, we’ll explore one of the most common business entities in the UAE – the sole establishment. We’ll dive into the benefits and setup process while covering the following topics:
- Sole establishment in the UAE – what is it?
- Advantages of a sole proprietorship or an establishment
- Disadvantages of an establishment or sole proprietorship
- Sole establishment UAE vs LLC UAE – what is the difference?
- How do I start a sole proprietorship in the UAE?
- Why choose SPC Free Zone?
Sole establishment in the UAE – what is it?
Sole establishment (also described as sole proprietorship) means that one individual owns the business entity with a trade licence issued in his or her name. This means that, unlike other business entities offered in the UAE, a company or corporate body cannot own the business. This individual becomes personally liable for business activities. That means creditors can claim personal assets to compensate for company debts, too.
You can form a sole establishment in the UAE regardless of whether you are a UAE, Gulf Cooperation Council (GCC) or foreign national. However, you will need to meet specific criteria and conditions to have the greatest chance of success.
When it comes to sole proprietorship, UAE nationals and GCC nationals have more options. They can form any type of sole establishment in most fields, including trading, import-export, real estate development, industrial and professional services. They can also set up consultancies covering a range of different business activities.
Foreign nationals applying for sole proprietorship can only acquire a professional licence. For instance, if you wanted to get sole establishment in the UAE as a foreign national, you would need to offer professional services, such as consulting, IT, legal, engineering and marketing. You would not be eligible to do business in import-export, trading or real estate development.
In order to secure sole proprietorship, UAE laws require foreign nationals to appoint a Local Service Agent to liaise between company and government entities. This can either be an individual or a company. This is an important step and we recommend working with a reputable business. Our market-leading, friendly business advisors at SPC Free Zone have helped countless individuals secure their sole proprietorship.
Advantages of a sole proprietorship or an establishment
While sole proprietorship might look more limiting for foreign nationals at first glance, it offers considerable opportunities and advantages too, including:
- Sole ownership
Foreign professionals can retain 100% ownership of their business without shareholders, enabling total control of business operations.
- Profit retention
Business owners retain 100% of their profits.
- Affordable setup
Setting up a sole establishment involves lower startup costs and no business capital requirements, making it a more affordable option for entrepreneurs.
- Faster business registration
The business setup process for sole establishment is easier and quicker to set up than you think.
- Practise in any location
The business can legally practise professional service anywhere in the UAE. There are no restrictions on office premises locations either.
Disadvantages of an establishment of sole proprietorship
That said, securing sole proprietorship is not without its challenges and disadvantages, such as:
- Personal liability
A sole proprietor of the business is personally liable for business debts. The company is inseparable from the individual.
- Office space is required
Unlike a free zone company, sole establishment requires office space to incorporate the company. Virtual offices are not recognised by the Department of Economic Development (DED).
- Harder to sell your business
While you’re unlikely to be thinking about selling your business before you’ve even started it, you may need to consider this in the future. The sale of sole establishment also means the sale of debt.
Sole establishment UAE vs LLC UAE – what is the difference?
Sole establishment and Limited Liability Company (LLC) are two popular business entities in the UAE, although there are a few important differences between them.
The key difference between the two entities is that sole establishments can only be owned by one person, but LCCs must be owned by several individuals and corporate bodies. An individual cannot own an LLC. Unlike sole establishment, LLC business owners are not personally responsible for business debts and liabilities. Instead, liability is limited to the shareholder’s investment in the company’s capital.
LLCs also need to be careful about mixing business and personal accounts, ensuring that you keep funds and banking records separated. Any violation of this can result in you losing your limited liability protection.
However, like sole establishment, there are no minimum share capital requirements for LLCs. LLCs are also able to obtain a number of visas without restrictions and can purchase real estate without restrictions.
How do I start a sole proprietorship in the UAE?
Setting up a sole establishment is easier and faster than you think, providing you jump through the right hoops and have all of your documents in order.
Step 1: Initial approval
The DED needs to first acknowledge that they have no objection to your business. Once this is approved, you’ll need to submit three trade name options, of which at least one must be approved to progress to the next stage.
Step 2: Local Service Agent agreement
Once the DED has acknowledged your intent and approved your trade name, you can sign an agreement with a Local Service Agent (LSA).
Step 3: Office space
As already discussed, all sole establishments legally require an office space. Once you’ve secured your desired space, you must submit the tenancy contract.
Step 4: Additional approvals
Depending on your specific circumstances, there may be additional approvals required.
Step 5: Make your payment
When everything is approved, you will receive a payment voucher to make your payment. Then, you’ll be able to collect your licence for your sole establishment.
While the steps for securing sole proprietorship are straightforward, it pays to have support from those who are closer to the system. With support from SPC Free Zone, you can tap into a wealth of market, industry and legal knowledge.
Why choose SPC Free Zone?
Looking for fast and flexible business setup in the UAE? SPC Free Zone offers quick, convenient and competitively priced business support located in the heart of Sharjah. With immigration services onsite, you can get your licence issued in just two hours. We also offer a dual licence business option that offers both mainland and free zone on the same business. Plus, you can benefit from a choice of over 1,500 business activities, up to 20 visas under one trade license and 100% foreign ownership with zero paid-up capital.
If you’re looking to start a business, get in touch with SPC Free Zone’s market-leading experts today.
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