We all want to have our own business rather than working for someone else. The recent success stories of some small and medium enterprises have raised the entrepreneurial spirit to whole another level. I am a business consultant and provide consultancy on having a business setup in Dubai. In Dubai SMEs are growing at a good pace and is attracting new investors like a magnet. In past few months, I have received a lot of e-mails inquiring the prospects of Limited Liability Company and which is one is better LLC or sole proprietorship. In past few months, I have received a lot of e-mails inquiring the prospects of Limited Liability Company formation in UAE. and which one is better LLC or sole proprietorship.

Well, some people have a natural instinct of doing a solo business without anyone’s interference but I personally believe in sharing. There may be some prospects of sole proprietorship but it cannot match the benefits you get in Limited Liability Company. Why people prefer sole proprietorship is probably the lack of knowledge about finance and taxation. If you have a good knowledge about both of these you will definitely go for LLC. I am hereby comparing these two so that you could have a better Idea about which one to choose when you start a business.

Initialization is easy:

In the United Arab Emirates, LLC is the most popular business entity because it is the easiest to form. Compared to a sole proprietorship an LLC is less complex and less expensive and demands less efforts to start. You only need to begin transacting business and make sure you have obtained all the licenses and permits that you require starting your new enterprise. However, a drawback remains there that  setting up an LLC requires more upfront time and paperwork than a sole proprietorship so you’ll have to factor that in when deciding which entity is best for you.

More Startup Capital:

Every business needs investment in order to start and maintain its procedures. With a sole proprietorship, you will need to fund your own business using your personal resources or by seeking out loans. Establishing a line of credit or receiving loan approval from a bank or other lending institution may be an intimidating challenge for a new entrepreneur. However, if your LLC has other members, you and your fellow owners can pool together your resources and reach out to a broader network of potential business contacts. Bringing in additional members may also help to fund your new LLC. Reviewing your financial resources, credit history, and business investment potential will help regulate if you can afford to go it alone as a sole proprietor or if you will need the additional resources that other owners can provide.

Taxation:

For federal tax purposes in UAE, a sole proprietor’s income is taxed on a discrete income tax return. Similarly, LLCs receives a “pass through” treatment allowing allotted profits to be taxed on each member’s individual income tax return. If your LLC qualifies as a partnership or corporation, it may also receive “pass through” dealing. This factor depends upon the net taxation on profit gains which are different in different country. In LLC there is always a chance that you get some relaxation on taxes.

Ease in Daily Business Management:

My consultancy firm is a LLC and I am pretty comfortable in day to day management, tasks and meeting with clients. More stake holders in business is like an increment in its resources. If you want being your own boss, then a sole proprietorship or a single member LLC may be right up your pathway. In sole proprietorship, you don’t have to refer with or receive prior approval from other owners on your business decisions. However, if you have fellow LLC owners you will need to define your roles, domains and expectations in running your LLC under an operating agreement. If you are not an experienced business person, you might find it helpful to collaborate with other owners on business decisions.

Another important factor in comparing is the risks of personal liability. When you start a business no one can give you an assurance of 100% guaranteed success. In a real world the chances of success are always very critical. So if you have a number of people onboard, the fall of investment will be divided into pieces and you have always more chances of recovery. Like in many other countries, Free Zone Company setup uae LLC is more feasible than Sole proprietorship. That is why I always advice my clients to think broad and go for LLC.

 

Author Bio:

Author: Mona

I have been writing for websites, articles and blogs for five years now. I have had a fair share of writing on variety of niches but my main focus is business, sales, finance and taxation. Currently, I am working with business consultants in Dubai (Riz & Mona) which offers company formation in uae and business setup services across all states of United Arab Emirates. Our other services are products registration, visa processing, bank account opening, trade license, trade mark, local sponsors and many more.