The United Arab Emirates (UAE) is the most chosen destination for global investors and entrepreneurs looking for a thriving and well-governed business environment. While the UAE’s regulatory framework—especially Federal Decree-Law No. 32 of 2021 on Commercial Companies (“Commercial Companies Law”)—encourages growth and innovation, it also has rules for directors and shareholders. Understanding these rules, including fiduciary duties, personal liabilities, and non-compete clauses, is key to good corporate governance and long-term success.
Directors’ Fiduciary Duties and Liabilities
The Commercial Companies Law has clear standards for directors to follow; they must exercise a high degree of care, skill, and loyalty when managing the company:
- Duty of Care: Directors must make informed decisions based on sound data, professional advice, and diligent analysis. Negligent oversight, mismanagement, or failure to verify critical information can lead to civil liability and damages claims.
- Duty of Loyalty: Directors must put the company’s interests above their own. They must avoid conflicts of interest, self-dealing, and diversion of corporate opportunities to personal ventures. Breach of these duties can lead to legal action, including claims for compensation and, in extreme cases, criminal proceedings.
Shareholders’ Obligations and Liabilities
Shareholders enjoy limited liability, but certain actions can put them under the spotlight:
- Abuse of Voting Rights: Using voting power to get unfair advantages, oppress minority shareholders, or block legitimate corporate strategies can lead to shareholder disputes and court intervention.
- Piercing the Corporate Veil in Extreme Cases: While rare, fraud, gross misconduct, or blatant disregard for mandatory legal provisions may lead courts to hold shareholders personally liable.
Non-Compete for Directors, Managers and Shareholders
The Commercial Companies Law also wants to protect the company’s competitive advantage by restricting certain individuals from competing with the company:
- Directors and Managers: Unless authorized by the General Assembly, directors and managers must not operate or invest in competing businesses. Breach of these rules can lead to legal claims, damages or injunctive relief.
- Shareholders: Shareholder Agreements or constitutional documents may have non-compete clauses, especially if certain shareholders are actively involved in the company’s operations. Breach of these can lead to contractual remedies, including monetary compensation or court orders to stop competing activities.
Good Governance and Risk Management
Good governance helps directors and shareholders to meet their obligations and protect the company’s interests:
- Well Drafted Corporate Documents: Well-drafted Memorandums, Articles of Association, and Shareholder Agreements define roles, responsibilities, and non-compete clauses so everyone knows what’s expected of them.
- Regular Compliance Checks: Periodic audits and professional oversight ensure statutory compliance, detect issues early, and promote a transparent corporate culture.
- Training and Education: Keeping directors, managers, and key shareholders informed about changing regulations, best practices, and non-compete clauses can prevent mistakes.
How We Can Help Your Business?
The UAE legal landscape is complex, and you need experienced advice. At DY Lawyers & Legal Consultants, we offer a range of services to help directors, shareholders, and businesses comply, reduce liability, and operate with confidence:
- Corporate Governance Review: Our team will review and draft your company’s governing documents to ensure clear roles, effective voting mechanisms, and compliance with the latest Commercial Companies Law.
- Drafting & Negotiating Shareholder Agreements: We prepare shareholder agreements, non-compete clauses, and other contractual frameworks to protect your interests, prevent disputes, and maintain corporate peace.
- Compliance & Risk Management Programs: Our lawyers can help you implement internal policies, conduct regular compliance checks and provide ongoing training to keep your leadership informed and up to date with their legal obligations.
- Dispute Resolution and Litigation Support: If a dispute arises—whether it’s a breach of fiduciary duty, non-compete, or shareholder dispute, DY Lawyers offers strategic advice, negotiations, litigation, or arbitration to protect your rights and commercial reputation.
- Advisory on Director & Manager Conduct: We advise directors and managers on best practices for the discharge of duties, reduction of personal liability, and building trust with stakeholders and investors.
Get in Touch: Protect Your Business and Leadership
The UAE legal landscape is changing as per the needs and progress of the nation. Know your obligations and have a trusted lawyer by your side, and you can confidently uphold your company’s values, meet regulatory requirements, and pursue growth.
Contact DY Lawyers & Legal Consultants today to book a consultation and see how our bespoke services can secure your business’s future and protect directors and shareholders from unnecessary risks.
Email: [email protected] or call us at +971 551470302.
Disclaimer: The information provided in this article is not legal advice or opinion. DY Lawyers and Legal Consultants FZ LLC, the author, and affiliated parties shall not be liable for any reliance placed on this general information without seeking individualized advice. For specific legal advice, please consult with a lawyer.
