The legal framework around economic activities differs from one jurisdiction to another in the UAE. In this column, we will explore the legalities surrounding an LLC management structure. Limited liabilities are the most common types of corporate orders.
What is a Limited Liability Company (LLC)?
An LLC is a type of business structure which is permitted by the state law. Such kind of organizational order has been created to limit the personal liability of the owners (like in a corporation). Additionally, this allows businesses to be taxed like a partnership. The owners of such businesses are called members, similar to shareholders in a corporation.
Why an LLC management structure?
Whether you are about to start a business or have been operating as a sole proprietor or a partnership, you might wonder: How do I know if I need a limited liability?
When choosing the form of your business’ organisation, various considerations come into play. These are, personal liability, ownership, and management, cost of forming and registering the business, and taxation.
Reasons you might prefer limited liabilities
Limiting your personal liability for business debts. With an LLC management structure, only the assets owned in the name of the limited liabilities are subject to the claims of business creditors, including lawsuits against the business. The personal assets of the LLC members cannot be taken over to satisfy business debts. For most people, this is the most important reason to choose an LLC management structure.
- Raising capital from investors. This can be done by bringing in other members who contribute funds, property, or services to the business.
- Tax advantages. There is usually no separate tax levied on a limited liability itself, as there may be with a corporation. LLC profits or losses are generally passed on to the members, as in the case of partnerships.
Forming an LLC
The formalities for forming a limited liability varies from one Emirate to another. Generally, you would create an LLC operating agreement setting forth the rights and duties of the members and managers (similar to articles of incorporation).
Responsibilities of the manager in LLC Company
It is necessary that the person heading an LLC management structure should be within the following limits:
2. The limited liability’s Memorandum of Association (MoA)
3. Any specific agreement regulating the relationship between the responsible manager and the company, such as a work agreement
Therefore, it when the responsible manager in the limited liability company is bound by the laws and regulations, in addition to the company’s MoA, then in the event of a breach or violation of his duties and / or committing any act involving fraud, deception, or gross misconduct, he / she will be personally responsible to the company, partners or shareholders, and others.
What the law states
Article 22 of the UAE Commercial Companies Law, affirms that, “A person authorized to manage the company shall preserve its rights and extend such care as a diligent person. Such person shall do all such acts in agreement with the objective of the company and the powers granted to such person by virtue of an authorization issued by the company in this respect.”
Moreover, the director can get into contracts with others, without obtaining permission from the board of directors, if he is granted these powers. It should outline the basic internal documents of the company, Specifically, the company’s MoA and the limits within which it can act.
The manager’s name is usually mentioned in the commercial registry / trade license. Given the fact that the director is in the first place the reference point for the company in the business world, he / she is generally authorized by power of attorney issued by the shareholders of the company or by the company’s MoA. In some cases, exceeding the authority granted to the director may render the director, or the limited liability itself, subject to legal accountability, depending on the nature of the manager’s actions.
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Head of Legal & Tax Department