UAE Law and Practice Contributed by: Amir Alkhaja, Gerry Rogers, Daria Selivanova and Danila Kriuchkov, Habib Al Mulla & Partners
suit against directors on the company’s behalf for mismanagement. In an LLC, any shareholder can theoretically initiate a claim if a manager’s wrongdoing caused harm to the company. Typical scenarios of director/officer liability include approving ultra vires transactions, dis - tributing fictitious profits or dividends in violation of law, misrepresenting the company’s capital or financial status, or engaging in self-dealing with - out disclosure. If such actions cause damage, the directors can be compelled by court to com - pensate the company from their personal assets. For example, if managers of an LLC siphon off company funds or run up debts by reckless trad - ing, creditors or liquidators can pursue them for the losses. Shareholder Liability and Piercing the Corporate Veil Generally, UAE companies have the principle of limited liability – shareholders of an LLC or JSC are not liable for the company’s obligations beyond their capital contribution. However, UAE law (and court practice) recognises exceptions in egregious cases. The doctrine of “piercing the corporate veil” is not codified in detail but is applied in instances of fraud or commingling of assets. If shareholders misuse the company (for exam - ple, to defraud creditors or evade legal obli - gations), courts may hold those shareholders personally liable. In one notable case, a Dubai court allowed creditors to pursue LLC share - holders because the owners had intermingled personal and company funds, essentially using the company as an alter ego. Also, if an LLC has a single shareholder, the law requires that person to maintain separation of personal and company finances; failing that, personal liability can attach.
Another situation is when a company acts as an agent for its shareholders, if proven that the company was a mere façade for the individuals’ dealings, a court may lift the veil. Additionally, under agency law, a parent company can be held liable for its subsidiary’s acts if the subsidi - ary acted as its agent or if the parent guaranteed its obligations. Under the Companies Law, shareholders who receive unlawful distributions (eg, dividends paid out of non-existent profits) must return them if the company’s creditors are prejudiced. If a shareholder (especially in an LLC) effectively acts as a de facto director, directing the com - pany’s management, they might incur similar liabilities as an official manager for wrongdoings. Indemnification UAE law does not explicitly address director indemnification. In practice, companies may indemnify directors in their service contracts to the extent it does not cover wilful misconduct or fraud (which cannot be indemnified against public policy). 4. Employment Law 4.1 Nature of Applicable Regulations The UAE’s employment relations are governed principally by statute (labour law) rather than case law or collective bargaining. The corner - stone is Federal Decree-Law No 33 of 2021 on the Regulation of Labour Relations (the “UAE Labour Law”), which governs most private-sec - tor employment nationwide. This law is federal and applies across all Emir - ates (except in financial free zones which have their own regimes). It provides mandatory rules
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