[ad_1]
The opinions expressed by Entrepreneur contributors are their own.
You are reading Entrepreneur Middle East, the international franchise publication of Entrepreneur Media.
In the early stages of establishment, many new startups may successfully operate under a freelancer license or electronic trader license, with the founder/CEO wearing multiple hats and overseeing all aspects of the operation. However, little is known to founders about key considerations about structure that could be game-changing.
Construct and merge are used interchangeably in the entrepreneurial community. However, the differences are clear and significant. In fact, some might say these two concepts are crucial in their own right.
As a business grows, so do risk and liability issues, which necessitates an evolution of the structure, as well as a change in management style. For example, if startups have the wrong license, or a license that prohibits hiring employees or operating on the mainland, they will certainly face restrictions when scaling up.
Founders/CEOs also need to learn to tighten the reins and relinquish 100% control, otherwise they put a startup that practices “personalized management” at risk, leading to business risk. For most companies, changes are needed when the business needs to hire employees or when the business begins to expand significantly. So, to some extent venture capitalists are responsible for enforcing compliance through professional legal or financial advisors, and they tend to force the transition to a more “formal” management style, devoid of emotion or personality.
Structured
Forming a company goes much earlier than company registration, which refers to obtaining a company license for your business. When you think about structure, you think about the foundation of your business.
I’m reminded of a popular Chinese proverb: “With strong roots, you have nothing to fear from the wind.” When considering how to build your business, consider your current business activity, the foreseeable five years of business activity and its impact on the business.
Structure is also important because it is not about setting up a company or getting a license, but about creating a business that can be sold in just a few years without the limitations of scale of operation, expansion geography or financing. Structures can definitely confuse entrepreneurs venturing into the startup world, so let’s break down the formal and most common startup structures:
- Sole Proprietorship (Freelance Worker License, Electronic Trader License, Professional License, Civil Corporation) These are popular because they are time-saving and cost-effective when starting up. However, when you operate as a sole proprietorship, you and your business are one entity. Unless the license is accompanied by a memorandum from the regulator and articles of incorporation strictly stating that liability is not limited, please understand and assume that liability is personal, to you and unlimited, meaning that you are personally liable for actions taken through this license Responsible for all actions. The owner of the business. A sole proprietorship can be converted into a limited liability company.
- Limited Liability Company (LLC) This is common because it provides shareholders with superior asset protection. The liability of shareholders is limited to the value of their respective share capital, and personal assets may not be misappropriated.
The most common reasons people move from a sole proprietorship to an LLC are as follows:
- LIMITATION OF LIABILITY AND RISK
- Increase your chances of obtaining a line of credit from a bank or investor through the credibility of having equity and the ability to split it with a funder or investor
- Share entrepreneurship with partners
- Separate business operations, income and assets from personal operations, income and assets
Regardless of the structure chosen, it is always advisable to consider limiting risk and liability through either or both insurance and contracts.
RELATED: Why, thanks to new laws, now is the best time to be an entrepreneur in the UAE
Incorporated
The UAE has over 53 free zones and over 7 continental options where one can register a company or obtain a license. A company is essentially a structure issued a license by a regulatory agency to carry out business activities or trade. It is also important to remember that when you form a company/Ltd., in addition to a trade license, memorandum and/or articles of incorporation, you will also receive; however, in the case of a sole proprietorship or freelancer, it is likely Just a license. Free zones also issue stock certificates, and some free zones also issue certificates of employment.
Incorporation usually means that you have finalized the structure, determined how you want to expand, confirmed your business activities and determined your overall goals. Here are some key considerations to remember when merging:
- Having a license does not mean you are automatically compliant with the law. You actually need to start complying with all the necessary regulations and laws. Know and understand the laws that apply to your business activities.
- Understand that most supervisory authorities only allow the issuance of common equity capital which must be fully paid up.
- Review the terms of the Memorandum and Articles of Association before signing, correct errors and amend any unreasonable terms; this should not prevent you from requesting amendments as long as you do not violate UAE Company Laws or correctly applicable laws.
- Make sure you understand the costs, processes and commitments involved in your exit strategy, whether by consent or through dissolution.
- If you are bringing on investors or funders, be clear about how this will impact your company and what documents and processes you will need to have in place regarding your license, memorandum and/or articles of incorporation.
- Keep in mind that a limited liability company has a limit of 50 shareholders.
- Understand the types of equity, anticipate the various stakeholders in the business, and determine their impact on the business before a merger.
All in all, as a founder/CEO, choose a structure wisely based on your own goals and then incorporate the company with the right (objective) management style. Before obtaining a license, follow key considerations when merging. The cheapest jurisdiction is not necessarily the right jurisdiction, so it is advisable to think long term and have foresight. If you’ve identified your structural and merging aspects, it’s all good and hard from there.
related: Five ways to avoid the pitfalls of cheap business registration packages
[ad_2]
Source link