Responsibility of partner and manager in limited liability companies

Harith Al-Kutubi Construction and Arbitration Partner

Limited liability companies identify the liability of the partner according to his share in the capital. This means that partners may not bear any of the company’s liabilities unless to the extent of their shares in the company – without their own funds or acting jointly.

The financial entity of the company is separate from the financial entity of its partners. Therefore, it is not allowed for any of the company’s creditors to make any claims from the partners.

It is established in the verdicts of the UAE courts, according to article 218 of the UAE Commercial Companies Law that a partner in a limited liability company shall not be held accountable for the company’s debts unless to the extent of his share in its capital. As an exception of this rule, the separation between the partner and the company’s liability is not aimed to be a cover or a means to do acts in breach of the company’s contract and to the detriment of other partners or creditors as long as such acts involve a kind of fraud  and deception or gross error. This means that in this case the rule of the partner’s liability to the extent of his share in the company should not be applied here, but he would rather be liable for his acts in his personal capacity, to the extent that such liability may have its effect on his own funds. Therefore, the company’s creditors may pursue him in his own funds and hold him accountable in his personal capacity for the company’s debts.

This also applies to the manager of the LLC, according to article 219 of the UAE Commercial Companies Law provides for the following “It shall be mentioned that the company is an LLC, along with the company’s capital. If this is ignored, he shall be personally liable in his own funds for the company’s liabilities in addition to damages”. This article in particular deals with the civil liability of the company’s manager. As for criminal liability of the manager, it is stipulated in article 322 of the Commercial Companies Law that “without prejudice to any stronger punishment in any other law, a punishment of no less than three months and no more than two years in jail and a fine of no less than ten thousand and no more than one hundred thousand Dirhams or any of these two punishments, to the manager or board member who intentionally mentions false statements in the budget or the profit and loss account, or intentionally omits substantial facts in such documents with an intention to hide the real financial position of the company”. Therefore, the manager is also liable to the company, partners and third parties for every breach of law, the company’s regulations or mistake in management.

So, before filing a case against any LLC, there should be a good planning and complete knowledge of the company’s conditions and the positions of the partners therein, in addition to reviewing all procedures and transactions done by all partners in the company towards third parties. It is necessary for the creditors of an LLC to prove the acts done by partners or the manager, including fraud, deception or gross mistake.

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Responsibility of partner and manager in limited liability companies

The financial entity of the company is separate from the financial entity of its partners. Therefore, it is not allowed for any of the company’s creditors to make any claims...

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