United Arab Emirates: Legal Responsibility Of The New Partner In A Company

Last Updated: 13 June 2017
Article by STA Law Firm
Most Read Contributor in United Arab Emirates, October 2017

New and strategic partnerships can be a great way to reinvigorate a dull and lackluster business. This has been done several times over the past few years by huge companies choosing to partner in order to establish a stronghold on their market. For example, Apple and IBM, two colossal companies, chose to partner in 2014. Spotify and Uber also partnered in 2014 to provide music and ride-sharing services together. Who would've thought?

In this article, we would like to explore how new partners are included in businesses and their legal responsibilities, particularly within UAE jurisdiction.

The UAE Companies Law on Commercial Companies1 (the Companies Law) defines a company as "A contract under which two or more persons are committed to participate in an economic enterprise with the objective of profit realization by contributing a share in capital or work and dividing between themselves the profit or loss resulting from the enterprise."

As the company is meant to be formed among two or more persons, the number of persons required to incorporate and establish a company vary according to the legal form of the company in question.

The different legal forms that may be adopted by a company are set out according to the law, in Article 9 of the Companies Law, which states that: "A company shall take one of the following forms: Joint Liability Company; Simple Commandite Company Limited Liability company; Public Joint – stock Company; Private Joint – stock Company".

Legislators have removed two types of legal forms namely Joint Ventures and Company Limited by Shares. This is to introduce added transparency and clarity. Since joint ventures do not possess a separate legal personality, it is considered easy enough for partners to up and disappear, which would lead to a substantial loss for the other partners involved. Furthermore, companies limited by shares are almost entirely similar to simple limited partnerships, which makes their existence unnecessary.

In addition to these legal forms, we would also like to mention the so-called company de-facto, which the Cassation Judiciary has defined as "...the commercial company, in general, is incorporated among the partners, even if it didn't undertake one of the forms referred to in the fifth article of the commercial companies law, as a company de facto and it shall be (as soon as it is formed) a legal personality".

The company de facto, however, lacks the procedures and stipulations which are determined by the law, regarding the incorporation of a company. Therefore, this company is formed by the will of the partners involved. The company de facto may also be established due to circumstances other than the partners' will to form once. For example, a company de facto may be formed when several persons inherit an individual institution, which, therefore, turns into a company de facto.

For instance, in a limited liability company, activity may be commenced with two partners, while the maximum number of partners permitted is fifty (50). The number of partners in a private joint stock company shall not be less than three persons and in a public joint stock company, may not be less than ten (10) persons.

UAE Companies law, however, also permits the inclusion of a person in the company as a partner after it has been established. This matter, however, varies from one legal form of a company to another.

This leads to the question, what is the responsibility of the new partner who has joined a company after its incorporation?

Joint Liability Company

In a joint liability company, Article 30 of the Companies Law states that: "A Joint Liability Company is a company which consists of two or more partners who are natural persons, to be jointly responsible for all their monies for the obligations of the company." In layman terms, this means that partners are jointly responsible and have unlimited liability for all the debts of their company. Creditors of the company have legal recourse to have their debts settled by the partners of the company, however, the law recuses retired partners from this obligation after his withdrawal has been proclaimed.

New partners can, of course, be included in a general partnership, and one of the ways this can be done is by transfer of shares, from an old partner, who might be retiring as aforementioned, to the new. The law also states that partners cannot assign shares without the overt permission of all other partners involved in the company.

After the transfer of shares has been approved, the aforementioned liability due to creditors will be applied on the new partner so that the latter shall be responsible for the debts of the company which are former and subsequent to his joining the company.2

Simple Commandite Company

The capacities and responsibilities of the partners in a simple commandite company are very different from the ones in a general partnership company. This legal form of a company consists of one or more joint partners with one or more silent partners. As the former is personally liable for all the commitments of the company, the latter is only responsible for these commitments within the limits of his own shares in the capital of the company. The text in the aforementioned companies' law accentuates that any text about the difference of responsibility of the partner shall be according to his capacity as joint or silent.

The legal requirements of a share transfer that are applied to general partnership companies are also applied to simple commandite companies. Therefore, a transfer of share can take place in accordance with the contract of the company, or with the approval of all the partners involved.

Joint Stock Company

A partner in a joint stock company is responsible for the commitments of his company in as much as his contribution to the share capital.

Partners are allowed to transfer their shares, however, this transfer is not taken into consideration till the date of registering this transfer in the register related to shares. Despite this snag, non-registration of a share does not actually hinder the new partner from claiming his right on those shares, from the date of conclusion of the sale contract. The Court of Cassation adjudicated in this regard in Appeal Number 155/2002, stating that: "if the text in the article 162 of the Companies Laws states that: 'the ownership of shares is transferred by confirming the action in writing in a register at the company and this registration is marked on the share ...' meaning that the ownership of the shares of the general joint stock company is not transferred from the seller to the buyer except from the date of registering it in the shares register in which the company register all its shares along with marking that this registration got the same share, however, the sale contract of those shares generates a commitment on the seller to transfer its ownership to the buyer and it results in that its dividend shall be for the buyer from the date of concluding the sale contract, even if it is not registered, unless it is agreed otherwise."

Limited Liability Company

A partner in a limited liability company is not responsible for the debts and commitments of this company, except for within his share. Debts which occupy the financial disclosure of this company are related to its shares, therefore, there is no significant difference between old or new partners. They are similarly liable, whether they are founding or non-founding partners.

As for the limited liability company, the Companies Law has constituted a specific system for transferring the share of one partner to someone else. And it can be summarized in the following:

  1. the partner who wishes to transfer his share shall notify the rest of the partners with this desire and notification shall be administered through the manager of the company.
  2. the manager shall clarify the conditions of that transfer according to the notification of the partner who is willing to transfer.
  3. each partner shall have the right to retrieve this share (s) with the price agreed upon and in case of disagreement, one or more experts with technical and financial experience in the subject matter shall evaluate it.

The partner who is willing to transfer shall have the right to do whatever he wants with his share if 30 days passed from the date of notifying the wish of transfer.


As we notice, there is a pattern to the legal responsibilities of a new partner. This is, that every partner in a company is responsible for the debts of his company within the limits of his share, regardless of the legal form of the company he is involved in. There is no real difference, concerning legal responsibility, between founding partners, and new partners who enter the company after incorporation and commencement of activity. And perhaps, this rule is justified, for two reasons. First being that the debt is clearly related to the company's activities, and to the shares that form the capital of this company. Subsequently, it just makes sense that these debts have nothing to do with the partners themselves. Secondly, a valid assumption is made that the new partner chooses to enter a company after fully acquainting himself with the financial situation of this company. Hence, he is fully aware of what he's getting himself into and has made this choice of his own accord. The only exception to this rule is the liability of joint partners in partnership commendam companies and simple commandite companies.


1. Federal Law No. (2) Of 2015

2. Article 54 - Where a partner joins the company, he shall be jointly liable with the other partners and in all his assets for all the former obligations of the company prior to his joining the company, provided that the company has already disclosed such obligations to that partner, and shall be jointly liable with the other partners for the obligations of the company after to his joining the same. Any agreement between the partners to the contrary shall not be effective as evidence against third parties.

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.

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