Often the primary step of all expatriates investing in UAE through setting up
a corporation in UAE is arranging a partnership with a UAE local who will then
hold 51% shareholding in such Limited Liability Company. Another most important
consideration in building a company is to draft its very constitution that is
Memorandum of Association which is thereafter registered before the Department
of Economic Development allowing them to issue the trade license of the company.
Nevertheless, Commercial Lawyers of Dubai has witnessed several cases where the
partners enter of subsequent agreements within the shareholders thereby,
amending the shareholding and division of profits. The courts in the UAE has
severely criticized such concept in numerous judgments.
It has been lately affirmed by the UAE courts that the partners in any Limited
Liability Company shall pay towards their working capital in accordance with
their shares. As failure to pay the capital will empower the court to issue an
invalidity order against the company and the court will subsequently appoint a
liquidator to liquidate the company and to pay-off all the creditors of the
company. The court-appointed liquidator will further draft the list of partners
or managers in the company and will pay-off their percentage of profits in
accordance with share-capital mentioned in the Memorandum of Association or
Trade License of the company.
The foregoing rule of law was reflected in the Civil Court of Cassation case
number 92 of the year 2009. The court opined in the said judgment where the
claim was raised by the 51% shareholder of the company for claiming his profits,
that the shareholder is entitled to receive the profits in accordance with the
Memorandum of Association of the company and not in accordance with side
agreements. Thus, the court ordered the company to pay AED 2 Million approx. to
the local shareholder. The Case was referred in Court of Appeal and in Court of
Cassation which was rejected and court upheld the decision of lower court.
It is rather significant for the claimant to prove that the actual participation
in the share capital is different than what is mentioned in the Memorandum of
Association, the court holds utmost discretionary power to issue an order for
liquidation of the company. The principle was also mirrored in Court of
Cassation case number 7 of the year 2009, Court of Cassation case number 239 of
the year 2007 and Court of Cassation case number 318 of the year 2004.
Lastly, it is pertinent to note that in case the court orders for the
liquidation of the company, the residuary profits, upon paying the creditors’
shall be distributed according to the share capital mentioned in the Memorandum
of Association and not in accordance with any side or subsequent agreement.
Ergo, we strongly recommend to reach to your Top Commercial Lawyers in Dubai to
have a clear understanding of law and to prevent such casualties in future.
How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...
It is hoped that the Prohibition of Child Marriage (Amendment) Bill, 2021, which intends to inc...
One may very easily get absorbed in the lives of others as one scrolls through a Facebook news ...
The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of t...
The Uniform Civil Code (UCC) is a concept that proposes the unification of personal laws across...
Artificial intelligence (AI) is revolutionizing various sectors of the economy, and the legal i...
Please Drop Your Comments