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Resolving Shareholder Disputes in UAE LLC: Causes and Solutions | BSB Legal

In the United Arab Emirates (UAE), Limited Liability Companies (LLCs) are regulated by the UAE Federal Law No. 2 of 2015 on Commercial Companies (the “Companies Law”), which outlines the provisions and Resolving Shareholder Disputes in UAE LLC. The Companies Law provides the legal framework for resolving disputes among shareholders, with further guidance available in the UAE Civil Procedure Law and the Memorandum of Association (MoA) of the specific LLC.

Following are some common causes of Shareholder Disputes

1. Shareholders may have contrasting goals and visions for the company’s future, whether related to expansion, investment decisions, or market strategy. These differences can lead to conflicts as each party seeks to impose their ideas, hindering effective decision-making.

2. Shareholders may accuse one another or the company management of mismanagement, financial improprieties, or breach of fiduciary duties. Disputes arising from these allegations jeopardize trust and pose a threat to the company’s reputation and sustainability.

3. Unequal distribution of profits can lead to disputes, especially when some shareholders believe they are not receiving their fair share or witness a lack of transparency in financial operations. This can fuel resentment and suspicions.

4. Discrepancies can emerge over matters of corporate governance, such as board elections, executive appointments, or alteration of articles of association or memorandum of association. These disputes can arise when shareholders believe their interests are not being adequately represented or that decisions are being made against their will.

Here are some specific legal provisions and regulations governing shareholder disputes in LLCs in the UAE:

1. Shareholders in LLCs are encouraged to establish binding agreements among themselves, known as Shareholder Agreements, to address potential disputes and define dispute resolution mechanisms. These agreements typically specify the procedures for dispute resolution, including arbitration or court proceedings.

2. The Companies Law states that an LLC should have a Board of Directors, comprising a minimum of three members (unless otherwise provided in the MoA). The Board has the authority to manage the company’s affairs, resolve disputes, and make decisions in the best interest of the business.

3. Before resorting to litigation, UAE law requires disputing parties to attempt mediation as a mandatory first step for resolving disputes. The Companies Law encourages parties to find mutual agreement through a mediator registered with the UAE courts.

4. If mediation fails, arbitration is often chosen as the preferred method of dispute resolution. The UAE Federal Law No. 6 of 2018 on Arbitration (“Arbitration Law”) provides the legal framework for arbitration proceedings, whether domestic or international. Parties can agree to arbitration in their Shareholder Agreements or by mutual consent after the dispute arises.

5. In certain cases, shareholders may resort to litigation to resolve disputes. The UAE Civil Procedure Law regulates court proceedings, including jurisdiction, filing requirements, evidence submission, and trial procedures. Court judgments are enforceable, but litigation can be a lengthy and costly process.

6. In extreme cases, if the dispute cannot be resolved, shareholders may consider dissolving the LLC. The Companies Law provides provisions for the judicial dissolution of an LLC, typically requiring a court order based on valid reasons like a deadlock or inability to operate.

It’s crucial to note that specific provisions and regulations may vary depending on the emirate in which the LLC is registered. Furthermore, seeking legal advice from a qualified attorney in the UAE is highly recommended for a comprehensive understanding of the specific legal provisions and Resolving Shareholder Disputes in UAE LLC and its shareholder disputes. For a the precise legal provisions and Resolving Shareholder Disputes in UAE LLC, it is strongly advised to get legal counsel from an experienced attorney visit for more.