A director in the UAE is a person within a company’s structure, while the manager can be assigned as per the decision of a director. A manager, on the other hand, might be considered an alternative to a director, however, the two roles are not precisely the same. In this article, we will outline the responsibilities of a director and manager in a UAE company. 

Legislation framework for director’s liabilities in the UAE

It is important to note that the legislative framework, which defines the director’s responsibility in the company, is enacted from multiple diversified sources. There is no unified law, which points out all liabilities and duties of a director. Several examples of sources, enlisting a director’s duties are Federal Law No. 2 of 2015 on Commercial companies, Federal Law No. 18 of 1993 on The Commercial Transaction Law, and Federal Law No 5 of 1985 on the Civil Transactions.  

Moreover, each of 40+ Free Zones in the UAE has its own legislation, outlining the director’s responsibilities. For instance, Dubai International Financial Center (DIFC) laws are primarily, and Abu Dhabi Global Market (ADGM) laws are entirely based on UK legislation. While the director's duties are listed in Chapter 9 of DIFC Companies Law No. 5 of 2018, duties of directors in ADGM law are listed in Companies Regulations 2015.

It is pertinent to note that the articles examine and are limited to the extent of laws about limited liability companies (LLC) in the UAE.

Duties of the director

It is an essential step to specify the mandatory occupations such as director and manager, and sometimes (but not compulsory), a secretary when opening a new company in the UAE. In other words, to form the corporate structure of the company: the owner refers to the shareholder(s), mandatory occupations refer to the director(s), and manager. Most of the time, the shareholder of the company undertakes positions of director, manager, and secretary as a single person. These are mandatory structural positions (excluding the secretary), that are not the same as those for which the owner could hire employees.

As mentioned earlier, the liabilities and powers of the director are derived from a combination of UAE laws (Federal Laws No. 2 of 2015; No. 18 of 1993; No 5 of 1985), including resolutions of the shareholder(s), company’s Memorandum of Association (MOA), Article of Association (AOA). The responsibilities of the director can be both civil and criminal. Criminal responsibilities are enlisted in the Federal Law No. 3 of 1987 on The Penal Code.

The UAE’s Federal Law No. 2 of 2015 on Commercial companies categorizes the director’s duties and liabilities into two key categories:

• General Duties and liabilities, applicable to the director’s in all commercial companies
• Specific Duties and liabilities. Depending on the legal form of the company, this category applies to specific managers and directors.

General duties of a director

Annual reports preparation

When registering a company in the UAE, each financial year the company's balance sheet and profit and loss account must be prepared in accordance with International Accounting Standards. It is the responsibility of the directors to prepare the annual accounts and to ensure their accuracy.

Confidentiality

A director is prohibited from using or disclosing the company's private information or attempting to damage the company's business. If a director violates this prohibition, he may be imprisoned for up to six months and/or fined not less than AED 50,000.

The liability of a director against third parties

Upon registering a company in the UAE, if a director is found to have committed fraudulent acts, a claim can be filed against him by the company and/or shareholders to hold him liable. The director must also be held liable against third parties.

Conflict of interests

A director shall not participate in any business which competes with the business of the company unless he has obtained the approval of the shareholders of the company. Additionally, he does not have a right to vote on any resolution, where he has a direct or indirect interest, and must disclose details of such interest in a written form to other directors.

Company’s solvency

If a company's loss exceeds 50% of its share capital, directors are required to notify shareholders who may consider liquidating the company. If losses exceed 75% of the company's share capital, shareholders with more than 25% of the company may request a liquidation.

Director's liability in case of insolvency

Upon registering a company in the UAE, in addition to the director's general obligations to the company, the director may also be subject to civil and criminal liability if the company is insolvent and unable to meet its financial obligations. If the company proves unable to pay its debts, the Commercial Transactions Act provides that the director must declare bankruptcy within 30 days of the date of suspension. Failure to take such action could result in the director being treated as personally liable for any possible impending bankruptcy.

The Commercial Transaction Law and The Penal Code. contain several provisions concerning how courts should deal with insolvent companies and their directors. Particularly important in this respect is Article 882 of the Commercial Transactions Law, which provides that director(s) may be subjected to imprisonment in the following cases:

• Director(s) failed to provide the necessary detail in the company's books and records to reflect the true financial position of the company.
• Director(s) have sold company assets for less than their value in order to delay payment of debts or to declare bankruptcy of the company, or if the directors have taken any action to obtain credit or funds illegally in order to achieve the above purposes.
• The company is no longer able to pay its debts, and the directors pay a debt to some creditor to the detriment of other creditors or provide security, special advantages to some of the creditors to the detriment of others.
• Director(s) failed to provide the information required by the court or trustee in bankruptcy, or if they knowingly provided false information.
• The company is no longer able to pay its debts, and the directors began to take some action with the company's property in order to keep such property out of the reach of creditors.

Permitted time for resignation

When a company is incorporated, the Civil Code also imposes on directors the responsibility regarding their resignation. A director may only resign at a time at which such resignation would not be detrimental to the company.

General duties of a manager

If, for example, a director is eligible to amend the company’s name, and add or remove the activity(ies), the manager does not hold such power. A manager is a person, who can act as a signatory in banks, labor, and migration disputes, he is supreme over the company’s employees: HRs, PROs, secretaries, and monitors day-to-day operations. 

In some cases, the manager might be legally liable for a company’s unlawful activities, regardless of the fact that the legislation does not consider taking measures against the manager in particular. The government might enforce the law and condemn the manager for imprisonment. Another example is when a company was not noticed in any unlawful actions, however, decided to discontinue complying with the office rental agreement, ignoring all payment reminders from a Free Zone. The manager was liable in this case, although his name was not mentioned in the rental agreement. 

Thus, the responsibilities of a director and manager are comprehensive. The manager role might be perceived as the field staff at first glance, however, it is important to note that the Government might enforce the law in particular situations, making the manager the liable person for a company’s actions. 

If you would like to have advice or assistance with opening a company in the UAE, please contact us.

Marsel Shadmanov

Head of Corporate Services at Garant Business Consultancy DMCC

Phone +971 4 421 4335

Email info@garant.ae