Managers’ liability in UAE limited liability companies

The new UAE Companies Law which came into effect from 1 July makes significant changes to the provisions governing a limited liability company (LLC). There is not much deviation from the old Companies Law in the provisions relating to the liability of a manager of an LLC. However, considering that most LLCs do not have a board of managers or directors and are generally managed by a single manager with wide decision-making powers and responsibilities, it is important to understand the relevant provisions regarding a manager’s liability.

Key provisions

Article 84 of the Companies Law states that every manager shall be liable to the LLC, the partners/shareholders and third parties for: (i) any “fraudulent acts”; (ii) any losses or expenses incurred due to “improper use of the power”; (iii) contravention of the provisions of any applicable law, the memorandum of association (bylaws) of the LLC or his/her employment contract; or (iv) any “gross error”. Article 162 of the Companies Law, containing similar provisions, makes a manager liable for an “error in management”.

Except the liability for gross error, the old Companies Law has similar provisions relating to the liability of a manager. While article 84 of the new Companies Law introduces the concept of liability for gross error, which potentially increases the liability threshold, article 162 continues to make a manager liable for an error in management.

Article 84 precludes the possibility of limiting a manager’s liability through the LLC’s memorandum of association or the manager’s employment contract. Article 84 states that any provision in the memorandum of association of the LLC or the employment contract in conflict with article 84 shall be deemed void.

James Bowden is a partner at Afridi & Angell, a UAE-based law firm with offices in Abu Dhabi, Dubai, the Dubai International Financial Centre and Sharjah. Saurbh Kothari is an associate at the firm.