United Arab Emirates: Legal Responsibility Of New Partner(s) In A Company

Last Updated: 20 June 2017
Article by STA Law Firm
Most Read Contributor in United Arab Emirates, November 2017

New and strategic partnerships can be a great way to reinvigorate a dull and lackluster business. This exercise has been carried out several times over the past few years by Fortune 200 companies choosing to partner to establish a stronghold on their market. For example, Apple and IBM, two large corporations, decided 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 the inclusion of new partners in businesses and their legal responsibilities, particularly within UAE jurisdiction.

The UAE Companies Law on Commercial Companies 1 (the Companies Law)defines a legal entity (Article 8) as:

"A contract under which two or more persons are committed to participating in an economic enterprise with the objective of profit realization by contributing a share of capital or work and dividing among themselves the profit or loss resulting from the business."

To form a company among two or more persons, the number of persons required to incorporate and establish a company vary according to the legal form of the entity 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 amendment aimed primarily at introducing 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.

Additionally, we refer to the company de-facto, which the Cassation Judiciary has defined as:

"...the commercial enterprise, 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 an entity de facto and it shall be (as soon as incorporated) 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 business entity gets formed by the will of the partners involved. The company de facto may also get established owing to circumstances other than the partners' will to form once. For example, a company de facto may result when several persons inherit an individual institution, which, therefore, turns into a company de facto.

For instance, in a limited liability company, an activity may be commenced with two partners, while the maximum number of partners permitted is fifty (50) (Article 71 (1)). The number of partners in a public joint stock company shall be five or more persons (Article 107) and in a private joint stock company, the number of minimum permitted shareholders is 2 persons with a cap of maximum 200 persons (Article 255 (1)).

UAE Companies Law, however, also permits the inclusion of a person in the business as a partner post incorporation. This matter, however, varies from one legal form of a company to another.

This discussion 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 39 of the Companies Law states that: "A Joint Liability Company is an entity 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 business. Creditors of the company have legal recourse to have their debts settled by the partners of the business entity. However, the law prohibits retired partners from this obligation after his withdrawal gets proclaimed.

New partners can, of course, get added to a general partnership, and one of the ways this can effect 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.

Once the transfer of shares gets approved, the abovementioned 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 is former and uses after his joining the company. 2

Simple Commandite Company

The capacities and responsibilities of the partners in the simple-commandite company are very different from the ones in a general partnership. 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 duties within the limits of his shares in the capital of the entity. The Companies' Law accentuates that any text about the difference of responsibility of the partner shall be according to partner's capacity as joint or silent (Article 62).

The legal requirements of a share transfer that apply to general partnership companies also apply to simple-commandite companies. Therefore, transfer of shares can effect per the constitutive documents of the entity, 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 entity in as much as his contribution to the share capital.

Partners are allowed to transfer their shares. However, this transfer does not get 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 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 of 2002 (referring to the old UAE Commercial Companies Law (Federal Law Number 8 of 1984), held that:

"if the text in the Article 162 of the Companies Laws provides that: 'the ownership of shares gets transferred by confirming the transfer in writing in the register of the company, and the transfer should be marked on the share ...' This provision clarifies that the ownership of the shares in general of a joint stock company does not get transferred from the seller to the buyer except if same gets registered on shares register (where company records all share sale transactions). However, that said, 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 to the extent of shares held by him/her (Article 71 (2)). Debts which occupy the financial disclosure of this entity 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 distinct 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 notice by the partner who is desirous of and willing to sell the shares.
  3. each partner shall have the right to retrieve this share with the price agreed upon, and in the 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 should 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 pattern is, that every partner in a company is responsible for the debts of his entity within the limits of his share, regardless of the legal form of the business he is involved. There is no real difference, concerning legal responsibility, between founding partners, and new partners who enter the company after incorporation and commencement of the activity. And perhaps, this rule is justified, for two reasons. First being that the debt is directly related to the company's activities, and to the shares that form the capital of this business. 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 thoroughly acquainting himself with the financial situation of this entity. Hence, he is acutely aware of what he's getting himself into and has made this choice of his accord. The only exception to this rule is the liability of joint partners in partnership commendam companies (joint liability 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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions