Establishing an LLC- What do I need to know?

When starting a business, there are many factors to consider, such as what type of business structure suits your business activity. These business structure vary in formality, how they are able to raise finances and how profits can be distributed.

The Commercial Companies Law Promulgated by Royal Decree 8/2019 outlines the structures of which commercial companies may adopt, these are:

1. General Partnership
2. Limited Partnership
3. Joint Venture
4. Joint Stock Company (public / closed).
5. Holding Company
6. Limited Liability Company
7. One-Person Company

Limited Liability Companies (LLC)

A Limited Liability Company (LLC) is a type of private sector company that can be owned by up to 50 persons. It acts as its own separate legal entity and is governed by the Commercial Companies Law RD 18/2019.

What is Limited Liability?

A limited liability company is separate business entity where the owners’ liability is limited to how much they have invested. This company is governed by the laws and procedures under the Commercial Companies Law RD 18/2019.

Unlike other business structures, the creditors of a LLC cannot go after the personal assets of the owners.

Note:   Creditors: Those who the company owes money to

Debtors: Those who owe you money

Who are the Owners?

The owners of a limited liability company are called Shareholders. They each own a share of the company. The shareholders are in many instances the Directors of the company meaning that control remains with the owners. However, not all shareholders need to be involved in the day-to-day running of the LLC. 

What is Share Capital?

Share Capital is the main source of raising money for LLCs. This is the money that has been raised by selling shares in the Company. It shows the level of interest each shareholder in the Company has.

 For example, Company X issues 100 shares. Mohammed, Sara and Fatima are the shareholders and own as follows:

Mohammed                          35 Shares                    (35% Ownership)

Sara                                         40 Shares                    (40% Ownership)

Fatima                                    25 Shares                    (25% Ownership)

This means that the profits at the end of the year will be distributed in accordance with the shareholders’ ownership – this is called Dividends.

Limited liability companies are registered at the Ministry of Commerce and Industry (MOCI) along with all details of their Shareholders. Once MOCI accepts all the required documents for the application, MOCI will issue a Commercial Registration (CR) documents. The CR of a company will outline the company name, capital, address, activities, who the shareholders are and who is authorized to make decisions on behalf of the company as well as a unique CR number for that company.

Capital

 The minimum capital required to start a LLC is 0 OMR but it is worthwhile noting the different grades a company may have according to their capital.

Capital OMR                           Grade

0-24,999                                  Fourth

25,000- 49,999                      Third

50,000 – 99,999                     Second

100,000 – 249,999                 First

250,000 and above            Excellent 

A company with a higher grade is more attractive to deal with as they will have a higher capital. When bidding for government tenders, a company with a higher grade will be given priority over a lower grade company. 

Please note: There is no longer a minimum capital requirement for local or foreign companies set up in Oman. Although it may seem as an easy and cheap option to create a company with a low capital, it may cause a barrier when the business is trying to deal with future customers.

Summary of Advantages and Disadvantages of Establishing an LLC

Advantages	Disadvantages
Can raise a large amount of capital just by selling shares in the company	Financial information must be transparent to all shareholders
Limited Liability	More bureaucracy- many procedures such as holding shareholder meetings to make decisions with notification and a voting system
Continuity – If something happens to one shareholder, the other shareholders can help the business continue trading	Must submit an annual audit to the Tax Authority who will then ask the Company to pay income tax
The directors can be shareholders and have a direct incentive to perform well and achieve capital growth	Shareholders must maintain careful records and meeting minutes and must follow the procedures set out in the Commercial Companies Law
Dividends are paid back to the shareholders based on the profit	Must keep proper accounts such as balance sheets and profit-loss accounts etc

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