Corporate Governance in the UAE: Responsibilities of Directors and Partners

Corporate governance in the UAE does not concern listed companies and banks alone. The Commercial Companies Law makes the manager of a limited liability company responsible for applying governance rules, and it places specific obligations on the manager and the partners in management, accounts, meetings and records. A breach of these obligations opens the door to personal liability and fines, and in accounting and profit distribution offences it can lead to imprisonment.

Most partner disputes that reach the courts start from the absence of a system inside the company: a manager who signs contracts with no written limits on his authority, a general assembly that never meets, a partner who never sees the accounts, and decisions with no minutes.

This article is part of our file on Corporate Issues in the UAE. It sets out the financial and legal obligations of the manager and the partners as stated in the legislation in force, the risks of neglecting them, and the role of the lawyer in building a governance system that protects the company before a dispute, not after it.

What Is Corporate Governance Under UAE Law?

Federal Decree-Law No. 32 of 2021 on Commercial Companies defines governance as the set of controls, standards and procedures that achieve institutional discipline in the management of the company in accordance with international standards and methods, by defining the responsibilities and duties of those in charge of management, while protecting the rights of partners and stakeholders.

In practical terms, corporate governance is the written answer to three questions: who holds the decision, who supervises it, and how a partner finds out what is happening in his own company.

Does Corporate Governance Apply to a Limited Liability Company?

Yes. Under the Commercial Companies Law, the board of directors of the company or its managers, as the case may be, bear responsibility for applying governance rules and standards. Public joint stock companies are subject to the governance resolution issued by the Securities and Commodities Authority, while the governance resolution for other companies is issued by the competent Minister, and the law allows these resolutions to include fines of up to AED 10,000,000. The provisions on the limited liability company in the same law are binding governance rules in themselves: the powers of the manager, the general assembly, the accounts, and the rights of the non-managing partner.

Obligations of the Manager in a Limited Liability Company

The manager is the first person responsible for the governance of the company. His main obligations under the Commercial Companies Law are:

The effect of breaching these obligations on the personal assets of the manager is explained in our article What is the Responsibility of the Manager of a Limited Liability Company?. The law voids any clause that exempts the manager from liability for fraud, misuse of authority and gross error.

Obligations and Rights of the Partners in Corporate Governance

A partner who does not manage is not a spectator. The general assembly, which includes all partners, approves the accounts, decides the profits to be distributed, and appoints the managers and the auditor. These powers can only be exercised in a meeting that is validly called and quorate.

What the law leaves to the agreement of the partners is regulated in the memorandum of association or in a separate agreement, including dispute resolution methods, drag-along clauses, and the shares of a deceased partner. The details are in our article Drafting a Partnership Agreement for a Company in Dubai and the UAE.

Financial Governance: Accounts, Audit and Profit Distribution

The financial side of corporate governance is a legal obligation before it is an accounting practice. Under the Commercial Companies Law, every limited liability company must have an auditor appointed by the general assembly each year, must prepare its accounts in accordance with international accounting standards and principles, and must keep its accounting records at its head office for at least 5 years from the end of the financial year.

The law prohibits the distribution of fictitious profits, obliges a partner to return what he received in breach of its provisions even if he acted in good faith, and requires 5% of net profits to be set aside each year for the legal reserve until it reaches half of the capital.

The Commercial Transactions Law requires commercial books to be kept for 5 years, and the Corporate Tax Law requires records and documents to be kept for 7 years after the end of the tax period. Weak records are what turn a routine examination into a dispute, as we explained in our article Tax Audit in the UAE: I Received an Audit Notice, What Should I Do?.

My Partner Is Preventing Me From Seeing the Company Accounts: What Should I Do?

This is the question partners ask most, and UAE law is clear on it. Every partner may, on a written request, obtain free of charge a copy of the latest audited accounts and the latest auditor report, and the company must respond within 10 days of the request. He may also inspect, in person or through an agent, the register of minutes and resolutions of the general assembly, the balance sheet, the profit and loss account and the annual report.

If the request is refused or delayed, the partner has routes that escalate according to the size of his share and the nature of the refusal, from requesting a call of the general assembly to going to court. The Commercial Transactions Law allows the court to order the production of commercial books for inspection by the opposing party where the dispute relates to a company.

The success of these routes depends on how they begin: the wording of the written request and proof of its delivery, the timing of the next step, and the requests put before the court. A mistake at the start gives the other side additional months. This is why our firm prepares and documents the request and follows it through until a court order is issued where necessary.

The Real Beneficiary Register and the Partners Register: An Obligation Many Overlook

Under Cabinet Resolution No. 109 of 2023 on the Regulation of Real Beneficiary Procedures, the company must keep a register of the real beneficiary, being every person who ultimately owns or controls 25% or more of the capital or voting rights, and a register of partners showing the shares of each and the voting rights attached to them.

Both registers must be updated within 15 days of becoming aware of any change, and the change must be submitted to the Registrar within 15 days of its occurrence. A breach exposes the company to administrative sanctions. This obligation is connected to what we explained in our article Compliance and Anti-Money Laundering in the UAE.

What Happens When Corporate Governance Is Absent?

The effect of absent governance does not show in quiet years. It shows all at once at the first disagreement, inspection or loss:

These risks multiply in companies owned by relatives, as in our article Family Business Disputes in the UAE: What Should I Do?, and when a partner withdraws, as in our article Partner Exit from the Company: How to Protect Your Interests.

Removing the Manager: When Does the Matter Reach the Court?

Unless the memorandum of association or the appointment contract provides otherwise, the manager is removed by a resolution of the general assembly, whether he is a partner or not. If the resolution cannot be passed, the Commercial Companies Law allows the court to remove him at the request of one or more partners if it finds a legitimate reason that justifies removal.

Discharging the manager in the general assembly does not extinguish a liability claim for his errors. However, where the act was presented to the assembly and ratified by it, the claim lapses one year after the date of that meeting unless the act is a criminal offence. For this reason we review the agenda and the minutes with the partner before he signs.

International Corporate Governance Standards: What Is Useful for Your Company?

UAE law links the definition of governance to international standards and methods. The most prominent are the G20/OECD Principles of Corporate Governance 2023, which centre on the rights and equitable treatment of owners, disclosure and transparency, the responsibilities of management, and sustainability. Alongside them are the International Financial Reporting Standards, the International Standards on Auditing, the Financial Action Task Force recommendations on beneficial ownership, the standards of the International Sustainability Standards Board, and ISO 37000 and ISO 37301.

For a limited liability company these standards are guidance and are not binding in themselves, except to the extent that UAE legislation has adopted them. Their practical value is that legal drafting turns them into clauses in the memorandum of association and the authority matrix, and that they are the first thing a foreign investor or a financing bank asks about.

The Role of the Lawyer in Building Corporate Governance

Corporate governance is built with documents, and the document that stands up in court is the one drafted with the potential dispute in mind. AWADH ALMHEIRI LAW FIRM AND LEGAL CONSULTATIONS carries out this work in stages:

Legal Deadlines in Corporate Governance

Practical Tips Before a Dispute Arises

Legal References

• Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended

• Cabinet Resolution No. 109 of 2023 on the Regulation of Real Beneficiary Procedures

• Federal Decree-Law No. 50 of 2022 Issuing the Commercial Transactions Law

• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses

• G20/OECD Principles of Corporate Governance 2023, guidance reference

• Jurisdictional Rationale Guide for the adoption or other use of ISSB Standards, guidance reference

Frequently Asked Questions About Corporate Governance in the UAE