LLCs are one of the most popular vehicles for carrying out business in the UAE outside of the Free Zones where the business activity does not involve banking, insurance or investment (where another corporate vehicle is required). LLCs are governed by the UAE Commercial Companies Law and require a minimum of two members with a starting capital of AED300,000. Foreign investors can hold up to 49% equity in an LLC and 51% must be held by one or more UAE nationals. Managers of the company (up to 5 people) can be UAE Nationals or expatriates.
Partner's liability
Limited liability companies allocate the liability of partners according to their share in the capital of the company. This means that partners are only liable to the extent of their shareholding. . The finances of the company are of course separate from the finances of its partners, and because of this company creditors can only make claims against the company as an entity and not its partners individually or as partners of the company in their own merits.
Under article 218 of the UAE Commercial Companies Law, partners in limited liability companies cannot be held personally accountable for the company's debts above the extent of their share in its capital. This is also upheld in the courts. As an exception to this rule, where the partner is found to have acted fraudulently or negligently to the detriment of the company or its creditors the liability is not divided as per the above rule. Rather, the partner can be held liable in their personal capacity, meaning that creditors can pursue the individual partner for the company's debts and their liability is not limited to their share in the company. Creditors in this instance can attempt to secure the partner's personal finances, separate from the company.
Manager's liability
Similar provisions also apply to the general manager of the LLC. Article 219 of the UAE Commercial Companies Law provides that "It shall be mentioned that the company is an LLC, along with the company's capital. If this is ignored, the manager shall be personally liable in his own funds for the company's liabilities in addition to damages". This article refers only to the civil liability of the manager. Criminal liability is stipulated in article 322 of the Commercial Companies Law that "without prejudice to any stronger punishment in any other law, a punishment of no less than three months and no more than two years in jail and a fine of no less than ten thousand and no more than one hundred thousand Dirhams or any of these two punishments, to the manager or board member who intentionally falsifies the budget or the profit and loss account, or intentionally omits substantial facts in such documents with an intention to hide the real financial position of the company". This means that the manager is also liable to the company, partners and any third parties for a breach of the law or the company's regulations or fraudulent management activities.
Prior to filing a case against an LLC, proper research into the company's activities, its partners, its transactions needs to be carried out in order to plan how to approach the case. . The burden of proof rests with the creditors to evidence the acts of the partners or manager the manager for any fraud or misconduct.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
