Deciding on your business’ financial structure, and legal structure is very important before you begin to make a move.
The ownership structure for your business is determined primarily based on how you wish to handle your business and the number of partners that will be actively involved in overlooking day-to-day operations. Making the decision for your business’ legal structure can definitely be one of the more complex ones, and you’re definitely going to need legal guidance to make the decision.
Before you get started with business structuring, it’s better to be clear regarding what you expect, your personal preferences and long-term goals.
We’ll be going over a number of legal structures that you can base the foundation of your business on, with each having its own advantages and disadvantages.
Structuring Ownership of your Business in UAE
Dubai has seen a considerable growth of businesses and there have been a great deal of transactions that correlate with renewal of business licenses. Before you get to starting a business specifically in Dubai, you’re going to want to decide what kind of ownership structure you want to choose and it has a lot to do with where you’re located.
If you’re relatively new to Dubai, then you’re going to want to understand the local laws a little better to minimize your risks. But, the basis of all of that is where you want to start off with. You have Dubai’s mainland and then there are other economic free zones where you can conduct your business in. All of these have different advantages and disadvantages depending on the type of your business.
Free Zones in Dubai
There are certain geographical areas in Dubai where laws are much less strict in terms of how you operate your business. With a Free Zone company, you will have 100% of your business and no local partnerships are imposed.
However, even though as an investor, you will have complete control of your business.
Dubai has a diverse business market with a ton of activities that fall into different categories based on the type of work they’re doing. GCG Structuring goes the extra mile with the knowledge it has accumulated with Dubai’s business world to further help and incorporate a strong foundational structure for aspiring businesses.
Dubai Offshore Companies
Not only are Offshore Businesses effective with a rigid corporate structure, but provide the most tax efficient business model for those individuals who want to dabble in international trade.
When you register yourself as an offshore company in Dubai, you’re essentially being approved to be able to serve the Middle-East along with Africa without any administrative obligations.
The entire model is really easy to set up, compared to other business types in UAE. If you do it right, an offshore company in Dubai isn’t legally bound to pay taxes.
Types of Ownership Structures in UAE
There are four most commonly established business structures, with each having a different way to deal with liability, risks and taxes.
· Sole Proprietorship
· Limited Company
Sole Proprietorship/Sole Trader
In this legal structure, you’re essentially the sole operating entity that deals with all the decisions that happen within your business. This provides obviously some advantage, as it prevents any sort of conflict of opinion and allows you to more actively strive for the vision that you have in mind.
While that’s more on how things work on the creative side of business, what’s important to understand here is that YOU as the sole owner of the company, will be responsible for filing all the taxes and returns using your personal information.
The sole trader ownership structure helps you to avoid any expensive fees that would otherwise go into registering a full-fledged company and it will allow you to focus on the bigger picture without having to be caught up in too much paperwork.
Like we discussed above, when you’re a sole proprietor for a business, you’re going to have much more creative control. And, for a simple business like a restaurant that needs a few workers and just direct control from one person, it’s better to opt for this ownership structure to avoid incurring a lot of costs.
All you need to do is just register your name for a local business license and you’re good to go!
What’s the drawback for a legal structure such as this? Well, for one, as the owner of the establishment, you’re the person who’s responsible for all of your losses in the business. So, if you were to go bankrupt a few years down the line, you would be the one directly responsible and there would be consequences for your personal life.
Being a sole trader, you will be filing all of your profits and losses on your personal tax return which means you’re not treated as a separate entity from your business. Even though you are registering under a trade name, it’s you who’s accountable for all finances of your company.
Considering your business start-up wasn’t a conception by one individual, and there are two people now who want control over the creative day-to-day operations, then chances are you’re going to want to opt for a more flexible structure such as the Partnership Business Structure.
A legal agreement has to be made between two or more people so that they can work together as co-owners and share responsibility. This definitely does take things down a notch, as you won’t have to deal with matters entirely on your own and you’ll always have extra pairs of hands to assist you in any decision. While your profits are also shared as per the partners’ shares, you will also be sharing liabilities.
You might want to go over this with a lawyer and set up a partnership agreement that determines everyone’s shares and responsibilities within the business.
One of the biggest advantages of having a partnership business structure is that not only is it extremely easy to set up but you don’t have to pay taxes on the income either, instead all profits and losses are equally divided amongst the partners.
If any of the individuals involved become less keen on continuing with their work, they can simply let go of their partnership and reclaim their share after leaving the company.
Depending on your circumstances, you might want to opt for a different type partnership from the two below:
This is more or less what we’ve defined above, and consists of members working cooperatively to manage the business. Everyone involved has to assume responsibility for everything that transpires within the company according to their stakes.
A limited partnership however introduces partners with different levels of involvement within your company. While the general partners will still be responsible for the company’s day-to-day operations, passive partners will only have to bring in a certain amount of capital but won’t be directly liable for any debts that the company might get.
Limited Company in UAE
A Limited Liability Company Structure has fairly more complications but definitely has its advantages. Keep in mind that this specific structure is different from having sole proprietorship or a partnership.
When you finally decide to register your business, you will be labelled as a separate legal entity from your business and this means that your new business is now an entirely different legal entity which is responsible for its own finances. Anyone who owns the majority stake in the company’s share will have control of the company.
LLC is preferred as it allows businesses to seamlessly trade anywhere in UAE and GCC. Let’s not forget that they don’t have to pay 5% customs duty on imported goods. And there’s no limit on the number of visas you can obtain! Neat.
As an owner of your limited company, you will not be responsible for any losses which means regardless of what goes on in your workplace, it will never put your personal life at risk. Not to mention that businesses that have a limited company structure often pay less taxes compared to what they would be paying otherwise.
The overall reputation of a limited company is distinctive and adds a lot of credibility to your business. Most of your internal activities will be the same but you’ll find that opting for a business structure such as this will increase your chances of working with other companies within the same sector as your expertise.
You will be registering your company and that comes with a registration fee. Confirmation statements are filed yearly and any changes you make have to be immediately notified. The entire process is far more complex than what you would expect from the former structures we’ve explained, but the potential advantages that come with having a limited company overshadow the disadvantages.