Establishing a business partnership in Dubai can be highly rewarding when approached with the right strategy. One of the necessary steps while setting up a company is to choose a legal structure. There are multiple legal structures to choose from, but selecting one that is right for your business is essential.
Some of the popular ones are Limited Liability Companies (LLC), Simple Limited Partnerships (SLP), foreign branch offices, and branches of free zone companies, amongst others.
When selecting a legal structure for your business partnership in Dubai, consider the business type, activities, number and nationality of owners, and ownership options.
What is a Simple Limited Partnership?
As defined by the Department of Economic Development, Dubai, a simple limited partnership agreement is formed between a minimum of two partners: one general partner and one limited partner. General partners are entirely liable for the company's debts, meaning that in case of insolvency, both their personal and business assets are at risk. On the other hand, the limited partners are liable for only a share of company liabilities, which is equal to their share in the company capital.
The company can have more than one branch. Each branch may undertake one or all of the activities included in the primary business license.
Decisions concerning the amendment of the memorandum will only be valid if made with the unanimous consensus of the general and limited partners.
How is the General Partner Different from the Limited Partner?
- General partners must be UAE nationals, whereas limited partners can be from varied nationals.
- The name of the company should contain one or more of the general partner's name(s), with an addition noting that it is a company name. On the other hand, the company name should not include the name of any limited partner(s).
- A limited partner may not engage in management functions involving third parties, even if authorized to do so. However, a limited partner can participate in internal administration. They have full right to verify the profit and loss account, the balance sheet, and company books and documents, provided it would not cause damage to the company. In contrast, a general partner is completely involved in the management functions of the company.
What is the Difference Between a Limited Partnership Company and a Limited Liability Company?
A limited liability company is one of the most popular legal structures for business setups. In an LLC, it is mandatory to have at least one local partner who is a UAE national and holds a minimum of 51% of the shares.
On the other hand, in the case of a Limited Partnership Company, each general partner and a limited partner can own any number of shares. There is no minimum or maximum ownership level for any partner.
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Frequently Asked Questions
An SLP (Special Limited Partnership) is a form of business organization that includes at least one general partner who manages the organization and bears unlimited liability, along with one or more limited partners who contribute capital and bear limited liability up to their capital contribution.
The following are the benefits of forming a Simple Limited Partnership in Dubai:
- Limited Liability for Investors: The liability of a limited partner is limited to the amount invested.
- Flexibility: The structure offers flexibility, where the general partners concentrate on management and limited partners focus on financial backing.
- Tax benefits: Dubai offers a favourable tax regime with no personal income tax and low corporate tax rates.
Local Business Presence: An SLP allows local businesses to register in Dubai with a structure that complies with the laws.
The following are the disadvantages of forming a Simple Limited Partnership in Dubai:
- Unlimited Liability of General Partner: The general partner(s) are liable personally and individually for all firm debts.
- Complex Structure: SLPs are more complicated to arrange and execute than any other business structure.
- Limited partner restrictions: The limited partners have limited involvement in the management of the company.
An SLP offers multiple tax advantages, like exemption from personal income tax and low corporate tax rates, among others.
As per the laws governing the formation of an SLP, a limited partner is not allowed to engage in the business's management activities. On the off chance that a limited partner decides to involve themselves in the management activities, they run the risk of losing their limited liability protection and being treated as a general partner for liability purposes.
An SLP can be involved in various commercial and industrial activities, with the exception of certain sectors. Note that an SLP’s business activities must be pre-approved by the DED and comply with UAE laws.
