With Qatar consistently making moves to cement its reputation as a leading business destination comes more and more entrepreneurs deciding to call the nation a home for their companies. But before this can happen, they must first make an important decision – what business structure works best for the company they wish to put up?
There are a few options to choose from in this thriving environment. A few of these include the sole proprietorship, the limited liability company or LLC, the partnership, or the shareholding company, among others. Every structure has its own benefits and setbacks, so it’s critical to select the correct one. In addition, the business structure often has an effect on legal requirements, liabilities, and tax schemes. It would be best to conduct research beforehand or better yet, work with consultancies like Creative Zone Qatar to help make these decisions.
Below is a rundown of the various structure types in Qatar, together with their own advantages and disadvantages.
Sole Proprietorship
A sole proprietorship has a single individual owning and managing their business. That means handling everything from daily operations to debts and obligations. Sole proprietorships are easy to establish and oversee, but all tax responsibilities fall on the owner who is taxed as an individual.
Advantages:
- Sole proprietorships only require a few pieces of paperwork and legal procedures.
- Business owners have full control over decision-making, operations, finances, and all other aspects of the company.
- Sole proprietors are taxed as individuals. This means they can claim deductions on personal income tax returns for any business-related expenses they make.
- Operating costs are usually lower for sole proprietorships, since there is less administrative or legal work.
Disadvantages:
- All liabilities, debts, or legal issues incurred by the business will fall solely on the business owner.
- Because they need the legal structure to attract investors or obtain business loans, sole proprietors may have a harder time securing funding.
- Sole proprietorships are tied to the owner, so the business may fall apart when the owner passes or becomes unable to run the company.
- Expanding or growing one’s team is more challenging as a sole proprietor, since doing this may involve letting go of some control or completely re-registering as a different structure.
General Partnership
When two or more people set up a company, this is called a General Partnership. With this setup, the owners share the burden of the company’s debts and obligations. Owners may choose to use their own names as the official business name, or they can choose a distinct trade name.
Advantages
- Having multiple people co-found a company automatically brings a varied set of experiences and expertise to the table.
- With more owners involved in decision-making, more thorough and well-thought out discussions are possible.
- Multiple partners can raise company capital, unlike sole proprietorships where a single person has full responsibility.
- General partnerships may have easier access to bank loans and supplier credits.
Disadvantages
- There is significant risk that comes from the unlimited liability of each partner.
- Partnerships may not be as flexible as companies owned by sole proprietors.
- Company capital may still be limited, as it is dependent on the partners’ financial capacity.
- If one partner withdraws, gets disqualified, or becomes in any way unable to run the business, this may cause the company’s closure. Complications may also arise regarding upon a company’s potential termination, involving the heirs of a deceased partner, the withdrawing partner, or the trustee.
Simple Partnership
The Simple Partnership is made up of two types of partners:
- Active Partners: They hold responsibility for all of the company’s debts and obligations, and have an active role in managing the business.
- Limited Partners: They contribute assets to the company, but are not involved in managing it. They are only liable for their own contributions, and cannot be included in the company’s name. However, they may become regular employees or managers within the company.
Advantages
- Total capital can be increased by adding more limited partners who only risk their respective shares.
- Partnerships gain more confidence from banks and suppliers, who are more open to granting loans and credit facilities.
Disadvantages
- There is risk that comes with the unlimited liability of each partner, as well as a lack of flexibility – similar to a general partnership.
- Limited partner shares cannot be traded, only sold to third parties upon the approval of all partners.
Joint Venture
Within a Joint Venture, two or more companies collaborate to form a new business for a specific project or opportunity. Each participating company contributes their own capital, technology, and expertise. A joint venture is considered a shelf company, which means it is not a legal entity in itself and does not exist for third parties. Instead, the effects of a joint venture are limited to its partners. Joint ventures are common in oil and gas industry.
Advantages
- Since joint ventures are temporary entities, no long-term commitment is required. Meanwhile, regular companies need more time and resources to maintain ongoing operations.
- The participating companies all contribute their own assets to the venture, via capital, experience, facilities, and more.
Disadvantages
- Each participating company holds equal responsibility for any claims against the joint venture.
- There may be disparities with regards to each company’s role. Some participants may have a larger contribution to the venture, without necessarily translating into larger profits.
Shareholding Company
This business structure is one where the capital is divided into tradable shares of equal value. In this case, shareholders are only held responsible for the actual value of their own shares. Shareholding companies must have at least five founders who own between 20% to 60% of shares. Its minimum capital must also be at QAR 10 million. In terms of name, any shareholding company must have a trade name that reflects its purpose, while also including the words “A Qatari Shareholding Company.”
Advantages
- The shareholders are fully responsible for the company. They make decisions during general assemblies.
- Shareholding companies are very prevalent in capitalist societies, therefore elevating their credibility.
- This structure grants easy access to loans and credit facilities.
- Shareholding companies have a better chance at attracting high-paid experts, who can improve on its performance.
- Work may be allocated based on shareholder expertise and the nature of the business.
- The lifespan of the company is not affected by any unforeseen circumstances encountered by its capital owners. This ensures continuity.
Disadvantages
- Setting up a shareholding company can be more expensive.
- The separation between ownership and management may result in a disconnect between leaders and shareholders.
- If needed, transforming the company’s activities may be time-consuming and tedious.
Limited Liability Company (LLC)
The LLC might be the most popular choice for Qatari businesses. These offer limited liability protection to owners, which means that as individuals they are not personally responsible for the debts or legal issues that their company might come into. In addition, any profits and losses are shared among LLC owners, while their business is taxed as its own entity.
Advantages
- Business incorporation is straightforward.
- Partners are protected somehow, since they’re only liable for their own company shares.
- LLCs only allow the involvement of natural persons. Legal persons are not included.
Disadvantages
- LLCs cannot offer their capital for public subscription.
- LLCs cannot engage in businesses related to banking, savings, or insurance.
Limited Shares Partnership
A Limited Partnership with Shares has one or more active partners who own equal and tradable shares of their firm’s capital. Active partners are not authorised to actually manage the company, but are allowed to give oversight. In addition, active partners are only responsible for their own shares, rather than the company’s debts.
Advantages
- Business incorporation is straightforward.
- Limited Shares Partnerships have an easier time increasing their capital, compared to sole proprietorships.
- This business structure can entice junior investors to purchase shares, as there are zero restrictions or conditions.
Disadvantages
- Expansion is restricted by the shareholder need to trust active partners in managing the company.
- Due to the straightforward formation process, individuals who don’t have the moral integrity to properly manage shareholder funds can still set a company up under this structure.
Additional Qatari Business Structures
Holding Company
Holding companies oversee one or multiple other companies. They may be a shareholding, LLC, or sole proprietorship. It should be noted that once the holding company possesses over 51% of another company’s shares, then that company becomes a new subsidiary of the holding company.
Private Shareholding Company
With a minimum of five founders, a private shareholding company can be formed. The founders must purchase all shares, which are not open to public trading. In addition, company capital cannot go below QAR 2 million. Private shareholding companies may have separate distinct regulations on public subscription, listing, and trading, but they are still subject to the provisions that other shareholding companies are.
Branch Office
Branches allow foreign companies to establish a presence in Qatar. They expand operations in a new market without having to create a new company. In this case, the foreign company keeps control of operations while complying with Qatar’s laws and regulations.
What Business Structure Works the Best for You?
The best structure for your business will highly depend on your business needs and goals. Once you have these, you can select a structure with the characteristics that aligns with what you need.
This will allow you to maximise profits, minimise risks, and lead you to success in Qatar. To get started, consult with one of our Creative Zone Qatar advisors. We’ll guide you towards making an informed decision regarding where you can find the most opportunities for your business.
