An important thing to consider when starting a business setup in Dubai is choosing the type of business entity to be formed. There are many common business entities, and they each have different advantages, and disadvantages. These mainly relate to how the income from the business structure is taxed and whether the business entity owners are wrongly responsible.
General forms of business
The most common form of business is a sole proprietorship, partnership, corporation, limited liability company, or "LLC". Let's check each of these (and a few more!):
SOLE PROPRIETORSHIP
A sole proprietorship is defined as an individual or couple in business only. One of the big advantages of a sole proprietorship is the ease of setup and operation. Sole proprietorship allows for more administrative flexibility, legal restrictions, and fewer tax requirements.
In the worst case, the business owner is personally responsible for all debts incurred by the company. This is because a sole proprietorship does not actually create a separate business entity. As a result, your company’s assets and liabilities are only owned assets and liabilities. In addition to the lack of personal liability protection in this type of business, other proposals include the fact that it is difficult to raise money because you are not allowed to sell shares, and banks are reluctant to lend to individual companies.
However, a sole proprietorship may be a good option for low-risk companies and entrepreneurs who want to test their business concept before creating a more formal business.
Best use for
- Search without a long-term commitment
- Easy to start and stop
- Less tax
Not good for
- Those who want limited liability
- Those who want to build a real business
- He wants to hire employees or has liability risks
Advantages
- Quick, easy, and inexpensive to set yourself up
- Easy to close/close
Disadvantages
- Owner liability coverage is not provided
- It is very difficult to obtain financing from abroad
CORPORATIONS
As you might expect, the company is one of the most complex business structures. A corporation - also known as "C Corp" - is a legal entity that is very different from business owners. A company has certain rights, privileges, and obligations, and doing business as a company may lead to significant taxes or financial benefits. Companies provide the largest protection for business owners from personal liability. Business owners can find an easy time to raise money because they can do so through quality stock sales which is an interesting feature in attracting quality employees.
However, the proposals include the increased cost of forming a company, legal requirements for record-keeping, operations, and reporting to the country. There are a few personal controls and other organizational considerations to consider when considering forming a company. This includes board selection, annual meetings and presentation of annual reports.
Best use for
- It seeks venture capital or other external investment
- Continuous profitable business
- Management is looking for a traditional structure
Not good for
- Those who need or want taxes pass-by
- Those who do not like to hold meetings and handle official procedures
Advantages
- Limited liability protection for owners
- The ability to increase foreign investment
- Decades of legal forms to follow
- Well understood legal structure
Disadvantages
- Strict procedures to follow
- The company tax return must be filed every year
- It'll be complicated to keep them
- Taxes, fees, annual deposit, and payment reports
- It will be difficult to close it
- C corporations face double taxes
PARTNERSHIP
A general partnership involves two or more people who have agreed to provide financial support, employment, or skills to the company. Each partner shares the profit and loss and management of the company, but each partner is personally and equally responsible for the debts of the partnership. The formal partnership terms for the partners are usually specified in a written partnership agreement.
In contrast, a limited partnership consists of one or more general partners and one or more limited partners. The general partners run the business and have the right to fully participate in the profits and losses of the organization. When the limited partners also share in the profits of the company, then their losses are limited to the level of their financial investment. Limited partners do not usually participate in the day-to-day operations of the firm.
LIMITED LIABILITY COMPANIES (LLC)
A Limited Liability Company or “LLC” is a commercial entity specifically permitted by law. A Limited Liability Company is created by one or more individuals or entities through a specific written agreement. In fact, a company can Limited Liability Doing What Another Limited Liability Company Owns: It is not uncommon for a business owner with multiple business interests to form an LLC and subsidiaries, which can help the organization and reduce risks.
The LLC contract will include the terms and conditions of the LLC organization, description of management, liability interests, and the manner in which the LLC will distribute profits and losses. Limited liability companies are generally permitted to engage in any business or project for a profit with certain exceptions (such as banking or insurance). Depending on how the LLC is designed, there is no federal tax at the entity level, and the income and loss are transferred to the LLC members (owners).
Conclusion
When determining the right type of business enterprise for your company, remember to consider legal and tax protections and their implications. These factors will help you estimate acceptable personal risks, responsibilities, financial obligations, and the amount of paperwork the country will need to form and run your business.
Best use for
- Owners with a less formal structure
- Investing in real estate and passive investments
- Subsidiaries
Not good for
- Professional Investors (Venture Capital)
Advantages
- Owners' limited liability protection
- Easy to maintain
- It is very flexible for legal and tax purposes, so it can be tailored to the needs of the owners and the specific deal.
- Actual profit/loss contribution among members.
Disadvantages
- It is difficult to use it to get investment from abroad
- Correct preparation can be tedious, especially for many members
- Adding new members or leaving existing ones can complicate matters
- Members (owners) are subject to self-employment and individual business taxes.
- It will be difficult to close it
- External members can create tax implications if they are active in running the company
