Liability Of The Shareholders And Managers In LLC

Introduction

  • what forms of the commercial companies shall be established in United Arab Emirates?
    Article no.  (5) of commercial company law

A company shall have one of the following forms 

  1. Partnership company
  2. Limited partnership company
  • Limited liability company 
  1. Public joint stock 
  2. Private joint stock 
  • If Any company established in other than those forms it will be valid?

Any company established in other than those set out in the above clause shall be invalid and the persons who enter into contracts in the name of such company shall be jointly and severally responsible for the obligations arising out of such contracts. 

  • What’s the most established company in United Arab Emirates and why?

             the Limited liability company is the most established in UAE 

Article no. (71) of commercial company law provides:

Company definition 

Limited liability company is an association of a maximum no. of fifty and minimum of two partners, each of them shall be liable only to the extent of his share in the capital 

this is the main reason that you will not be liable personally and jointly for the company’s obligations, just in you’re the extent of your share in the capital

  • What main liabilities of shareholders?

Each shareholder in a limited liability company liable only in to the extent of his  share in the company according to article no. 71 of commercial company law:

Liability of Shareholders in a Limited Liability Company:

liable only to the extent of his share in the capital 

However, The Dubai Court of Cassation in its rulings established some exceptions to reach the shareholders personal assets provided the satisfaction of certain extraordinary specific circumstances. 

  • What main liabilities of managers?

Each manager in limited liability company shall be liable towards the company, partner’s and others for his committed acts due to misuse of powers including any acts of fraud he commits, concealed or damage or change part of company’s books, embezzled company’s properties according to more than one legislation as follows:

Liabilities of managers according to commercial company law:

Article no. (84) commercial company law provides:

  • Each manager in limited liability company shall be liable towards the company, it’s partners and others for any acts of fraud he commits. He shall also indemnify the company for any losses or expenses incurred due to misuse of powers and for any act of default with regards to any applicable law, the company’s memorandum of association or maladministration by the manager. Any provision to the contrary in the company’s memorandum of association or the manager’s appointment contract shall be hereby revoked.
  •             Liabilities of managers according to DIFC Companies Law

The DIFC Law no. 8 of 2018 (“DIFC Companies Law”) has clarified provisions on manager’s liabilities. of the DIFC Companies Law provides that there’s no act of the manager shall be treated as a breach if all the shareholders of a company authorize.

  • What’s the duties of the managers to act within powers?

Duties of the managers within his power shall act in a good faith and in accordance with the articles of association of the company as follows:

Article no. 69 DIFC Laws Provides

A Director of a Company shall:                                                                                                      (a) act in accordance with the Articles of Association of the Company (b) only exercise his powers for the purposes for which those powers have been conferred.

Article no. 70 DIFC Laws Provides(1)     A Director of a Company shall act in the way he considers, in good faith, would be most likely to promote the success of the Company for the benefit of its Shareholders as a whole, and in doing so, have regard, amongst other matters, to:

  (a) the likely consequences of any decision in the long term.

  (b) the interests of the Company’s employees.

  (c) the need to foster the Company’s business relationships with suppliers, customers and others.

  (d) the impact of the Company’s operations on the community and the environment.

  (e) the desirability of the Company maintaining a reputation for high standards of business conduct.

  (f) the need to act fairly as between Shareholders of the Company.

(2) To the extent that the purposes of the Company consist of or include purposes other than the benefit of its Shareholders, the reference to the benefit of Shareholders in Article 70(1) has effect as if it included those other purposes.

 (3) The duty imposed under this Article has effect subject to any law applicable to the Company requiring Directors, in certain circumstances, to consider or act in the interests of a Company’s Creditors.

Article no.72 provides DIFC Laws Provides

Duty to exercise reasonable care, skill and diligence A Director of a Company shall exercise the care, skill and diligence that would be exercised by a reasonably diligent person with:

 (a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the Director in relation to the Company. 

(b) the general knowledge, skill and experience that the Director has

Article no. 73 DIFC Laws Provides

  • Is the manager allowed to accept any benefits from the third party?

The main rule a manager of a company shall not accept a benefit due to his position because of a conflict of interest and he also obliged to avoid conflict of interest as we will discuss below.

Article no 73 DIFC Laws Provides

Duty not to accept benefits from third parties 

(1) A Director of a Company shall not accept a benefit from a third party where the benefit is conferred on him: (a) due to his position as a Director of the Company; 

(b) for him doing (or not doing) anything as a Director, unless the acceptance of such benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.

 (2) A “third party” in Article 74(1) means a person other than the Company, an associate of the Company or a person acting on behalf of the Company or an associate of the Company. (3) In Article 74(2), an “associate” in relation to a Company means:

 (a) the Company’s Subsidiaries, and all the Subsidiaries in the chain of Subsidiaries in which the Company is the Ultimate Holding Company; 

(b) the Company’s Holding Company, and all the Holding Companies up to the Ultimate Holding Company of the Company, and the Subsidiaries of each of those Holding Companies. 

(4) Any reference in this Article to a conflict of interest includes a conflict of interest and duty a conflict of duties.

Duty to avoid conflicts of interest 

(1) A Director of a Company shall avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or may possibly conflict, with the interests of the Company.

 (2) The duty under Article 73(1) applies in particular to the exploitation of any property, information or opportunity.

 (3) The duty under Article 73(1) does not apply to a conflict of interest arising in relation to a transaction or arrangement where the requirements in Article 75 or Article 77 as applicable, are met. (4) A Director of a Company does not contravene the duty under Article 73(1) if: 

(a) the situation cannot reasonably be regarded as likely to give rise to a conflict of interest; 

 (b) the Directors of the Company have authorized the situation in accordance with the Articles of Association and any applicable provisions of the Law. 

(5) A Company’s Articles of Association may, subject to Article 73(4), include alternative procedures for avoiding conflicts of interests. A Director does not contravene the provisions of this Article by acting in accordance with such procedures.

(6) Any reference in this Article to a conflict of interest includes a conflict of an interest and a duty and a conflict of duties.

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