Operating a company in the UAE is not just about signing contracts, approving payments and growing revenues. Directors, managers, CEOs and authorised signatories may be personally liable if they act outside their authority, contravene the law or cause loss to the company, its partners, shareholders, creditors or third parties.
There is a lot of misconception regarding the phrase director liability in the UAE. A company is generally treated as a separate legal person, and thus its liabilities and obligations are usually separate from those of its directors or managers. But this protection is not assured. You could be held personally liable for fraud, abuse of authority, gross negligence, conflict of interest or breach of legal duties.
For directors and business owners, understanding these risks is an important part of responsible company management.
When Can a Director or Manager Become Personally Liable?
The main legal framework is Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended. The law distinguishes between company forms, but the underlying principle is clear: a person managing a company must act properly, within their authority, and in the interests of the business.
For a limited liability company, Article 84 provides that a manager may be liable to the company, its partners, and third parties for fraudulent acts, improper use of powers, breach of the law, breach of the company’s memorandum of association, breach of the manager’s appointment terms, or gross error.
This means that simply holding the title of manager does not create personal liability. The risk usually arises from the manager’s conduct.
For joint stock companies, Article 162 similarly makes directors and executive management liable to the company, shareholders, and third parties for fraud, abuse of authority, and violations of the Companies Law or the company’s articles of association.
Misuse of Authority
A common risk is where a director or manager acts beyond the authority conferred under the company’s constitutional documents, board resolutions, power of attorney or internal approval procedures.
For example, a manager may enter into a major contract, provide a guarantee, transfer company assets, or approve a substantial payment without the approvals required by the memorandum of association or internal policies. If the transaction was done to help the company, the manager might be questioned if they acted outside of their authorised powers.
Company managers should not assume that a trade licence or position title gives unlimited authority. The memorandum of association, shareholder resolutions, board resolutions, and bank mandates should be reviewed carefully before major decisions are made.
Fraud, Dishonesty, and Misrepresentation
Fraud is among the most common bases for personal liability. This may involve the creation of false invoices, the concealment of company funds, the provision of misleading financial information, the transfer of assets without authority, or the entering into transactions for personal benefit.
A director may also face exposure where they make representations to suppliers, investors, banks, or customers that they know are untrue. For instance, giving false assurances about the company’s financial position or payment ability may create serious legal consequences.
A company structure cannot be used as a shield for dishonest conduct. Where personal wrongdoing is established, claims may be brought directly against the responsible individual.
Conflict of Interest and Undisclosed Personal Benefit
Conflicts of interest are particularly important for directors and senior managers. Article 150 of the Companies Law requires a director of a joint stock company to disclose any direct or indirect interest in a transaction presented to the board. The director must not vote on that transaction.
Failure to disclose can have serious consequences. The company or a shareholder may seek to invalidate the transaction or require the director to return any profit or benefit gained from it.
A conflict may arise where a director is connected to a supplier, customer, contractor, competitor, or another business involved in a company transaction. Even where the transaction appears commercially reasonable, disclosure and proper approval remain important.
Article 152 prohibits related-party transactions and abuse of company information. It requires disclosure of interests and bans board members from competing or using company information without the general assembly’s approval.
In practice, directors should disclose potential conflicts early, ensure that the disclosure is recorded in writing, and avoid taking part in the approval process where required.
Competing With the Company
A manager should not use their position to build or benefit from a competing business. Under Article 86, an LLC manager cannot manage a competing company or carry out competing business for their own benefit or for another person’s benefit without approval from the general assembly.
This can become relevant where a manager diverts customers, uses the company’s supplier contacts, copies its pricing strategy, takes confidential information, or channels opportunities to another business.
This could mean dismissal and a claim for damages. It can also damage the relationship between partners, especially in owner-managed businesses where the company’s operations are based on personal trust.
Board Decisions and Written Objections
Directors of a joint stock company may be liable for a decision taken by the board which causes loss. Article 162, however, does allow a director who has a genuine disagreement with a decision to escape liability if his objection is recorded in writing in the minutes of the meeting.
This is an important practical point. A director who disagrees with a risky decision should not remain silent. Their objection should be clear, specific, and properly recorded.
Simply being absent from a meeting may not always protect a director. The law may still examine whether the person knew about the decision and had a reasonable opportunity to object.
Mrs Awatif Al Khouri often points out that the majority of disputes related to directors’ liability result from informal business practices rather than intentional wrongdoing. A transaction may begin as a quick favour, an undocumented arrangement, or a decision made without proper approvals. When a dispute springs up years later, the absence of records and clear authority can pose a real problem.
Conclusion
In the UAE, director liability does not mean every bad business decision leads to personal exposure. Commercial risk is a part of being in business. But directors and managers can be personally responsible for fraud, abuse of authority, undisclosed conflicts, serious misconduct or failure to comply with legal and company obligations.
The trick is to see the position as one of responsibility, not just power. Clear approvals, accurate records, early disclosure, and careful financial oversight can go a long way toward minimising the risk of dispute.
Mrs Awatif Al Khouri emphasises that good corporate governance is not just for big companies. It is also crucial for small and medium-sized enterprises, where transparency, accountability and clear frameworks can do wonders for sustainability, investor confidence and long-term success.
