A complete overview on Sole Proprietorship in UAE

The United Arab Emirates is an entrepreneurial-friendly country that offers entrepreneurs several options to start a business in Dubai or any other emirate in the country. You have many options for choosing your business, the type of company (also called the legal form) you want to form, the number of shareholders you can have for your business, and the place where you would want to set up your company. In this article, we will have a look at sole proprietorship business registration in UAE.


Definition of Sole Proprietorship:

Sole Proprietorship can be a good option for entrepreneurs who want to operate on their own in the UAE, as the start-up costs are generally low and you can set up your business with only one shareholder.  A sole Proprietorship in Dubai is a legal entity owned and operated by a single individual, known as the sole proprietor with a business license issued in his or her name. The sole proprietor fully controls the company’s operations and profits and has unlimited liability; That is, he is fully responsible for the company’s debts or obligations. All legal and financial obligations of the company flow to the owner. Therefore, although it is easy to start, it is a very risky choice from the point of view of responsibility.


Who has the right to establish a sole proprietorship? 

UAE nationals, GCC nationals, and foreign nationals can form a sole proprietorship in the UAE. But the terms and requirements differ. A Sole Proprietorship Company can be incorporated in Dubai by UAE nationals or a GCCs national (subject to certain conditions). For non-UAE nationals, setting up a Sole Proprietorship Company will require him/her to obtain a residence permit and a local sponsor. They can be a Dubai national or a company. If the sole proprietor carries out a professional or commercial activity, he must obtain the appropriate license.

Organizations that engage in professional services and do not extend to any business are exempt from the Commercial Companies Act (CCL) but are required to obtain a license from the Department of Economic Development (DED).

Expatriates can form sole proprietorships only to provide professional and consulting services (such as medical services, engineering consultancy, management consultancy, legal advice, and information technology consultancy). Foreign-owned enterprises are required to appoint a National Services Agent (NSA) to assist with obtaining licenses, visas, etc. A National Service Agent is a UAE National who assists a foreigner with licensing requirements and other related government matters for an annual fee. Non-state actors are not directly involved in the business.

The government body responsible for registering and issuing trade licenses to new businesses in UAE is the Department of Economic Development (DED).


Sole Proprietorship Registration:

The steps for registering a sole proprietorship include the following:

  1. Choosing a business name for your business; It must be unique and related to your business;
  2. Choosing the legal structure that in this case is considered a sole proprietorship;
  3. Obtaining initial approval from the Department of Economic Development. Consent is essential permission to register your business;
  4. Obtaining approvals from other departments;
  5. Register your business by submitting an application form with documents;
  6. Once the business is registered, you can apply for a license.


Documents required for registration of sole proprietorships: 

Below is a list of all the documents required to be submitted at the Commercial Registry to establish a Sole Proprietorship Company in Dubai:

  1. Application form;
  2. Trade name of a sole trader;
  3. License application form;
  4. Details about the local sponsor (local agent), in case the sole proprietor is a foreign national;
  5. Copy of the employer’s passport;
  6. Proof of registered address;
  7. Residence permit;
  8. No-objection letter from the sponsor.


Advantages and disadvantages of a sole proprietorship: 

As a sole proprietor, the proprietor can use any income from the business in any way he sees fit. However, business losses are also borne by the business owner. As the sole proprietor, one person makes the business decisions of the company. This means that there is no need for any formal procedures, or annual meetings of owners/shareholders to decide on a policy, strategy, etc. The owner makes all these decisions. There are also modest tax benefits to a sole proprietorship. For example, one can deduct business losses from all reported net income. This may help reduce your overall tax burden in some cases. In addition, sole proprietorship allows for a minimum amount of paperwork and formalities. There is very little legal process required to start or operate a business. There is no requirement for formal meetings, record keeping, extensive record-keeping, etc. For registering proprietorship following all legal protocols you can directly approach Fotis legal team for their support. This will make your documentation process smooth and so you can focus more time on your business operations.

On the other side of the coin, we find unlimited personal liability for the obligations and debts of the company. This is one of the major setbacks of a sole proprietorship. Unlike a corporation, a lawsuit against the corporation is also a lawsuit against the owner. This can easily put your assets at risk. A business lawsuit can take your bank accounts, real estate, and even certain types of retirement accounts in some cases.

A sole proprietorship also has a limited duration. The business is dissolved upon the death, abandonment, or bankruptcy of the owner. It is the same story if the owner sells the company to another person or group of people. There are no written arrangements for the transfer of ownership often in a sole proprietorship. So, it is just a matter of selling business assets and accounts receivable, if any. Because of the unstable overall stability and duration of a sole proprietorship, hiring and retaining quality employees can be difficult. Moreover, raising capital is another area where sole proprietorship faces enormous difficulty. Investors are generally reluctant to invest in a sole proprietorship due to exposure to liability and a waning sense of legitimacy. Moreover, most sole proprietors have to rely on their assets or loans to finance their business.