Navigating Authority and Accountability: The Essential Guide to Managers in UAE LLCs

Limited Liability Companies (LLCs) are a popular choice for entrepreneurs and investors in the United Arab Emirates. At the heart of these entities lies the role of the manager—a position imbued with significant authority and responsibilities. This article delves into the intricate legal framework governing managers in UAE LLCs, highlighting their rights, obligations, and potential liabilities. This comprehensive exploration aims to equip legal professionals and business leaders with the insights necessary to navigate this complex landscape effectively.

Governance Structure of LLCs?

Limited Liability Companies in the UAE are typically managed by a single Manager who is given authority through the Companies Law as well as in the Memorandum and Articles of Association (MOA). The Manager is named on Trade License of the Company as well as in the MOA?and is recognized as the official representative of the Company.

The Economic Departments will typically allow up to 2 managers to be named on the trade license and in the MOA.?

While most LLC’s do not have a board, the Companies Law does allow for a board of directors. The members of the Board are set out in the MOA, but they will not be listed on the Trade License.? The board of directors can be one or more persons and the decisions can be unanimous or by simple majority if there are 2 director or more. Accordingly, the members of the board are not officially recognized.

Companies are NOT required to appoint board.? However, if the Company decides to appoint a board, the number of directors cannot exceed 5 members.

The Powers granted to the board and the Manager can be bifurcated in the MOA, with certain powers reserved for the board, such as establishment of subsidiaires, investments in third party entities, forming joint ventures, taking loans, etc.

As per the Trade License, the Manager has the power to appear before the Authorities. However, if the MOA grants such powers to the board, a board member may appear before the Authorities by providing a copy of the MOA granting them such power.

The Role of Managers in LLCs

In the context of UAE LLCs, managers are appointed to oversee the operational and strategic direction of the company. Unlike joint-stock companies, which may have a formal board of directors, LLCs typically rely on one or more managers to execute their business objectives. The CCL does not explicitly differentiate between the roles of managers and directors, leading to a more integrated approach to corporate governance.

Legal Framework: A Multi-Layered Structure

The regulatory environment for managers in UAE LLCs is primarily shaped by the UAE Commercial Companies Law (CCL), the Civil Transactions Law, and the company’s Memorandum and Articles of Association (MOA and AOA). These documents collectively define the manager’s role, setting the boundaries within which they must operate.

• UAE Commercial Companies Law (CCL): This law provides the foundational legal structure for all company operations, including the appointment, powers, and responsibilities of managers.
• Civil Transactions Law: This law outlines general obligations and liabilities applicable to individuals in managerial positions.
• Memorandum and Articles of Association (MOA and AOA): These documents are tailored to each company, specifying the precise powers and limitations of the manager.

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Legal Obligations

Managers in UAE LLCs are typically endowed with extensive powers to oversee the company’s operations. According to?the CCL, managers of LLCs have specific legal obligations towards:

• The Company: Managers are obligated to act in the best interests of the LLC, ensuring compliance with all applicable laws and regulations. This includes maintaining accurate financial records and conducting business in a manner that promotes the company's sustainability and growth.
• The Shareholders: Managers must prioritize the interests of the shareholders, ensuring transparency in operations and providing timely and accurate information regarding the company’s financial performance and strategic direction. This involves regular communication and reporting to shareholders, particularly concerning significant business decisions.
• Third Parties: Managers have a responsibility to protect the interests of third parties, including clients, employees, and creditors. This entails adhering to contractual obligations and engaging in fair and ethical business practices to foster trust and reliability in the company’s dealings.

In addition to these obligations, managers must act at all times while fulfilling their duties in accordance with the following principles:

• Good Faith and Loyalty: Managers must prioritize the company’s interests over personal gains and act with integrity.
• Duty of Care: Managers are required to exercise the level of care, skill, and diligence expected from a reasonably prudent person in a similar position.
• Conflict of Interest Management: Managers must identify and mitigate any potential conflicts between their personal interests and those of the company.

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Key Rights of Managers in LLCs

While managers in UAE LLCs are subject to numerous obligations and liabilities, they also possess specific rights that empower them to effectively manage the company. These rights include:

• Authority to Act: Managers are granted the authority to make executive decisions concerning the day-to-day operations of the company. This includes entering into contracts, hiring and firing employees, and managing company resources, as defined in the company’s Memorandum and Articles of Association (MOA). The Powers granted in the MOA will determine the scope of authority granted. Such powers can be narrow or expansive.
• Authorized Signatory: The Manager is recognized as the official authorized representative and signatory of the Company.
• Preparation of Financials:?The Manager is required to prepare the audited financials for the company and to present them to the shareholders for approval.? The auditor is appointed by the Shareholders and may attend shareholder meetings to answer any questions.
• Access to Information: Managers have the right to access all necessary information regarding the company’s operations, financial status, and any other relevant data required to perform their duties effectively. This right is essential for informed decision-making and strategic planning.
• Protection from Liability: Managers are generally protected from personal liability for the company’s debts and obligations, provided they act within the scope of their authority and in good faith. This protection is a fundamental aspect of the LLC structure, allowing managers to operate without the fear of personal financial repercussions for the company’s business decisions.
• Right to Remuneration: Managers are entitled to receive compensation for their services, as outlined in their employment contracts or the company’s governing documents. This right ensures that managers are fairly compensated for their efforts in managing the company.
• Indemnification: Managers may have the right to indemnification from the company for expenses incurred while performing their duties, particularly in cases where they face legal claims as a result of their managerial actions. This right can provide significant protection against personal financial loss.

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Liability: Navigating Risks and Responsibilities

Managers in UAE LLCs can face both?civil and criminal liability?for their actions. The scope of liability includes:

• Fraudulent Actions: Managers can be held accountable for any fraudulent acts that result in losses to the company or its stakeholders.
• Misuse of Authority: Exceeding the powers granted by the company's Memorandum of Association (MOA) or Articles of Association (AOA) can lead to personal liability.
• Breach of Duties: Failure to act in accordance with the law or the company’s internal regulations can result in significant legal repercussions, including claims from shareholders for damages incurred due to mismanagement.

It is crucial to note that?Article 84 of the CCL?explicitly states that any contractual provisions aimed at limiting a manager's liability are considered void. This underscores the importance of accountability, as managers cannot shield themselves from legal repercussions through the company's governing documents.

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Accountability:

If the Company faces financial hardship due to no fraud, embezzlement, breach of duties or misuse of authority and?it?is unable to pay its debts, the Manager will be held accountable to the Courts in the event a creditor or employee files a claim against the Company. The Manager will not be held liable, but?may?be subpoened to appear before the Courts to answer any questions regarding the financial status of the Company?as the request of a Creditor or the labor courts if employee dues are not paid.?

In certain instances, the creditor or labor courts (in an employment claim) will be able to request a travel ban on the Manager preventing him/her from leaving the company. Such bans are only placed on the Manager named on the Trade License and do not extend to the board members named in the MOA.

The Manager will be required to provide the courts with all relevant information regarding the financial status of the company and answer any questions posed by the courts.?

If the Manager fails to attend, he/she can be held in contempt of court and jailed until he appears before the courts.

D&O Insurance

D&O Insurance is available in the UAE, but only recently.? It is uncommon for companies to have D&O insurance for manager is small to medium sized business; but more common with larger and multi-national organizations

Balancing Power with Responsibility

The role of a manager in a UAE LLC is both empowering and demanding. Managers must adeptly balance their broad authority with their fiduciary and legal obligations to the company and its stakeholders. By understanding and navigating the complex legal frameworks, managers can effectively lead their companies while mitigating potential risks. This nuanced understanding is crucial for fostering a successful and compliant business environment in the UAE.

Nathalie Matta

Associate

[email protected]