An establishment or sole proprietorship is an entity owned by one individual with the trade license issued in his or her own name. The owner assumes all the financial responsibilities of the entity including all its financial liabilities.
Establishments that practice professional services and do not extend to any commercial business are exempt from the Commercial Companies Law (CCL) but are required to be licensed by the Department of Economic Development (DED).
Unlike a UAE Limited Liability Company (LLC), which requires that at least 51% of shares must be registered to a UAE/GCC national sponsor, a qualified foreign investor that sets up an establishment or sole proprietorship to practice a professional service is permitted 100% ownership in the company.
Establishments that are owned by foreign nationals are required to appoint a National Service Agent (NSA) to assist in obtaining licences, visas etc. NSAs have no direct involvement in the business. Sovereign is able to act as the NSA.
Key steps to setting up an Establishment or Sole Proprietorship:
- Speak with one of Sovereign’s consultants who will advise on the correct legal structure based on the activities that a business intends to undertake in the UAE and its intended markets. A client may further choose to obtain a legal opinion to confirm Sovereign’s advice.
- Appoint a National Service Agent (NSA), which must be either a UAE national or a company wholly owned by UAE nationals. Sovereign Corporate Services has created a number of 100% UAE-owned LLCs that it fully manages and controls through power of attorneys and other legal agreements. These companies can act as the NSA.
- The required documentation for registration and approval will include but is not necessarily limited to:
- Certified passport copy for the shareholder;
- Copy of the UAE residence visa, if applicable;
- No Objection Certificate (NOC) from current UAE residence visa sponsor, if applicable;
- Proof of education, professional qualification or experience, if required;
- Certified passport copy for the General Manager;
- 2 x Certified proofs of address for the General Manager;
- 1 x CV for the General Manager;
- 1 x Professional / bank reference letter for the General Manager.
- All documents are required to be notarised and attested in both the applicant’s home country and at the relevant UAE consulate. The notarisation process should be commenced as early as possible because it can take a significant time.
- All documents must also be translated into Arabic by an official translator before they can be presented to the authorities in the UAE.
- All requested documents to be submitted to Sovereign, which will then manage the application process from start to finish.
Advantages of a Sole Proprietorship or an Establishment
- Foreign professionals can retain 100% foreign ownership in the business;
- The company can legally practice professional services anywhere in the UAE, including Free Zones;
- No restrictions on the location where the company can rent/buy office premises;
- The government has permanently waived any paid up capital requirements.
Disadvantages of an Establishment or Sole Proprietorship
- The owner is personally liable for business debts and any other financial obligations. This liability cannot be limited by shares because the company is inseparable from its owner’s personality and financial standing.
- Longer time to establish than a Free Zone company, typically 8 to 10 weeks;
- An office space will be required in order to incorporate the company. The DED does not generally recognise virtual offices.
Establishment or Sole Proprietorship – FAQs
- What activities can be conducted under an Establishment or Sole Proprietorship?
Expatriates are allowed to form sole establishments only for practicing professional services, such as management, medical, engineering and IT consultancies or similar services.
- Can a bank account be opened for an Establishment or Sole Proprietorship?
Yes. A business bank account can be opened with any of the UAE banks.