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How Can a Company Partner Be Removed in UAE? What Are the Legal Grounds And Processes?

A comprehensive guide to judicial precedents and financial entitlements

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Pavitra Shetty

Published on June 15, 2024, 11:04:20

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United Arab Emirates removal partner company governed specific

In the United Arab Emirates, the removal of a partner from a company is governed by specific legal provisions. This process, while feasible, is not straightforward and requires adherence to particular conditions outlined in the law.

Legal Grounds for Removal Under Article 677

According to Article 677 of the Civil Transactions Law, the removal of a partner can be initiated by the majority of the partners. They may apply to the court for the exclusion of any partner if their request is based on serious grounds that justify such exclusion. This indicates that the reason for removal must be substantial.

A partner also has the right to request retirement from the partnership if the duration of the partnership is fixed. In such cases, the partner must provide adequate reasons for their request to the court, which then has the authority to authorise the retirement.

Judicial Precedents and Higher Court Decisions

The Higher Court of Dubai, in its decision No. 260/2011 of Civil Cassation, has reinforced the difficulty of removing a partner from a limited liability company.

The court ruled that as long as the company remains in existence and the partner maintains their shares, it is not permissible to remove the partner because their relationship with the company and the other partners is not based on personal considerations.

Furthermore, the court noted that a company is not harmed by a partner simply because they own shares in it. The partner's liability arises only if they are involved in the company's management and cause damage in that capacity.

Hence, the decision to remove a partner rests entirely on the discretion of the trial court and is contingent upon the presentation of serious and justifiable reasons.

Entitlement to Salaries for Partner-Directors

Regarding the financial entitlements of a partner who is also a director, the conditions for claiming salary allowances depend on the company's Memorandum of Association (MoA) and any separate labour contracts.

If the salaries are stipulated in the MoA, the partner-director is entitled to claim these salaries for a period of two years through the civil courts.

However, if the salaries are agreed upon in a separate labour contract, the partner-director can claim the salaries for the last year only, and this claim must be pursued in the labour courts.

Removing a partner from a company in the UAE involves navigating complex legal provisions and judicial precedents. Article 677 of the Civil Transactions Law provides a framework, but the process requires substantial justification and is subject to the discretion of the court.

Additionally, the financial claims of partner-directors depend on specific agreements within the company's founding documents or separate contracts.

Understanding these nuances is crucial for partners and directors in managing their legal and financial rights within the corporate structure of the UAE. 

For any enquiries or information, contact ask@tlr.ae or call us on +971 52 644 3004Follow The Law Reporters on WhatsApp Channels.

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