Corporate Governance Disputes in UAE Companies: Rights of Shareholders & Directors

Corporate governance is often overlooked when a company is first established. Founders may focus on licensing, ownership, and day-to-day operations, while relying on standard incorporation documents that do not clearly regulate decision-making, management authority, profit distribution, share transfers, or disputes between business partners.

But those gaps can quickly become a source of conflict as a company grows. There may also be disagreements about who is entitled to sign contracts, to appoint or dismiss managers, to access company funds, to approve major transactions or to sell shares to third parties. These are mainly regulated for mainland companies by the Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended, the company’s Memorandum of Association, shareholders’ agreement and relevant regulations. Free-zone companies are subject to their own legal regimes, where the relevant free-zone law or regulation provides a special rule. The law is designed to make governance rules stronger in order to protect shareholders and partners, and therefore clear and tailored corporate documents are key to avoiding disputes that could be avoided.

Statutory Duties and Liability of Directors and Managers

The duties of care, authority and accountability govern the relationship between a company, its managers, directors and shareholders. Under Article 22 of the Commercial Companies Law, any person authorised to manage the company shall preserve its rights and exercise the care and diligence of a reasonable person, and shall act in accordance with the objects of the company and the authority granted to them.

Where the Memorandum of Association, appointment terms, or shareholders’ agreement creates contractual obligations, the Civil Transactions Law requires those obligations to be performed in accordance with their terms and in good faith. Its rules on misuse of rights may also be relevant where a person uses a corporate right or authority for an improper purpose. These supplement, but do not replace, the specific duties and liability provisions contained in the Commercial Companies Law.

The UAE law requires related party transactions to be disclosed and approved. Article 152 requires related parties, in the case of joint stock companies, to disclose their interest before the transaction is concluded. Transactions up to 5% of the company’s capital require prior approval of the Board, and transactions above that are subject to approval of the General Assembly after valuation according to the rules of the applicable Authority.

Failure to comply with disclosure and approval requirements may expose the relevant person to compensation claims where loss is caused. In joint-stock companies, Article 150 allows the company or a shareholder to seek invalidation of the transaction or recovery of profits where a director fails to disclose a conflict of interest. For LLCs, Article 84 makes a manager personally liable to the company, partners, and third parties for fraud, abuse of power, breach of law, breach of the memorandum of association or appointment terms, and gross management errors. Article 24 provides that any provision in a company’s Memorandum of Association or Articles of Association that seeks to release a current or former company officer from personal liability is void.

In a period of financial distress, directors and managers whose conduct has contributed to the company’s financial decline may also be subject to scrutiny under the Financial Restructuring and Bankruptcy Law. As regards LLCs, the Commercial Companies Law Article 308 provides that, upon losses equal to 50% of capital, managers shall refer the matter to the General Assembly; and partners holding at least 25% of capital may seek dissolution upon losses equal to 75%.

Under Articles 88 and 89 of the Commercial Companies Law, an LLC with more than 15 partners must appoint a Supervisory Board of at least three partners. The board may examine the company’s books and documents, request reports from the managers, and review the balance sheet, annual report, and profit distribution. It must submit its report to the General Assembly at least five days before the meeting.

Authority to Agree to Arbitration in UAE Companies

The authority to agree to arbitration is an important issue in corporate disputes. Under Article 4(1) of Federal Law No. 6 of 2018 on Arbitration, an arbitration agreement must be signed by a person with legal capacity or by a company representative authorised to agree to arbitration.

For joint-stock companies, Article 154 of the Commercial Companies Law provides that the board may not agree to arbitration unless this is authorised by the company’s articles of association, falls within the company’s objects by nature, or is approved by the General Assembly through a special resolution. A failure to meet these authority requirements may affect the validity of the arbitration agreement.

Parties may agree to arbitration, provided that the person signing the arbitration agreement has the required authority and the relevant corporate approval requirements are met.

Statutory Remedies for Shareholder Rights

Where internal governance mechanisms do not work, the shareholders of joint-stock companies may resort to courts for the protection of their rights. A shareholder who suffers personal harm from an act that violates the law may bring a claim against the company, its board of directors or executive management, according to Article 166 of the Commercial Companies Law. The shareholder may recover court and legal costs on production of evidence in court, whether the judgment is for or against the shareholder, provided that the claim is not defamatory, designed to harm the company or its shareholders, or to influence the market price of shares.

For joint-stock companies, Article 167 allows a shareholder or group of shareholders to bring a claim in their own name and on behalf of the company against a related party where the company has suffered loss due to that party’s breach of legal obligations. The claimants must hold at least 10% of the company’s capital, have been shareholders when the relevant acts occurred, and first submit a written request to the board asking the company to file the claim. The board must reject the request or must fail to respond within 30 days before the shareholders may proceed. Any compensation awarded belongs to the company, while the court may approve recovery of the claimants’ legal expenses.

Corporate Governance Mechanisms under the 2025 Amendments

The 2025 amendments to the Commercial Companies Law give companies greater flexibility to build governance arrangements around their actual ownership, management, and investment structure. To reduce the risk of internal disputes, companies should ensure that their Memorandum of Association and Shareholders’ Agreement work together and do not conflict with each other.

The Memorandum of Association should clearly define the authority of managers and directors, matters requiring shareholder or board approval, voting thresholds, share-transfer restrictions, and procedures for removing or replacing management. It should also include any agreed exit and succession arrangements.

Under Article 14(4)(a) and (b) of the Commercial Companies Law, as amended by Federal Decree-Law No. 20 of 2025, LLC partners and private joint-stock company shareholders may include sale rights and arrangements for a deceased owner’s shares in the Memorandum of Association or Articles of Association.

The amendments also permit LLCs to adopt different classes of shares with different voting, economic, dividend, redemption, and liquidation rights, subject to the applicable implementing rules. This gives investors and founders greater flexibility to structure preferred investment rights and management control.

Where the term of an LLC Board of Managers has expired, and the board is not reconstituted within the period permitted by law, the competent licensing authority may appoint a manager or Board of Managers from among the partners or other persons for up to one year. This makes it important for constitutional documents to include practical deadlock procedures, including notice periods, escalation steps, buy-out mechanisms, and valuation methods.

A Shareholders’ Agreement can provide further detail on matters that are not suitable for public constitutional documents, such as confidential information rights, funding obligations, valuation formulas, non-compete obligations, deadlock procedures, and exit arrangements. However, it should remain consistent with the Memorandum of Association and applicable UAE law.

Conclusion

Disputes over corporate governance are usually not the result of the absence of a legal structure, but because the ownership, the authority of management, decision-making, and dispute resolution mechanisms were never clearly defined. In addition to important rights and responsibilities, UAE law also imposes personal liability on shareholders, directors and managers where their powers are misused, or statutory duties breached.

Accordingly, companies should review their Memorandum of Association, Shareholders’ Agreement, management powers, related party transaction procedures and arbitration clauses before a dispute arises. Well-written governance documents, appropriate disclosures and well-defined approval processes can help protect the company, reduce shareholder/management conflict and provide a practical framework to resolve disputes when they arise.