A Civil Company in the UAE is governed by Federal Law No. 5 of 1985 on the Civil Transactions Law, which outlines the framework for civil companies and partnerships in the UAE. Civil companies are typically formed by professionals such as doctors, lawyers, engineers, and accountants.
Key Features of a Civil Company
- Ownership: Owned by two or more partners who are typically professionals.
- Liability: Partners in a civil company are personally liable for the debts and obligations of the company, but this liability may be joint or several depending on the partnership agreement.
- Licensing: Requires a professional license from the relevant Department of Economic Development (DED) or free zone authority.
- Regulation: Regulated under the Civil Transactions Law and must comply with professional standards and regulations specific to their field.
Sole Proprietorship and /or Sole Establishment
Sole Proprietorship and a Sole Establishment in the UAE are business structures that allow a single individual to own and operate a business. These types of business entities are governed by Federal Law No. 18 of 1993 on the Commercial Transactions Law and other relevant local laws. The terms "sole proprietorship" and "sole establishment" are often used interchangeably, especially in some emirates where expatriates can own businesses with the sponsorship of a UAE national.
Key Features of Sole Proprietorship and Sole Establishment
- Ownership: Both are owned by a single individual who has full control over business decisions and operations. Sole establishments often refer to setups where expatriates’ own businesses with the sponsorship of a UAE national.
- Liability: The owner has unlimited personal liability for all debts and obligations of the business. Personal assets can be used to settle business debts.
- Licensing: Both require a business license from the relevant Department of Economic Development (DED) or free zone authority. The license must match the nature of the business activity.
- Regulation: Governed by the Commercial Transactions Law (Federal Law No. 18 of 1993) and other relevant local laws. The business must comply with all regulatory requirements specific to its industry.
- Tax Treatment: The sole proprietorship or sole establishment and the individual are treated as one entity for tax purposes. The income from the business is reported on the owner’s personal tax return.
Differences Between Civil Company, Sole Proprietorship, and Sole Establishment
- Ownership and Structure: Civil Company: Owned by two or more partners who are professionals. Each partner shares in the profits and liabilities as per the partnership agreement. Sole Proprietorship: Owned and operated by a single individual who has unlimited liability. The business and the owner are legally considered the same entity. Sole Establishment: Similar to a sole proprietorship, but specifically referenced in some emirates for expatriates. Owned by a single individual with unlimited liability.
- Legal Framework: Civil Company: Governed by the Civil Transactions Law (Federal Law No. 5 of 1985). Sole Proprietorship and Sole Establishment: Governed by the Commercial Transactions Law (Federal Law No. 18 of 1993) and relevant local laws.
- Licensing and Regulation: Civil Company: Requires a professional license and adherence to regulations specific to the profession. Sole Proprietorship: Requires a general business license from the DED. Sole Establishment: Requires a business license from the DED, similar to a sole proprietorship, but may have additional requirements for expatriates.
- Liability: Civil Company: Partners have joint or several liability based on the partnership agreement. Sole Proprietorship and Sole Establishment: The owner has unlimited personal liability for business debts.
- Scope of Activities: Civil Company: Typically restricted to professional services and activities specified in the partnership agreement. Sole Proprietorship: Can engage in a wide range of commercial activities as licensed. Sole Establishment: Similar scope to a sole proprietorship, but with specific regulatory requirements based on the emirate.
A Civil Company is distinct from Sole Proprietorship and Sole Establishment primarily in its ownership structure, regulatory framework, and professional focus. While Sole Proprietorship and Sole Establishment are typically individual-owned and operated with a broad range of activities, a Civil Company is a partnership of professionals governed by specific regulations and professional standards.
For further details, one can refer to Federal Law No. 5 of 1985 on the Civil Transactions Law and Federal Law No. 18 of 1993 on the Commercial Transactions Law.
