TRW & Co · Corporate & Commercial
Directors' Duties and Liability in the UAE
Directors' duties in the UAE decide when managers, board members and executives become personally liable. Onshore, the Commercial Companies Law imposes liability for fraud, abuse of power, breach of law and gross error; the DIFC and ADGM apply English-style duties. Insolvency, related-party deals and dividends are where the risk usually crystallises.
Key pointOnshore, any clause exempting an officer from personal liability is void, and only a dissent recorded in the minutes protects a board member from liability for a majority decision.
At a glance
LLC manager liability
Article 84 makes LLC managers liable for fraud, abuse of power, breach of law or the memorandum, and gross error; conflicting contract clauses are void.
Board collective liability
Under Article 162, all board members are liable for unanimous decisions; a dissenting member is protected only if the objection is recorded in the minutes.
Related-party approvals
Joint stock company transactions with related parties need board approval up to 5% of capital and general assembly approval above that.
Two-year insolvency look-back
The bankruptcy law lets courts order directors and managers to contribute to debts for errors in the two years before cessation of payments.
Common-law duties offshore
DIFC and ADGM directors owe codified duties, including promoting the company's success, independent judgement and reasonable care, skill and diligence.
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What directors' duties in the UAE cover
Directors' duties in the UAE are the legal obligations owed by the people who run a company: the managers of a limited liability company, the board members of a public or private joint stock company, senior executives, and directors of DIFC and ADGM entities. They govern how decisions are made, how conflicts are handled and when a director becomes personally liable to the company, its shareholders, its creditors or the state.
The rules differ sharply by jurisdiction. Onshore and in most free zones, liability flows from the Commercial Companies Law, the bankruptcy law and the criminal provisions of both. In the DIFC and ADGM, English-style statutory duties apply, enforced by common-law courts. Many groups have directors sitting in all three systems at once.
Duties usually become a live question at predictable moments: a related-party transaction, a dividend while the business is under pressure, a sale of the company, a regulator's enquiry, a falling-out between shareholders, or a cash crisis. Understanding the rules before those moments arrive is cheaper than reconstructing a defence afterwards.
The onshore legal framework for directors' duties in the UAE
The core statute is Federal Decree-Law No. 32 of 2021 on Commercial Companies, amended in October 2025 by Federal Decree-Law No. 20 of 2025. It does not list duties in the English style. Instead it defines the conduct that creates liability and voids attempts to contract out of it. The Ministry of Economy and Tourism supervises private companies, and the Capital Market Authority (which replaced the Securities and Commodities Authority on 1 January 2026) supervises public joint stock companies.
Liability of LLC managers
Under Article 84, every LLC manager is liable to the company, the partners and third parties for fraud, and for losses caused by abuse of power, breach of any applicable law, the memorandum of association or the appointment contract, or gross error. Any clause in the memorandum or appointment contract that conflicts with this is void. Article 84 also applies the joint stock company board rules to LLC managers, subject to the LLC provisions.
Article 86 prevents a manager from managing a competing company or trading in a competing line of business without general assembly approval, on pain of dismissal and compensation. Article 87 requires the manager to prepare the annual accounts and a report within three months of year-end. The court may dismiss a manager on a partner's application where justified (Article 85).
Liability of joint stock company boards and executives
Article 162 makes board members and the executive management liable to the company, shareholders and third parties for fraud, abuse of power and breaches of the law or the company's statute. Executive management covers the chief executive, general manager and their deputies and senior officers appointed by the board. Where a decision is unanimous, all members are liable; a dissenting member escapes liability only if the objection is recorded in the minutes. Absence is no defence unless the member did not know of the decision or could not object.
A court finding of fraud, abuse of power or a prohibited conflicted transaction leads to automatic removal and a bar of at least three years from standing for any joint stock company board or executive role. Article 24 voids any provision in a company's constitution that exempts a current or former officer from personal liability.
| Topic | Rule | Article |
|---|---|---|
| Conflict of interest | Board member must disclose a joint or conflicting interest, record it in the minutes and not vote; otherwise the contract can be annulled or profits returned | 150 |
| Related-party transactions (JSC) | Board approval up to 5% of capital; general assembly approval above that, after valuation | 152 |
| Competing business | No competing activity without general assembly approval, renewed annually for JSC directors | 86 (LLC), 152 (JSC) |
| Loans to directors (JSC) | Loans, guarantees and security for board members and close relatives are prohibited, outside Central Bank-regulated institutions | 153 |
| Board seats (JSC) | No more than five JSC boards in the UAE, chair or vice-chair of no more than two, managing director of one | 149 |
| Board remuneration (JSC) | Capped at 10% of net profit after depreciation and reserves | 171 |
| Exemption clauses | Constitutional provisions exempting officers from personal liability are void | 24 |
Directors' duties in the DIFC and ADGM
The financial free zones codify duties on the English model. The DIFC Companies Law (DIFC Law No. 5 of 2018) and the ADGM Companies Regulations 2020 each require a director to act within powers, promote the success of the company for the benefit of its members, exercise independent judgement, use reasonable care, skill and diligence, avoid conflicts of interest, not accept benefits from third parties and declare interests in proposed and existing transactions.
The duties are owed to the company, so the company is the primary claimant; shareholders can bring derivative claims in defined circumstances and unfair prejudice petitions where the company's affairs are conducted against their interests. ADGM voids provisions that exempt or indemnify directors against liability for negligence, default or breach of duty, with carve-outs for insurance and qualifying third-party indemnities. ADGM's Registrar can also seek disqualification orders, including for participation in wrongful trading.
Disputes go to the DIFC Courts or the ADGM Courts, which apply common-law principles and published precedent. That predictability is one reason investors favour DIFC or ADGM holding companies above onshore operating subsidiaries, but it also means directors of those holding companies should expect English-style scrutiny of their decision-making. Our pages on DIFC Courts proceedings and ADGM Courts proceedings explain the procedure.
Onshore law asks whether a director committed fraud, abused power, broke the law or the constitution, or made a gross error. DIFC and ADGM law asks whether the director met positive duties of care and loyalty. A decision that is defensible onshore can still breach the DIFC or ADGM duty to promote the company's success, so group directors should apply the stricter standard.
Who can enforce directors' duties in the UAE
Onshore enforcement of directors' duties in the UAE has four routes. The company can sue its board under Article 165, after the general assembly appoints a representative. An individual shareholder harmed by a breach of the law can sue the company, board and executives under Article 166 and, unless the claim is vexatious, recover legal costs from the company. Shareholders holding at least 10% can bring a derivative claim against a related party under Article 167, after asking the board to act and waiting 30 days.
In joint stock companies, holders of 5% or more can also apply to the regulator under Article 164 where the company's affairs are being conducted to the shareholders' detriment, with a route to court if the regulator rejects the application or does not decide within 30 working days.
Timing matters. A general assembly discharge does not prevent a liability claim. Where the act was presented to and approved by the general assembly, the claim is time-barred one year after that meeting; criminal conduct is barred only when the criminal action is. Shareholder disputes frequently turn on these provisions; see shareholder disputes in the UAE.
A clean general assembly discharge is not immunity. Directors' duties in the UAE survive the vote, and full disclosure is what starts the one-year clock.
Insolvency and criminal exposure
Personal exposure rises sharply when a company approaches insolvency. Under Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy, in force since 1 May 2024, the court can order board members, managers, de facto managers and liquidators to contribute to the company's debts where assets are insufficient and their errors in the two years before cessation of payments contributed to the loss. The debtor should apply for preventive settlement or bankruptcy within 60 days of ceasing payments (Article 15); a late application is still admitted, but late filing weakens the board's defence.
The Commercial Companies Law adds its own triggers. If an LLC's losses reach half of its capital, the managers must refer the question of dissolution to the general assembly (Article 308). In a joint stock company, the board must call a general assembly within set periods once accumulated losses reach half of issued capital (Article 309). Ignoring these triggers is a common source of later claims. Our insolvency and bankruptcy page covers the procedures.
Criminal liability is real. The Commercial Companies Law punishes false statements in constitutional documents and prospectuses, distributing profits in breach of the law, concealing the company's true financial position, prohibited loans to directors, disclosure of company secrets and participation in price manipulation, with imprisonment and fines. Corporate offences under the law are attributed to the company's legal representative. The AML law, Federal Decree-Law No. 10 of 2025, adds exposure for directors where offences are committed through the company. See white-collar crime and investigations.
A defensible board process: step by step
The best protection is a decision-making process that can be shown to a court or regulator. For any significant or conflicted decision, the following sequence works across onshore, DIFC and ADGM entities.
- Confirm authority. Check the memorandum, articles, any delegation-of-authority matrix and shareholders' agreement to confirm that the board or manager has power to decide and whether shareholder consent is needed.
- Identify conflicts early. Ask every director to declare interests before papers are circulated. Conflicted members disclose in writing, have the declaration minuted and do not vote, as Article 150 requires for joint stock companies.
- Obtain information and advice. Circulate papers with enough time to read them. For material, related-party or insolvency-adjacent decisions, commission independent valuation, legal or financial advice and record that it was considered.
- Deliberate and record dissent. Minutes should show the options discussed, the reasons for the decision and any objection by name. Under Article 162 only a recorded objection protects a dissenting director.
- Obtain shareholder approval where required. Refer related-party transactions above the 5% threshold, competing activities and dissolution questions to the general assembly, with full disclosure so that any ratification is effective.
- Implement and monitor. Assign responsibility for execution, set reporting dates and revisit the decision if circumstances change, particularly where solvency is tight.
Documents and records to keep
Disputes about directors' duties in the UAE are decided on the record. Make sure the following are complete and accessible, including after a director leaves:
- Appointment letters or contracts, and the memorandum or articles defining the director's powers
- Board and committee minutes, papers and written resolutions, with declarations of interest
- General assembly minutes, including approvals of related-party transactions and discharge resolutions
- Delegation-of-authority policies and evidence of compliance
- Annual accounts, management accounts and solvency analyses supporting dividends and major commitments
- Professional advice obtained on material decisions
- D&O insurance policies, indemnity letters and run-off arrangements
- Correspondence with regulators, auditors and lenders on significant issues
Departing directors should negotiate access to these records in their exit terms; claims often arrive after a change of control, when the new owners hold the files.
Risks and common mistakes
Relying on an exemption or indemnity clause
Onshore, Article 24 of the Commercial Companies Law voids any constitutional provision exempting a current or former officer from personal liability, and Article 84 voids conflicting clauses in an LLC manager's appointment. ADGM similarly voids exemptions and indemnities for negligence or breach of duty, subject to carve-outs. Directors should therefore not assume that a generous indemnity in the articles will protect them. D&O insurance, carefully reviewed for exclusions and jurisdiction, and a well-documented decision process are more reliable protections.
Nominee or 'sleeping' directors
Some directors accept a seat as a favour to a shareholder or as a legacy of the old local partner model, without attending meetings or reading papers. Under Article 162 absence is not a defence unless the director did not know of the decision or could not object, and the bankruptcy law extends contribution claims to anyone involved in management. A director who cannot commit time should resign properly, notifying the authority, rather than remain on the register.
Paying dividends or insiders when the company is stretched
Distributing profits in breach of the law is a criminal offence for managers and board members, and payments to related parties in the run-up to insolvency are prime targets for challenge. The danger is greatest in owner-managed businesses where shareholder and director roles blur. Before any distribution or insider payment, test solvency on a realistic basis, including contingent liabilities such as tax audits and warranty claims, and minute the analysis.
Approving related-party deals informally
Group companies often contract with each other or with shareholders' businesses without formal approval. For joint stock companies, Article 152 requires board approval up to 5% of capital and general assembly approval above that, with disclosure of the related party's interest. LLC managers are subject to the same board rules through Article 84. Informal approval leaves the transaction open to annulment and the directors open to claims for profits.
Assuming DIFC or ADGM standards match onshore rules
Directors of a DIFC or ADGM holding company with onshore subsidiaries sometimes apply the onshore liability test to all entities. But the financial free zones impose positive duties, including the duty to promote the company's success and to exercise independent judgement. A director who simply follows a shareholder's instructions may breach the duty of independent judgement even if no fraud or abuse of power is involved. Apply the stricter standard group-wide.
Cross-border directors and group structures
Many UAE companies have directors who live abroad or sit on boards in several countries. A director of a UK parent and its UAE subsidiary owes duties under the UK Companies Act 2006 to the parent and under UAE law to the subsidiary, and the two can conflict where the subsidiary is solvent but the group is not. Singapore's Companies Act and Bangladesh's Companies Act 1994 impose their own duties, and Indian and Saudi law each have distinct regimes.
Practical problems recur: intra-group guarantees approved by a UAE board without corporate benefit analysis, cash sweeps that leave a UAE subsidiary unable to pay local creditors, and directors who sign UAE documents abroad without proper notarisation. Each can engage directors' duties in the UAE and lead to personal exposure even where the decision was made at group level.
Before a director accepts a UAE board seat, check the entity's jurisdiction, its solvency, its D&O cover and whether its constitution gives the board real authority. Groups planning reorganisations should coordinate with our corporate restructuring and corporate governance teams.
How TRW & Co helps
We advise boards, individual directors and shareholders on directors' duties in the UAE across mainland, free zone and DIFC and ADGM entities. Where representation before UAE onshore courts or the DIFC/ADGM Courts is required, we work alongside locally licensed advocates and registered practitioners.
Board advisory
We advise on significant decisions, conflicts and related-party transactions, prepare board papers and minutes, and help directors build a defensible record.
Director onboarding and exit
We review appointment terms, constitutional powers, D&O insurance and indemnities before a director joins, and negotiate resignation, record access and run-off cover on exit.
Distress and insolvency advice
When cash is tight, we explain the losses-to-capital triggers, the bankruptcy filing obligations and how to avoid contribution claims, and coordinate with restructuring advisers.
Investigations and claims
We investigate suspected breaches, advise companies and shareholders on claims under Articles 162 to 167, and coordinate litigation strategy with local advocates.
Governance frameworks
We draft delegation-of-authority matrices, conflict-of-interest policies and committee charters that reflect both onshore rules and DIFC or ADGM duties.
Regulatory enquiries
We support directors facing enquiries from the Ministry of Economy and Tourism, the Capital Market Authority, the DFSA, the FSRA or licensing authorities, including document production and interviews.
For background, read our guide to directors' and managers' personal liability, browse our practices, or contact our Dubai team.
Checklist for decision-makers
- Do you know which law governs each board you sit on: onshore, a commercial free zone, the DIFC or ADGM?
- Are your powers and any limits clearly set out in the memorandum, articles and a delegation-of-authority matrix?
- Are conflicts declared in writing and minuted, with conflicted directors abstaining?
- Are related-party transactions approved at the right level, including general assembly approval above 5% of capital for joint stock companies?
- Does the board monitor losses against the half-of-capital trigger and solvency more generally?
- Are dissenting views recorded by name in the minutes?
- Is D&O insurance in place, with exclusions and territorial scope reviewed?
- Will you retain access to board records after you leave?
Directors' duties in the UAE reward preparation: a short review of your position now costs far less than defending a claim later.
Frequently asked questions
01Can a UAE company exempt its directors from personal liability?
Not onshore. Article 24 of the Commercial Companies Law voids any provision in the memorandum or statute that exempts a current or former officer from personal liability, and Article 84 voids conflicting terms in an LLC manager's appointment. In ADGM, exemptions and indemnities for negligence or breach of duty are also void, subject to carve-outs for insurance and qualifying third-party indemnities. D&O insurance and a well-documented decision process are the practical protections, and policies should be checked for exclusions and territorial scope.
02Are LLC managers subject to the same duties as joint stock company directors?
Largely, yes. Article 84 makes LLC managers liable for fraud, abuse of power, breach of the law, the memorandum or the appointment contract, and gross error, and applies the joint stock company board provisions to LLC managers subject to the LLC rules. Managers also cannot run a competing business without general assembly approval under Article 86, and must prepare the annual accounts within three months of year-end. Partners can ask the court to dismiss a manager where justified.
03Does a general assembly discharge protect the board?
Only partly. Article 169 provides that a general assembly decision discharging the board does not prevent a liability claim. Where the act giving rise to liability was presented to and approved by the general assembly, the claim becomes time-barred one year after that meeting. If the act is criminal, the civil claim survives until the criminal action is time-barred. Full disclosure at the assembly is therefore what gives directors real protection.
04When can shareholders sue directors directly?
A shareholder harmed by a breach of the Commercial Companies Law can sue the company, its board and executive management under Article 166 and may recover legal costs from the company if the claim is not vexatious. Shareholders with at least 10% can bring a derivative claim against a related party under Article 167 after giving the board 30 days to act. In joint stock companies, holders of 5% can also apply to the regulator about prejudicial conduct. DIFC and ADGM have their own derivative and unfair prejudice regimes.
05What happens to directors if the company becomes insolvent?
Under Federal Decree-Law No. 51 of 2023, if the company's assets are insufficient, the court can order board members, managers, de facto managers and liquidators to contribute to its debts where their errors in the two years before cessation of payments contributed to the loss. The contribution reflects the degree of fault. Directors also face scrutiny of payments to related parties and possible criminal liability for concealing assets. Early advice and prompt filing are the best defences.
06Can a foreign resident be a director of a UAE company?
Yes. Mainland LLC managers and joint stock company directors need not be UAE residents unless the activity, licensing authority or a nationality requirement under the Commercial Companies Law says otherwise, and DIFC and ADGM entities commonly have non-resident directors. Practical issues include notarising and legalising documents signed abroad, residence visas if the director will work in the UAE, and bank requirements for authorised signatories. Non-resident directors carry exactly the same liability as resident ones.
07How many boards can one person sit on?
For joint stock companies, Article 149 limits a person to five boards of UAE-based joint stock companies, to chairing or vice-chairing no more than two, and to being managing director of only one. Excess appointments are annulled in order of the latest appointment and fees received must be repaid. There is no equivalent statutory limit for LLC managers, but the time commitment and conflict rules still apply. Listed companies may face additional rules from the Capital Market Authority.
Sources and official materials
- Federal Decree-Law No. 32 of 2021 on Commercial Companies — Onshore liability of managers, boards and executives
- Federal Decree-Law No. 51 of 2023 on Financial Restructuring and Bankruptcy — Director contribution claims in insolvency
- Ministry of Economy and Tourism: Companies Legislation — Federal companies instruments and decisions
- Capital Market Authority — Regulator of public joint stock companies since 2026
- ADGM Rules and Regulations — ADGM Companies Regulations 2020 and director duties
- DIFC Courts — Common-law forum for DIFC director disputes
General information only, current as at 27 October 2026. It is not legal advice and does not create a lawyer–client relationship. UAE law differs between the onshore jurisdiction, the DIFC, ADGM and the free zones, and changes frequently; check current official sources and take advice on the facts of your matter.
