What is an LLC and Why is it a Good Option for Some Businesses in UAE?

A Limited Liability Company (LLC) is a type of commercial entity that blends elements of both partnerships and corporations. Regulated under the Federal Decree-Law on Commercial Companies (2021), it replaced the prior 2015 law and offers business owners a flexible and protective structure. Below are some key features and advantages of forming an LLC.

Definition and Legal Structure

An LLC can be formed by two or more individuals contributing capital or labor to a profit-driven project, with liability limited to the extent of their contributions. Alternatively, an LLC can be owned by a single individual or entity, where the owner's liability is similarly limited to the amount of capital stated in the company's memorandum of association.

The LLC itself holds a separate legal personality, allowing it to engage in various economic activities such as commercial, industrial, real estate, or agricultural ventures. However, it cannot participate in banking or insurance activities unless authorized by specific legislation. Unlike public joint stock companies, LLCs are prohibited from offering shares or securities to the public.

Flexibility in Management and Governance

One of the main advantages of an LLC is its flexible management structure. The owners, or partners, can customize their relationship and the company's governance through the memorandum of association, which can be amended by a majority vote. Partners can also appoint one or more managers, who may be partners or third parties, to oversee the company’s operations. The owners retain the right to inspect the company’s records, participate in the general assembly, and make decisions by majority vote unless a higher threshold is specified in the memorandum.

Limited Liability Protection

LLCs provide strong liability protection for their owners. Unlike joint liability companies or limited partnerships, where partners are personally responsible for the company’s debts, LLC owners are only liable up to their share in the company’s capital. This means personal assets are protected unless owners engage in fraud, abuse of power, or violations of the law or company’s governing documents.

An LLC has several benefits for its partners and the economy, such as:

It offers a flexible and simple legal structure that allows partners to manage the company according to their agreement, without being subject to the strict rules and procedures applicable to joint stock companies.

It protects the personal assets of the partners from the company's debts and liabilities, as they are only responsible for their contribution to the capital.

It facilitates the entry of foreign investors and capital into the country, as it allows up to 100% foreign ownership of the company, subject to the activities with strategic impact and the controls for licensing companies that carry out any of these activities, as determined by a cabinet decision.

It encourages the growth and diversification of the private sector, as it enables small and medium enterprises (SMEs) to operate in various fields and sectors, such as trade, industry, services, tourism, and technology

Taxation

An LLC is subject to corporate tax under the Federal Decree-Law No. 9 47 of 2022, which imposes a tax on the taxable income of the company at the following rates:

0% (zero percent) on the portion of the taxable income not exceeding the amount specified in a decision issued by the cabinet at the suggestion of the Minister of Finance.

9% (nine percent) on the taxable income that exceeds the amount specified in a decision issued by the cabinet at the suggestion of the Minister of Finance.

However, an LLC may be exempt from corporate tax if it meets the conditions for exemption under the same decree-law, such as being a government entity, a government controlled entity, a person engaged in an extractive business or a non-extractive natural resource business, a qualifying public benefit entity, or a qualifying investment fund.

Suitability for SMEs and Foreign Investors

LLCs are ideal for small and medium-sized enterprises (SMEs) looking for operational flexibility, limited liability, and reduced tax exposure. They are particularly well-suited for businesses operating across various sectors or markets, as they allow the creation of subsidiaries or branches while maintaining legal separation between them. Foreign investors may find LLCs especially appealing in the UAE due to the option to own up to 100% of the company, subject to certain conditions.

However, an LLC may not be the best fit for companies seeking to raise capital through public offerings or for those with large-scale operations requiring more formal governance structures.

In conclusion, an LLC is a versatile business structure that provides flexibility, liability protection, and tax benefits, making it a strong option for many businesses, especially SMEs and foreign investors looking to establish a presence in the UAE.

For more information or to seek legal advice, please contact Mohamed Darwish at Darwish Legal Consultants

Email: [email protected]

WhatsApp: +971 544 738 713

Disclaimer : The information provided by Darwish Legal Consultants is for general informational purposes only and should not be construed as legal advice. While we strive to ensure the accuracy of the content, it is not intended to replace professional legal consultation specific to your circumstances. No attorney-client relationship is formed by viewing or using this content. For advice tailored to your particular legal situation, please consult a qualified legal professional. Darwish Legal Consultants disclaims any liability for actions taken based on the information provided herein.