Business structures in Dubai are broadly divided into sole proprietorships, partnerships, and companies. Each of these have their pros and cons, but most people prefer to operate as a company because it is recognized as a separate legal entity from the owners. This means that the owners are only personally liable for the company’s liabilities to the extent of their ownership of the company.
Legal entities in Dubai
Company formation in Dubai is a bit complex and without a good understanding of the different types of companies and the requirements and procedure for registration, it can be quite difficult to do it right. A one-person company is a company whose shares are owned by one person. In Dubai, this type of company can be owned by a GCC national, a UAE national, or another company whose shares are all owned by GCC or UAE nationals. The name of the company must include the name of the owner and LLC at the end. Such a company’s shares cannot be publicly traded; further requirements must be met for a one-person company to go public.
A limited liability company (LLC) is a company that has anything from 2 to 50 stockholders. For an LLC to be registered in Dubai, at least 51% of the shares should be owned by UAE nationals. Such companies’ accounts are required to be audited by an auditor who is accredited by the UAE. LLCs’ shares are publicly traded on the stock exchange. One-person companies and LLC’s pay corporate tax, which is separate from the individual owners’ tax. Partnership companies are owned by two or more people who may either be limited or general partners. The general partners are UAE nationals while the limited partners are foreigners. Profits are shared according to a pre-agreed ratio and partners are taxed individually.
A sole proprietorship is a business owned and run by one person. The owner is personally liable for the business’s financial obligations, meaning that in the event that the company is unable to meet its financial obligations, the owner’s personal assets can be used to settle them. This is the main disadvantage of this type of business. However, it gives the business owner complete autonomy to run the business the way he/she wishes to, without the bureaucracy involved in managing a company. Additionally, unlike companies, a sole proprietorship has no minimum capital requirements. For a sole proprietorship to be registered in Dubai, the owner must be a UAE national or a GCC national, and must be qualified to provide the services he/she is offering if it is a consultancy business.
While the above are not the only forms of legal entities in Dubai, they are the most common. Company formation in Dubai is not very complicated if you understand the different legal entities and their implications on your business. However, it may be prudent to use the services of a business lawyer to help you decide which legal entity is the best for your business, and to help you out with the registration of your business.