Why You Should Consider Forming an LLC
Why You Should Consider Forming an LLC
Starting an international business has many advantages, ranging from reduced tax obligations to ensured security and privacy. Once you decide to build an overseas company, you will need to choose the type of legal entity to apply for. Some of your options include sole proprietorship, partnership, corporation, and limited liability company (LLC).
While each entity has its own unique perks, this article will help you learn specifically about how an LLC differs from the others. By the end of this piece, you should also be able to identify the reasons why you should choose to set up an LLC in Dubai and other free zones in the United Arab Emirates (UAE).
What is an LLC?
As previously mentioned, a limited liability company or LLC “limits” the liability of an owner to the business. Because of this, it is considered as the easiest way to keep your personal assets secure in case your business faces a lawsuit.
A foreign LLC owner is allowed to have a UAE national partner who will act as his “sponsor” in the UAE. The international definition of the legal entity also states that there is no limit to the number of members an LLC can have.
LLCs can work in a wide variety of industries, but this form of legal entity is used by trading, manufacturing and commercial industries more often. This is because people who apply for an LLC not only get to establish a solid standing in the industry, but will also enjoy professional, financial, and legal benefits from doing so.
5 Reasons Why You Should Consider Forming an LLC
An LLC is arguably the best option for people who want to enjoy the perks of several legal entities such as sole proprietorship, partnerships, and corporations. It has a simple registration process, like with sole proprietorship businesses, but provides limited liability the same as corporations, and is taxed the way partnerships are taxed.
If you still haven’t made up your mind on whether this legal entity is right for you, here are five reasons to form an LLC and reap the associated benefits for your business:
1. Asset Protection
An LLC is a separate unit from its owner. This means that everything you own as an individual is considered separate from the assets related to your business. This essentially prevents your personal assets from being linked to your business as well, which can be very useful during lawsuits.
For example, if a sole proprietorship company is being sued for unpaid debts, the owner is also held responsible. Under this premise, his personal properties are at risk since the owner and the business are considered one and the same.
For LLCs, on the other hand, the accountability is shouldered by the business alone. This means that the creditor can only go after the company’s assets and not those personally owned by its members.
2. Tax Benefits
LLC members only need to report profits and losses specific to their shares in their individual tax return. This means that they get to enjoy the limited liability as in corporations without being required to pay for corporate tax.
To top that off, LLCs in the UAE do not need to pay for income taxes, capital gains, dividends tax, withholding tax, and export or import taxes.
3. Uncomplicated and Affordable Processes
Paperwork is a major deterring factor for individuals who wish to register their business as a legal entity. Thankfully, LLCs do not require much paperwork.
Unlike corporations, setting up this type of legal entity is very quick and easy to accomplish. You only need to submit a Memorandum of Association and Articles of Association with identification documentation of the LLC members to the designated government agency. Also, the fees for this one- to two-week process is quite affordable in general, with minimal variation depending on the state or country.
4. Business Freedom for Foreigners
Most entrepreneurs and solopreneurs aim for financial freedom, and formalizing their business as a legal entity is the first step towards it. Setting up an LLC can help you achieve this faster as it is the only entity that provides maximum ownership to foreign nationals, set at 49 percent. The foreign national owner can still get 100 percent of the profits so long as the UAE sponsor agrees to it through a legally binding contract.
Aside from that, an LLC member with a UAE national partner also has the advantage of tapping the experience and knowledge of his local partner to understand the local market, legal policies, and work culture better.
5. Business Credibility
Forming an LLC also provides you with more credibility in your chosen industry. Potential clients, employees, and collaborators will be more inclined to work with you if they see the extent of your commitment to the trade through the legal entity you formed.
Start Your LLC Business Now
After finalizing your decision to form a Limited Liability Company, the first step you need to take is to pick a trade name that is unique and descriptive of your business without resembling names of other legal entities in the UAE. After that, you need to fill out the trade name reservation form and submit it to the Department of Economic Development in Dubai or Abu Dhabi.
Although the process is pretty straightforward, it is best to seek help from experts in setting up a company. Flying Colour has extensive experience and knowledge in forming an LLC in Dubai. Talk to us for your company formation needs – we are more than happy to help.
