Starting a business in Dubai means choosing a legal structure that best fits your needs. Two popular options are the Limited Liability Company (LLC) and the sole proprietorship (also known as a sole establishment). Both are widely used in the UAE, but they differ in ownership structure, liability, permitted activities, and other factors. This article breaks down what each entails, compares their pros and cons, and explains how they operate in the Dubai Mainland versus Free Zones. By the end, you’ll understand the distinctions and which structure may suit your business best.
Key Differences Between an LLC and a Sole Proprietorship
LLCs and sole proprietorships differ in several critical ways, from liability and ownership to how they are perceived by clients or authorities. The table below summarises the key differences:
| Feature | LLC | Sole Proprietorship |
|---|---|---|
| Legal Identity | Separate legal entity. | No separate legal entity – owner and business are the same. |
| Ownership | 1–50 shareholders (individuals or companies). | 1 individual only. |
| Liability | Limited liability – personal assets protected. | Unlimited personal liability – owner is fully liable. |
| Permitted Activities | Commercial, industrial, and professional. | Professional and consultancy services only (for expats). |
| Foreign Ownership | 100% foreign ownership allowed (most sectors). | 100% ownership allowed for professional licences with LSA (expats). |
| Capital Requirement | Nominal share capital (e.g. AED 100,000 on paper). | No share capital required. |
| Local Sponsor | Not required in most cases (after June 2021 reforms). | Required – must appoint a Local Service Agent if expatriate-owned. |
| Corporate Tax | 9% on profits exceeding AED 375,000. | 9% on profits exceeding AED 375,000. |
| VAT Eligibility | 5% VAT if turnover exceeds AED 375,000. | 5% VAT if turnover exceeds AED 375,000. |
| Visa Sponsorship | Yes – company can sponsor employee visas. | Yes – sole proprietor can sponsor employee visas. |
| Office Requirement | Required – mainland or free zone office address. | Required – Ejari (Dubai tenancy) needed for mainland licence. |
| Bank Account Access | Easier access to corporate banking. | Possible but may face stricter review. |
Note: In Dubai, a civil company is another form related to sole proprietorship – it’s essentially a partnership of two or more professionals (like two doctors or lawyers partnering in a firm) and also offers no limited liability. A civil company also requires a Local Service Agent if owned by expatriates.
What is a Limited Liability Company (LLC) in Dubai?
An LLC (Limited Liability Company) is a company that exists as a separate legal entity from its owners (shareholders).
🔒 Liability Protection
Owners have limited liability.
You’re only responsible for losses up to your investment amount.
Personal assets are protected from company debts and lawsuits.
👥 Ownership
Can be formed by 1 to 50 shareholders.
Single-owner LLCs (One Person Companies) are allowed. When formed by a single individual or entity, it is referred to as a One Person Company (OPC) — a sub-category of LLC.
OPCs must include “LLC (OPC)” in the trade name to reflect their single-shareholder status.
Both multi-owner LLCs and OPCs offer the same legal protections and structural benefits.
🌍 Foreign Ownership
100% foreign ownership is allowed for most activities since June 2021 (on the mainland).
Some sectors (e.g. defence, telecom) may still require local participation.
Free zone LLCs have always allowed 100% foreign ownership.
🛠️ Setup Requirements
Requires a Memorandum of Association (MOA).
Mainland LLCs: licensed by the Dubai Department of Economy and Tourism (DET).
Free Zone LLCs: licensed by individual Free Zone Authorities.
Must appoint at least one manager.
No minimum capital deposit is legally required, though a nominal capital (e.g. AED 100,000 or USD 27,225) is often stated in the Memorandum of Association (MoA).
🏛️ Legal Standing
An LLC can own property, sign contracts, open a business bank account, and continue operations even if shareholders change.
Considered more credible with banks and larger clients.
Easier to bring in partners or investors than a sole proprietorship.
What is a Sole Proprietorship in Dubai?
A sole proprietorship (or sole establishment) is a business owned by one person, licensed in their personal name or under a chosen trade name.
⚠️ Liability
The business and the owner are not separate entities.
The owner is personally liable for all debts and obligations.
Your personal assets are at risk if the business is sued or fails.
👤 Ownership & Control
Only individuals can open a sole proprietorship, not companies.
The owner has 100% control and receives all profits.
There are no shareholders or partners.
🧑💻 Permitted Activities
Mainly used for professional and service-based work, such as consultants, freelancers, designers, doctors, engineers, lawyers, and accountants.
Foreigners cannot trade goods or manufacture under this structure.
Trading activities require an LLC.
🇦🇪 Local Service Agent (LSA)
Required for expat owners in mainland setups.
The Local Service Agent (LSA) is a UAE national who has no stake in the business but helps with the government paperwork (and is paid an annual fee).
UAE and GCC nationals do not require an LSA.
Some recent updates allow for exceptions, but LSAs are still standard in most cases.
⚙️ Setup and Features
No MOA needed (no partners).
Licence issued under the owner’s name or trade name.
No “LLC” suffix in the name.
Must rent an office and register with Ejari.
If the owner passes away or leaves the UAE, the business usually ceases or must be transferred.
💡 Example
If you’re an independent IT consultant or marketing freelancer:
A sole proprietorship offers a quick, low-cost setup.
You maintain full control and profit.
However, you bear full legal and financial responsibility.
Pros and Cons of an LLC in Dubai
Pros
Limited liability: Protects your personal assets from business debts or legal claims.
Broad activity scope: Trade, industrial, or professional services are all allowed.
Multiple shareholders: You can raise capital, onboard partners, or sell shares easily.
Business continuity: LLCs can continue if ownership changes or a founder exits.
Full foreign ownership: Most sectors now allow 100% foreign ownership on the mainland.
Access to local tenders: Only mainland LLCs can bid for government contracts.
Visa flexibility: You can sponsor multiple staff, based on office size.
Cons
Higher costs: Setup and renewal fees are typically more than a sole proprietorship.
More admin: MOA, resolutions, and financial reporting increase regulatory overhead.
Office required: A physical address is mandatory, which adds to rent costs.
Complex closure: Dissolving an LLC requires formal liquidation, which can take months.
Potential partner issues: Shared ownership introduces the risk of disputes if not managed clearly.
Pros and Cons of a Sole Proprietorship in Dubai
Pros
Full control: One owner with 100% profit and decision-making authority.
Fast setup: Fewer documents, no MOA, and quicker licence issuance.
Lower costs: Startup and renewal fees are generally lower than for LLCs.
No capital required: No need to deposit share capital or declare a minimum investment.
Simple finances: Profits are treated as your personal income (though still subject to corporate tax).
100% ownership in professional activities: Foreigners can fully own professional licences with an LSA.
Ideal for low-risk fields: Great for solo consultants and freelancers with minimal liability exposure.
Cons
Unlimited liability: You’re personally liable for business debts and lawsuits.
Difficult to scale: No shares to sell or equity to offer investors; limits funding potential.
Perception issues: May be viewed as less formal by large clients and banks.
No continuity: The business ends if the owner leaves, passes away, or becomes incapacitated.
LSA requirement for expats: Foreigners need a UAE national agent, adding annual cost and dependency.
Office required: You still need an Ejari-registered space, even for small operations.
Limited expansion: Cannot open branches or operate multiple activities under one licence.
Which Business Structure is Right for You?
Choosing between an LLC and a sole proprietorship in Dubai depends on your business activity, growth ambitions, and appetite for risk. Here are some guidelines to help you decide:
Choose an LLC if:
You want limited liability and plan to scale. If your business involves significant capital, operational risk, or legal exposure, an LLC is the safer choice. This is especially important for trading companies, restaurants, retail businesses, and startups, where financial obligations can be substantial.
You’re starting a multi-owner venture or seeking investment. If you have a partner or plan to bring in co-founders, a sole proprietorship won’t suffice — you’ll need an LLC or another multi-owner structure. Investors (such as angel investors or venture capitalists) also expect to take equity in an LLC, not a personal licence. LLCs tend to carry more credibility with banks, clients, and regulatory bodies.
Choose a Sole Proprietorship if:
You’re a solo professional offering services. If you’re a consultant, freelancer, or service provider operating independently, a sole proprietorship offers a simple, low-cost way to start. It’s ideal if you don’t need outside investment or employees, and your field carries minimal legal risk.
Examples include business consultants, tutors, designers, or marketing specialists who prefer full control and low overheads.
🧑💼 Consider Your Client Base
If most of your clients are in Dubai or the UAE and expect face-to-face engagement, a mainland licence is essential — either as an LLC or sole proprietorship. For solo consultants with a local client base, a sole proprietorship might be sufficient.
However, if you plan to trade goods or operate in retail, a mainland LLC is required. Sole proprietorships cannot conduct trading activities.
On the other hand, if your business serves overseas clients or operates online, a Free Zone LLC may offer better tax and setup advantages, especially as free zones don’t permit sole proprietorships.
⚖️ Assess Your Liability Risk
In high-risk professions (e.g. engineering consultancy or financial advisory), where errors could lead to significant claims, an LLC is the smarter option. It protects your personal assets even if you’re the sole owner.
If you’re in a creative or low-risk field, such as graphic design or content writing, a sole proprietorship can be a reasonable starting point, as long as you’re comfortable accepting full personal liability.
👥 Think About Hiring Plans
Both LLCs and sole proprietorships can hire staff. However, LLCs provide a more formal corporate structure, which may appeal more to prospective employees, especially if you’re hiring a team or growing departments.
While sole proprietorships can also sponsor employee visas, remember that you are personally liable for everything the business does, including your employees’ actions.
💰 Consider Startup Costs
If you need to keep costs low at the start, a sole proprietorship can save on setup and licensing fees. Many entrepreneurs begin this way to test the market, then later “upgrade” to an LLC once the business gains traction.
This transition is common and permitted, typically by forming a new LLC and transferring existing clients, contracts, or assets. However, there are costs involved in this migration.
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Choosing Mainland or Free Zone
If you’re choosing an LLC setup, you’ll also need to decide between the mainland and a free zone.
Mainland LLCs allow unrestricted trade within the UAE and are required for certain business activities.
Free Zone LLCs (FZEs or FZCOs) are ideal for businesses with international clients or online operations, and often offer tax incentives and industry-specific environments.
LLC: Mainland vs Free Zone
Once you’ve decided between an LLC or a sole proprietorship, the next step is to determine where to set up: in the mainland or in a free zone. Both options have distinct regulatory frameworks, benefits, and limitations. Here’s how LLCs compare in each jurisdiction:
| Factor | Mainland LLC | Free Zone LLC |
|---|---|---|
| Market Access | Can operate anywhere in UAE. | Can operate within the free zone and internationally. |
| Foreign Ownership | 100% allowed (most sectors). | 100% allowed. |
| Corporate Tax | 9% on profit over AED 375,000. | 0% on qualifying income if compliant. |
| Office Requirement | Must be located anywhere in Dubai. | Must be inside respective free zone. |
| Visa Allocation | Based on office size. | Based on free zone policy and package. |
| Regulatory Authority | Dubai Department of Economy & Tourism (DET). | Individual Free Zone Authority. |
LLC: Solo vs Shared Ownership
If you’re leaning towards an LLC, it’s important to understand the difference between forming one as a sole owner versus with multiple shareholders. Here’s a snapshot of how those structures differ:
| Feature | Sole LLC | Multi-Shareholder LLC |
|---|---|---|
| Ownership | 1 individual (natural or corporate). | 2–50 individuals or entities. |
| Decision Making | Full control by sole owner. | Shared control based on MOA/share percentages. |
| Liability | Limited. | Limited. |
| Use Case | Ideal for solo founders and small ops. | Best for teams, joint ventures, or investment. |
Sole Proprietorships & Free Zones
If you’re considering a sole proprietorship, note that free zones don’t issue sole establishment licences. However, there are alternatives that offer similar benefits to solo entrepreneurs. Here’s how the two compare:
| Factor | Mainland Sole Proprietorship | Free Zone (No Sole Prop – FZE Alternative) |
|---|---|---|
| Availability | Yes. | No – free zones do not issue sole establishment licences. |
| Alternative Structure | N/A. | Single-owner Free Zone Establishment (FZE) with LLC-style protections. |
| Market Access | Can operate anywhere in UAE. | Free zone businesses restricted from direct UAE mainland trading. |
| Local Agent Required | Yes – LSA mandatory for expat owners. | No LSA required. |
| Liability | Unlimited personal liability. | Limited liability (if structured as FZE or FZCO). |
| Corporate Tax | 9% on profits above AED 375,000. | 0% corporate tax on qualifying free zone income. |
What matters most is making an informed decision early to avoid avoidable restructuring costs. Reach out to our team at Virtuzone for a free consultation on the best business setup for you.
Start Your Company Today with Virtuzone
Understanding the difference between an LLC and a sole proprietorship is a vital step when starting a business in Dubai. If you’re unsure which structure best suits your goals, Virtuzone is here to help. As one of Dubai’s leading business setup specialists, we’ve guided thousands of entrepreneurs through choosing the right structure — whether that’s a mainland or free zone licence, an LLC, or a sole proprietorship. Our experts stay on top of the latest regulations and provide tailored advice based on your business activity, growth plans, and budget. From costs and compliance to setup and expansion, we’ll ensure you make the right decision with clarity and confidence.
Ready to take the next step? Contact Virtuzone for a free consultation.
FAQs
Is a Sole Establishment the Same as a Sole Proprietorship?
Yes. They are legally the same; the term “Sole Establishment” is just the official wording used in Dubai.
Can I Open an LLC Alone?
Yes, one person can own an LLC. The UAE allows single-shareholder LLCs (sometimes called one-person companies or OPCs). You’ll still get limited liability and a fully separate legal entity. A general manager must be appointed (this can be you). It’s ideal for solo founders seeking legal protection and room to scale.
Do Sole Proprietorships and LLCs Pay Different Taxes?
No. Both are subject to 9% UAE Corporate Tax on annual profits above AED 375,000 (USD 102,095).
Can a Sole Proprietorship Hire Employees and Sponsor Visas?
Yes. Sole proprietors can sponsor employee visas just like LLCs. Visa quotas depend on office size and business activity. Labour contracts will name the owner personally (e.g., “Ahmed bin Ali Trading Est.”). If you plan to grow a large team, LLCs offer a more scalable structure.
Do Sole Proprietorships Require a Local Service Agent?
Yes — if the owner is not a UAE/GCC national, a UAE national LSA must be appointed (non-partner role).
Can I Switch from a Sole Proprietorship to an LLC?
Yes, via re-registration. While there’s no direct conversion, the common process is to register a new LLC and transfer your business activities, contracts, and staff to it. The old licence is then cancelled. This is standard and manageable with the help of a PRO or business setup provider.
Can I Move my Business from a Free Zone to the Mainland (or Vice-Versa)?
Not directly. You’ll need to set up a new licence in the new jurisdiction and transfer operations. For example, you can open a mainland branch or a new LLC to expand beyond the free zone. Similarly, moving from the mainland to a free zone means closing the old licence and setting up a new company. Many businesses operate both if needed.
How Much Does it Cost to Set Up an LLC Compared to a Sole Proprietorship in Dubai?
Setting up a mainland LLC in Dubai typically costs between AED 19,500 and AED 30,000 (USD 5,300 and USD 8,150), depending on the business activity, visa quota, and office requirements. In free zones, the cost can be lower, with some packages starting from around AED 12,500 (USD 3,400), particularly where flexi-desk options are available. In contrast, establishing a sole proprietorship on the mainland usually starts at around AED 18,500 (USD 5,000). While the upfront cost difference may not always be substantial, LLCs offer limited liability protection and greater flexibility in ownership and business activities, whereas sole proprietorships are simpler and slightly cheaper to launch but expose the owner to unlimited personal liability. Actual costs vary by jurisdiction, so it’s always best to seek tailored advice before proceeding.
