A director or manager of a UAE company can face personal liability for breach of statutory duties, misuse of powers or certain conduct in financial distress. For mainland companies, the main framework is Federal Decree-Law No. (32) of 2021 on Commercial Companies, as amended by Federal Decree-Law No. (20) of 2025.
LLCs are generally managed by managers, while joint-stock companies have boards of directors. Article 84 extends the joint-stock director rules to LLC managers, subject to the LLC provisions.
What Directors Actually Owe the Company
Article 22 of the Commercial Companies Law requires a person authorized to manage a company to preserve its rights, exercise due care and diligence for the benefit of the company as expected from a prudent person, and act consistently with the company’s objectives and the authority granted to that person.
For LLC managers, Article 84 adds a specific liability rule. A manager may be liable to the company, its partners and third parties for fraud, improper exercise of powers, breach of applicable law, breach of the company’s Memorandum of Association or the manager’s appointment contract, or gross error.
Authority is central to director duties in the UAE. Directors and managers should know which decisions they may take and which require shareholder or General Assembly approval.
Duty of Care and Duty of Loyalty
The Commercial Companies Law does not use the standalone common-law labels “duty of care” and “duty of loyalty”. Article 22 instead imposes a prudent-person standard.
What is often described as a fiduciary duty under UAE company law is reflected in the requirement to act for the benefit of the company, together with the conflict-of-interest and related-party rules. Directors should not use their position or company information for an improper personal benefit.
Directors vs. Shareholders – Whose Interests Come First?
A company has legal personality separate from its shareholders. A director nominated by a shareholder should not assume that the shareholder’s instructions override the duties of the office. This is particularly relevant in joint ventures, family businesses and companies with a controlling shareholder, where shareholder and company interests may diverge.
For joint stock companies, Article 162 provides that directors and executive management may be liable to the company, shareholders and third parties for fraud, abuse of power and violations of the Commercial Companies Law or the company’s Articles of Association. Where a board resolution is passed by majority, a director who objects should ensure that the objection is recorded in writing in the minutes. Absence from the meeting does not automatically remove liability.
When Personal Liability Can Arise
Director liability in UAE companies is not triggered by every unsuccessful business decision. Personal exposure may arise from fraud, abuse or improper use of powers, gross error, breach of the company’s constitutional documents, undisclosed conflicts, prohibited related-party conduct or particular acts committed when the company is in financial distress.
Article 24 also prevents a company from using its constitutional documents to relieve a current or former officer from personal liability that would otherwise arise from the office.
Conflicts of Interest and Acts Outside Authority
For joint stock companies, Article 150 requires a director with a common or conflicting interest in a transaction submitted to the board to disclose that interest, have the disclosure recorded in the minutes and refrain from voting. Failure to disclose may allow the company or a shareholder to seek remedies through the court.
Article 152 contains further rules on related-party transactions, use of company information and competing activities. Transactions exceeding 5% of the company’s capital require General Assembly approval following the prescribed valuation process.
LLCs are subject to separate rules under Cabinet Resolution No. (77) of 2022. A related-party transaction exceeding 3% of the company’s capital must generally be submitted to the General Assembly for approval, while transactions below that threshold may be approved at management level, as applicable.
Directors and managers must also stay within their authority. For joint stock companies, Article 154 restricts certain transactions unless the necessary authority exists or a Special Resolution is obtained. For LLCs, the manager’s authority should be considered under Articles 83 and 84, together with the company’s Memorandum of Association and the terms of appointment.
Liability in Financial Distress
For companies within its scope, financial distress requires closer attention to both the Commercial Companies Law and Federal Decree-Law No. (51) of 2023 Promulgating the Financial Restructuring and Bankruptcy Law.
For an LLC, Article 308 requires the managers to put the question of dissolution before the partners at a General Assembly if losses reach 50% of the company’s capital. Joint stock companies are subject to the separate procedure in Article 309 where cumulative losses reach half of the issued capital.
Article 246 of the Bankruptcy Law creates a route to personal liability after a company is declared bankrupt. The Bankruptcy Court may order directors, managers or persons responsible for actual management to pay an amount proportionate to the error attributed to them for specified conduct during the two years before cessation of payment.
This includes unassessed commercial risks used to avoid or delay bankruptcy proceedings, disposals without adequate consideration, preferential payments intended to harm other creditors, and management failures contributing to assets being insufficient to cover at least 20% of debts. A person who proves a written reservation to the act is exempt from liability for it.
Does Liability Differ by Company Structure?
Yes. The applicable framework depends on the company’s legal form and place of incorporation. Mainland companies, free zone entities and offshore companies may be subject to different corporate governance rules, director duties and liability provisions, so the relevant regime should be identified before assessing potential exposure.
Mainland, Free Zone, and Offshore Considerations
Mainland companies are generally governed by the Commercial Companies Law. Free zone companies require a separate check because Article 5 excludes matters specifically governed by the relevant free zone rules. DMCC, for example, has its own Company Regulations and Officer Rules.
DIFC and ADGM companies are subject to their own company-law frameworks. Offshore structures must likewise be checked against the relevant authority rules; RAK ICC, for example, has separate Business Companies Regulations governing director duties.
Practical Governance Steps That Reduce Risk
Good governance is most useful when it creates a clear record of how a decision was reached. Directors and managers should:
- check the company’s Memorandum and Articles of Association, appointment terms and delegated authorities before approving material transactions;
- ensure board and shareholder resolutions record the decision, supporting information, conflicts disclosed and any dissent;
- disclose personal and related-party interests before the relevant decision and follow the required approval process;
- maintain reliable financial information and monitor losses, liquidity and other signs of financial distress;
- document delegations through appropriate resolutions or powers of attorney and define their limits; and
- check whether free zone, regulatory or sector-specific rules impose additional governance requirements.
For companies reviewing ownership, board powers or decision-making structures, corporate structuring and restructuring should be considered together with the statutory duties of the people who will manage the company.
Director Duties Are Not Just Formalities
The board of directors’ obligations in the UAE carry real consequences. The Commercial Companies Law sets standards for care, authority, conflicts and management liability, while the Bankruptcy Law can create additional exposure when serious financial problems arise.
The practical starting point is to identify the correct legal regime, confirm who has authority to make the decision and keep a proper record of the information and approvals supporting it. This is particularly important for related-party transactions, shareholder conflicts, major asset transactions and companies approaching financial distress. Kisser Legal’s commercial lawyers in Dubai and the UAE advise businesses, directors and shareholders on corporate governance, board authorities and director liability. To have your company’s governance arrangements or director protections reviewed, contact Kisser Legal.