LLC Governance and Managers’ Liability: New RAK Court Ruling

5 min 53 sec December 3, 2025 (Edited)

Limited liability companies (LLCs) are the most common type of company in the United Arab Emirates. The LLC was introduced in the UAE under the Federal Commercial Companies Law of 1984, which was subsequently repealed and replaced by Federal Law No. 2 of 2015. The latter was repealed and replaced by the Federal Decree-Law No. 32 of 2021 (CCL).

However, unlike public joint-stock companies, the LLC is not heavily regulated, and accordingly, not subject to a specific regime of regular checks or monitoring by a relevant licensing or regulatory body within the UAE. There are no official periodical checks on whether an LLC manager has convened the annual general assembly meeting (AGM), prepared and circulated audited financial statements, or distributed dividends in accordance with shareholder(s) resolutions. Indeed, the CCL does not include a requirement for such types of checks to be undertaken by a specific competent body. This lack of oversight often leads to misunderstanding and gives comfort to managers to treat these formalities and duties as optional.

This article will focus on the practical implementation of the regulations related to managers’ duties, through an analysis of a court decision recently issued by the Ras Al Khaimah Courts (RAK Courts).

Provisions of the CCL

The CCL makes it clear that certain obligations of managers are anything but optional. Articles 27, 85, 87, 92, and 94 of the CCL impose an affirmative duty on every LLC manager to:

• maintain proper account books and prepare a balance sheet and profit-and-loss account in accordance with international accounting standards;
• appoint an external auditor and place the audited financials before the general assembly within four months of the financial year end;
• convene the assembly, present a written report on the company’s business and financial position, and obtain the shareholders’ approval on the accounts and any proposed dividend; and
• ensure that shareholders receive complete, accurate and timely information about the company so that their economic and governance rights are protected.

Given that the registering bodies do not oversee compliance with the above duties, the CCL entitles shareholders themselves to seek enforcement. If the manager persistently refuses to comply with shareholder requests, Article 85(1) of the CCL explicitly empowers one or more shareholders to resort to the court for the manager’s removal, provided that a “legitimate cause” exists, as determined at the court’s discretion. It is worth mentioning that no changes were made to these articles throughout the consecutive versions of the CCL from 2015 to date.

The RAK Courts recently exercised this discretion, reaffirming that the absence of regulatory oversight does not absolve managers of accountability. In the proceedings, the RAK Courts relied on Article 85(1) to uphold the removal of an LLC manager who had failed to fulfil the basic governance duties required under the CCL.

Background of the Dispute

The claimant is one of the shareholders in a company established in RAK, where all shareholders hold equal shares. The defendant is the company’s manager, who served as the sole manager pursuant to the company’s memorandum of association.

The claimant filed the claim before the Court of First Instance (CFI) under number 828-2024 “Commercial” against the manager and the defendant company, on the basis that:

1. no AGM had been convened since incorporation;
2. no audited financial statements had been prepared or approved;
3. no shareholder had received any share of profits;
4. no proper accounting system was kept on record; and
5. the figures submitted to the Federal Tax Authority did not reconcile with the bank statements.

The claimant therefore requested the removal of the manager under Article 85 of the CCL.

Sequence of Events

The supervising judge appointed an independent accounting expert, who found that the LLC’s manager had not kept proper books, had failed to call AGMs, and that there were discrepancies between the company’s financial statements and tax returns. The expert also noted that the shareholders had not received their share of profits. Based on these findings, the CFI ordered, among other things, the removal of the manager.

The CFI’s judgment was then appealed to the Court of Appeal (CoA) by the manager and the defendant company, under Appeals  97, 102, and 103-2025 “Commercial”. The appeals were consolidated, and on April 24 2025, the CoA upheld the CFI’s judgment without making any changes.

The CoA’s judgement was challenged afterwards by the manager before the Court of Cassation (CoC) under No. 60-2025 “Commercial”. The manager argued that the expert report was flawed, that audited accounts did exist, and that an extraordinary general assembly meeting was held after the appeals were filed. On June 17 2025, the CoC rejected all of these arguments, confirmed the removal of the manager, and ordered the manager to pay the costs.

The CoC Analysis

The CoC referred to Articles 27, 85, 87, 92, and 94 of the CCL. It emphasised that Article 85(1) allows the court to remove a manager “if legitimate cause exists” and that evaluation of the cause lies within the trial court’s discretion in its fact finding and decision. The CoC established that the failure to comply with basic governance duties is a legitimate cause.

As such, by relying on the expert’s findings, the CoC held that the manager’s behaviour constituted serious breaches of duty and errors in management that “harmed both the company and the shareholders”. It found that the manager:

1. failed to prepare proper financial statements from an accounting system;
2. failed to appoint or consult an auditor;
3. failed to convene any AGM; and
4. presented financial figures that were inconsistent with tax filings and bank records.

These omissions deprived the shareholders of visibility over their investment and prevented lawful distribution of profits.

Conclusion

The CoC’s ruling serves as a clear reminder that LLC managers have enforceable statutory duties, even in the absence of governmental oversight. Shareholders facing issues such as ambiguous reporting, missing financial statements, or unpaid dividends may invoke Article 85(1) of the CCL to seek judicial removal of a negligent manager.

Conversely, managers who prioritise transparency, maintain sound accounting practices, and engage regularly with shareholders can effectively discharge their obligations, thereby protecting both the company’s interests and their own legal standing.

Based on the above, every manager of an LLC should be mindful of the following.

1. The absence of day-to-day regulatory supervision is not a defence. Articles 27, 85, 87, 92, and 94 of the CCL place non-delegable obligations on every manager.
2. Call the AGM within four (4) months following the end of the financial year, circulate audited financials and the manager’s report, and secure shareholder approval of the accounts and profit distribution.
3. Maintain proper books and an accounting system. Ad-hoc spreadsheets or accountant summaries are not acceptable. Records must allow the extraction of financial statements that comply with IFRS/IAS.
4. Keep a record of shareholder decisions, as the written resolutions or minutes should be signed and retained. Failure to evidence approval may eventually support allegations of mismanagement.
5. Address shareholder complaints promptly, as ignoring requests for information or profit shares invites judicial intervention and potential dismissal.
6. Removal is only the first step. Managers who breach their duties will be under the risk of liability for losses, regulatory fines, and — in cases of egregious behaviour — criminal prosecution under Articles 346–355 of the CCL.