Court Judgment Update – Landmark General Assembly Decision on the fate of LLCs established before 2021 and the UAE national ownership requirement

The General Assembly of the Dubai Court of Cassation issued Decision No. 8 of 2025 represents a major legal turning point in the United Arab Emirates’ evolving corporate framework. This landmark judgment addresses a long-standing source of legal uncertainty: the fate of LLCs established before 2021 that did not comply with the previously mandatory 51% UAE national ownership requirement. The decision not only clarifies the status of such companies in light of the reforms introduced by Federal Decree-Law No. 32 of 2021 but also signals a decisive shift in the UAE’s approach to corporate regulation and investor protection. The ruling directly affects companies operating in the UAE before 2021 and reinforces that Federal Decree- Law No. 32 of 2021 extinguishes the prior ground for nullity of LLCs on the basis they did not meet the UAE national ownership requirement.

Background of the Legal Framework

Prior to the introduction of Federal Decree-Law No. 32 of 2021, the governing commercial companies law in the UAE required that LLCs be formed with at least 51 percent of the company’s capital held by UAE nationals. This requirement was deeply embedded in the legal system and was considered a matter of public policy. Courts had the authority to declare any company contract formed in violation of this ownership rule absolutely null and void, even without a request from any party. In legal theory, this type of nullity (absolute nullity) rendered the contract void from inception, incapable of producing any legal effects, and enforceable even ex officio by courts.

In practice, however, many companies circumvented this rule through side agreements, nominee arrangements, or informal structures. The law placed such companies in a precarious position, vulnerable to legal challenges or dissolution.

In response to global economic trends and the national goal of making the UAE more attractive to foreign investors, Federal Decree-Law No. 32 of 2021 introduced key reforms. Most notably, it abolished the requirement for UAE national ownership of LLCs and introduced the possibility of establishing single-shareholder LLCs. Article 71 of the new law removed the national ownership condition entirely. Article 359 granted existing companies a one-year grace period to regularize their status. The law applied immediately to all companies from the date of its enactment, unless a final judgment of nullity had already been issued under the previous law.

The Legal Issue Before the Dubai Court

The specific issue before the Dubai Court of Cassation was whether an LLC formed prior to 2021, with foreign ownership exceeding 49 percent and without meeting the national ownership quota, could still be declared void by the court despite the repeal of the rule requiring 51 percent UAE ownership. Some lower courts had continued to declare such companies void, relying on the legal principle that contracts which contradict public order are null and cannot be legalized retroactively.

However, the General Assembly of the Court of Cassation was asked to resolve the inconsistency and clarify whether the new law extinguishes the prior ground for nullity, and whether companies that did not previously meet the national ownership rule are still at risk.

The Court’s Reasoning

The Court held that the provisions of Federal Decree-Law No. 32 of 2021 “apply directly and immediately to all existing LLCs, including those formed prior to its enactment.” The Court reasoned that once the legal rule mandating UAE national ownership had been repealed, it could no longer serve as a basis to declare any contract void, even if the company failed to meet that requirement at the time of formation.

The court emphasized that “nullity, even when based on public policy, must be recognized by a judicial ruling to have binding effect. A contract is not treated as non-existent simply because it violated the previous law; rather, it must be the subject of a final nullity judgment.” The Court stated: “What matters is that no final and binding judgment of nullity was issued before the new law came into effect. If no such judgment was rendered before the legal rule was repealed, the ground for declaring nullity no longer exists.”

Importantly, the Court introduced the principle of legalization or regularization. This is the process by which previously non-compliant companies can bring themselves into conformity with the new law. The purpose of this process is not to punish, but to correct. The Court recognized that legalization serves the greater public interest by maintaining the stability of commercial transactions, preserving economic continuity, and preventing unnecessary harm to investors and stakeholders.

Additionally, the Court noted that in situations where the formal structure of a company does not reflect its actual ownership or partnership composition, the proper legal remedy is not dissolution, but transformation. If the actual owners of the company are different from those listed in the founding documents, the court may authorize the transformation of the company into either a single-member LLC or an LLC with properly identified shareholders, so long as the requirements of the new law are met.

Legal Impact of General Assembly Decision

This decision has immediate and far-reaching consequences for LLCs in the UAE. First, it provides legal certainty for thousands of LLCs formed before 2021. Many such companies operated under uncertain legal status due to nominee structures or incomplete compliance with the old national ownership rule. This ruling effectively removes the threat of retroactive invalidation, giving these companies a clear legal path forward.

Second, the decision demonstrates a fundamental shift in how UAE courts interpret legislative reform. Rather than applying old legal rules rigidly, the Court of Cassation adopted a modern and policy-oriented approach, emphasizing continuity, investor protection, and the legislative intent of economic liberalization. This signals a more flexible judicial philosophy in line with international standards of corporate governance and commercial law.

Third, the ruling aligns with the UAE’s national strategy to attract foreign investment and enhance its global competitiveness. By affirming that foreign-owned LLCs formed before 2021 can continue to operate lawfully under the new framework, the Court has reassured international investors that the UAE legal system protects their interests and recognizes the need for legal evolution in a dynamic economy.

Fourth, the decision reinforces the practical utility of the regularization mechanism. Rather than relying on strict punitive measures such as dissolution or nullification, the Court supported a corrective model. This encourages companies to comply with the law proactively without the fear of being dismantled for past violations that are no longer considered illegal.

Finally, the Court’s reasoning also preserves the sanctity of existing commercial relationships. Contracts, partnerships, licenses, and liabilities linked to these companies are all preserved, unless a final nullity judgment had already intervened. This protects not only company owners, but also creditors, employees, suppliers, and the wider business community that depends on the legal continuity of these entities.

Conclusion

Dubai Court of Cassation Decision No. 8 of 2025 is a landmark in the evolution of UAE company law. It establishes that companies cannot be declared null solely because they did not meet the former UAE national ownership requirement, provided no final court judgment of nullity was issued prior to the new law. The decision validates the immediate and direct application of Federal Decree-Law No. 32 of 2021 and supports the regularization of legacy companies. Most importantly, it reflects the UAE’s commitment to legal modernization, economic stability, and investor protection.

As the Court stated, “legalization serves the greater public interest by maintaining the stability of commercial transactions, preserving economic continuity, and preventing unnecessary harm to investors and stakeholders.” This ruling strengthens the credibility of the UAE’s judiciary and reaffirms the country’s position as a leading destination for global business, setting a model example of how courts can align legal interpretation with economic policy to promote legal certainty, fairness, and commercial progress.

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