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Government initiatives that have helped modernise
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The allure of starting a business in the UAE often attracts global entrepreneurs. However, understanding the intricate dynamics of partnerships in Limited Liability Companies (LLCs) is crucial. Federal Decree-Law No. 32/2021 offers detailed insights into this area. Here's a specialized breakdown of key articles relating to partnerships in LLCs:
- As detailed in *Article 71*, an LLC in the UAE is characterized by a
partnership that ranges from a minimum of two partners to a maximum of
fifty.
- Notably, the article allows a single person (either physical
or juristic) to own an LLC, but the owner is liable only to the extent
of their share in the capital, ensuring risk mitigation.
- *Article 72* is specific about the naming conventions of an LLC. The
name should either be derived from its purpose or include the name of
one or more partners. It must be followed by "Limited Liability Company"
or "LLC".
- Particularly for a Sole Proprietorship LLC, the title
"Limited Liability (Sole Proprietorship)" is mandatory.
- Maintaining transparency and accountability, *Article 74* mandates LLCs
to maintain a special register at its head office. This register must
detail the personal information of every partner, transactions made on
membership interests, and the dates of such transactions.
- Notably,
every partner, as well as any interested party, can inspect this
register, ensuring transparency.
- *Article 75* dives deep into scenarios where the number of partners
exceeds the limit set in *Article 71*. In such cases, the managers must
notify the Competent Authority within 30 days.
- The article provides
a grace period of three months (extendable) to adjust the partnership
structure, failing which the company may face termination.
- A noteworthy aspect covered in *Article 77* is the indivisibility of
the partners’ membership interest. In instances where several persons
own a membership interest, the one whose name appears first in the
Memorandum of Association acts as the representative.
- The company
can even set a time limit for representation selection, post which it
can sell the membership interests.
- *Article 82* sets a clear directive that partners are liable to the company for any profit or benefit made through the LLC's work or by using its properties, name, or commercial relationships.
Understanding the dynamics of partnership in LLCs is vital for any entrepreneur eyeing the UAE market. The Federal Decree-Law No. 32/2021 offers a comprehensive guide in this regard, ensuring that partners maintain transparency, fairness, and mutual trust, which are crucial for a company's long-term success.
Government initiatives that have helped modernise
the UAE legal framework
Management and supervision of Limited Liability Companies (LLCs) in the UAE is a critical area for investors and entrepreneurs to understand. Federal Decree-Law No. 32/2021 on Commercial Companies offers comprehensive guidance on this. Here's a breakdown of the key provisions:
- *Article 84* mandates every manager in an LLC to uphold the highest
levels of responsibility and integrity. They are liable for any
fraudulent acts, power abuse, legal violations, or gross errors.
Provisions conflicting with this rule are null and void.
- This
article also incorporates provisions applicable to Joint Stock
Companies’ Board Members to LLC managers.
- *Article 85* dives into the dismissal, resignation, and replacement of
the manager. A significant takeaway is the need for the Company to
notify the Competent Authority within 30 days of a managerial
change.
- If the company's board isn't reformed post-expiry of its
term, provisions for the continuity and potential intervention by the
Competent Authority are laid out.
- *Article 86* restricts the manager from managing or trading with a competing company without the general assembly's approval. Violations can lead to dismissal and compensation.
- *Article 87* entrusts the manager with the responsibility of preparing the annual balance sheet, profit and loss account, and an annual report. Submission of these documents is required within three months from the fiscal year's end.
- *Article 88 & 89* introduce the concept of a Supervisory Board for
companies with over 15 partners. This board has the right to inspect the
company's books and oversee balance sheets and profit distribution. The
managers have no say in the election or dismissal of this board.
-
*Article 90* highlights that Supervisory Board members are not liable
for managerial actions unless they were aware of any errors and didn't
report them.
- *Article 91* ensures that partners who aren't managers retain all rights described in the Decree-Law or the Memorandum of Association.
- *Articles 92 & 93* lay out the formation, convening, and notification
requirements of the general assembly. Notably, partners holding at least
10% of the company's capital can request the general assembly to
convene.
- Modern technology can facilitate general assembly
meetings, enabling remote participation.
- *Article 94* details the annual general assembly's competencies, emphasizing reports, profit distribution, appointments of various boards, and compliance with the Decree-Law and the Company's Memorandum of Association.
Federal Decree-Law No. 32/2021 establishes a robust framework for the management and supervision of LLCs in the UAE. It emphasizes transparency, accountability, and adherence to the highest standards of corporate governance. Entrepreneurs and investors should be well-versed with these provisions to ensure successful ventures in the UAE market.
Government initiatives that have helped modernise
the UAE legal framework
The Federal Decree-Law No. 32/2021 on Commercial Companies elucidates various aspects of running Limited Liability Companies (LLCs) in the UAE. One specific area deserving particular attention is the inclusion, powers, and responsibilities of the Supervisory Board. Here's an in-depth look at how the law frames the role and obligations of the Supervisory Board within LLCs:
- *Article 88* makes it mandatory for LLCs with more than 15 partners to appoint a Supervisory Board. This Board should consist of at least three partners and will have a tenure of three years from the appointment date. Although the general assembly can re-elect board members post their tenure, it's crucial to note that the law also empowers the assembly to dismiss any member anytime, given a valid reason.
- *Article 89* bestows significant powers to the Supervisory Board. The Board can examine the LLC's books and documents whenever they see fit. Moreover, they can demand managerial reports at any given point. A significant responsibility includes overseeing the balance sheet, annual report, and profit distribution. Before the general assembly convenes, the Supervisory Board is obligated to present their findings and reports at least five days prior.
- While the Supervisory Board holds substantial powers, *Article 90* clearly demarcates their liability boundaries. Members of the Board cannot be held accountable for managerial decisions unless they were aware of any errors and chose to neglect them in their reports to the general assembly.
- *Article 91* stipulates that partners, who aren't managers in an LLC without a Supervisory Board, inherit all associated rights. This provision ensures that managerial powers and responsibilities don't overshadow the rights of non-managing partners.
the Federal Decree-Law No. 32/2021 has intricately designed the role of the Supervisory Board to maintain checks and balances within LLCs. The Board not only acts as a watchdog but also ensures that managerial decisions align with the company's best interests and the provisions of the law. Entrepreneurs and stakeholders must familiarize themselves with these provisions to ensure smooth governance and uphold the highest standards of transparency and accountability.
Government initiatives that have helped modernise
the UAE legal framework
In the world of business, having a well-defined corporate structure is essential for the smooth operation, management, and growth of companies. Corporate structure refers to the organization's hierarchy, divisions, roles, and responsibilities that determine how a company functions. In the United Arab Emirates (UAE), corporate structure plays a vital role in the establishment and operation of different types of companies, including Limited Liability Companies (LLCs) and Limited Partnership Companies.
The corporate structure of a UAE company is crucial in determining the allocation of roles, responsibilities, and decision-making authority among its partners or shareholders. Depending on the type of company, whether it's an LLC or a Limited Partnership, the structure may vary. Let's explore the corporate structure of these entities:
In an LLC, partners have the flexibility to define their roles and
contributions. Partners can include both actively involved members and
silent partners who contribute capital but don't participate in
management. The corporate structure typically consists of:
- Managing
Partners: These partners actively participate in the management,
decision-making, and daily operations of the company. They have the
authority to make strategic decisions and represent the company.
-
Silent Partners (Sleeping Partners/Dormant Partners): Silent partners
contribute capital to the company but do not engage in active
management. Their liability is limited to their capital contributions,
and they may not be involved in daily operations.
In a Limited Partnership Company, there are two categories of partners:
joint partners and silent partners. Joint partners are actively involved
in management and have joint liability for the company's obligations,
while silent partners, also known as sleeping partners or dormant
partners, contribute capital and have limited liability. The corporate
structure includes:
- Joint Partners: These partners manage the
company, make decisions, and are liable for the company's obligations.
They have joint and several liability.
- Silent Partners (Sleeping
Partners/Dormant Partners): Similar to LLCs, silent partners contribute
capital but are not involved in management. Their liability is limited
to their capital contributions.
Over time, businesses may need to reorganize their corporate structure to
adapt to changing market conditions, growth opportunities, or strategic
shifts. Corporate restructuring involves changing the composition of
ownership, roles, or business segments within a company. Examples of
corporate restructuring include:
- Mergers and Acquisitions:
Companies combine their assets, liabilities, and operations through
mergers or acquisitions to enhance market share, synergies, or
competitiveness.
- Spin-offs and Divestitures: A company may spin off
or divest a subsidiary or business unit to focus on its core operations
or unlock value for shareholders.
- Joint Ventures: Companies
collaborate to form a new entity, pooling resources and expertise to
pursue specific projects or ventures.
- Reorganizations: Companies
may reorganize their divisions, departments, or reporting lines to
streamline operations and enhance efficiency.
Corporate structure and restructuring are pivotal elements in the world of business, enabling companies to operate efficiently and adapt to changing dynamics. Whether you're setting up a UAE company, managing its structure, or considering restructuring options, it's crucial to understand the legal framework, regulations, and implications associated with each step. Seeking professional guidance from legal experts and business setup consultants is essential to ensure compliance and make informed decisions that align with your business goals.
