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How to Choose the Correct Legal Form for Your Business in Kiklabb Free Zone

When starting a business in Kiklabb Free Zone, there is a need to make an informed decision regarding the legal structure of the business. The most common choices of entrepreneurs are starting sole proprietorships, partnerships, corporations, or limited liability companies (LLCs). There is no correct or wrong option that fits the needs of everyone. The job is understanding every single legal structure, how it works, then select the one which best addresses and meets the needs and requirements of the business to be set up. Take note: the best choice is not always obvious. To make sure that you choose the right, depending on the activities you plan the business to undertake, read on.

Read More: Kiklabb Free Zone: What is Business Setup?

For many small and medium-sized enterprises (SMEs), the initial choice is often a sole proprietorship or partnership if more than one business owner is involved. Either of these legal structures make sense for businesses wherein personal liability is not a big worry e.g. a small business providing services in which it is unlikely to get sued or for a business that does not borrow money. A sole proprietorship and a partnership are both simple and relatively inexpensive to set up and maintain.

Forming and operating an LLC or corporation can be more complicated; however, for entrepreneurs and investors, it is worth their while as LLCs and corporations provide a limit on the personal liability of owners on business debts, as well as court judgments that are against the business.

Given the chance to choose between creating an LLC or partnership, majority of business owners would be better off with the LLC route. If the business has several owners, then an LLC will provide more flexibility, most especially when it is compared to a corporation as LLCs can parcel out management duties and profits. In addition, the set up and maintenance of an LLC is less complicated and expensive compared to a corporation. There are times wherein a corporation is more beneficial for a business as well. For instance, it can issue stock certificates onto the owners. Corporations are also ideal vehicles if the business plans on bringing in outside investors. Loyal employees may also be rewarded with stock options.

Take note that the initial choice of your business regarding the legal structure does not need to be permanent. It may start out as a partnership or sole proprietorship, then be converted into a corporation or LLC when the business grows or risks of liability of owners increase.

You may want to know: Top Five Free Zones in UAE: Which is best for a business?

Different Types of Legal Structures for Businesses in Kiklabb Free Zone

 

Type of Entity Advantages Disadvantages
Sole Proprietorship Simple and inexpensive when it comes to creating and operating in Dubai Kiklabb Free Zone Owner becomes liable for all debts of the business
Limited Partnership Limited partners are limited in terms of the personal liability they have on business debts just as long as they are not participating actively towards the management of the business; The general partners are able to raise cash even without involving outside investors for the business management Limited partners are liable personally for the debts of the business; Limited partnership is suitable for a company that is investing in real estate; It is more expensive to set up compared to a general partnership
General Partnership It is simple and inexpensive for owners to establish and maintain; Owners or partners share the profit and loss of the business Owners or partners are liable personally for the debts of the business
Corporation Owners have limited liability for debts of the business; Fringe benefits may be deducted as expenses of the corporation; Owners are able to split the profits of the business among owners as well as the corporation Paperwork may be seen as burdensome to some entrepreneurs; It is more costly to create in comparison to a sole proprietorship or partnership
Limited Liability Company Owners have limited liability for debts of the business even when they are participating in the management; Profit and loss may be allocated in a different way to ownership interests It is more costly to create compared to a sole proprietorship or partnership
Limited Liability Partnership

 

Mostly of interest for partners with old-line professions e.g. accounting, medicine, and law; Partners or owners are not liable personally for malpractice of the other owners or partners Unlike an LLC, the partners or owners are personally liable with the different obligations of the business to creditors, landlords and lenders

 

If you are considering of business setup in Kiklabb Free Zone Dubai, you are right to do so with all the benefits that the economic zone offers. However, it is likely that you have questions regarding the kind of legal structure that is best for your company. Call our business setup team in Kiklabb Free Zone for assistance in the matter.