Partnership Agreements in UAE and Its Types

For any business, collaboration and partnerships are significant. A good partnership can provide good support and capital to a business. To develop good relations in the financial market, entrepreneurs may need to engage in joint ventures and partnerships. It is very common in businesses because, idea, capital and manpower is always required to establish a big business. The United Arab Emirates (UAE) encourages new businesses to innovate in the region. Several business entities enter into partnership agreements in the UAE. The legal documentation for these business partnerships is managed under UAE commercial law for partnerships, which outlines the rights and responsibilities of both parties. Specialist lawyers and legal consultants always should manage it. Moreover, this law assists lawyers in resolving disputes. A business experiences both profit and loss; therefore, clarity of partnership should be presented in the form of a partnership agreement, which is a formal document specifying each partner’s rights and duties.

To understand the partnership agreements in the UAE, investors have to read the UAE Commercial Companies Law. Commercial Law UAE, regulates and governs the entire partnership matters. Every business in the UAE must comply with the requirements mentioned in the law to have safe and healthy business relations. The imperative understanding of partnership business is deduced by the UAE commercial laws. Without a formal partnership agreement in the UAE, disputes may arise.

Under the UAE Commercial Companies Law, a ‘partnership’ is a business structure where two or more individuals or entities join together, sharing profits, losses, and management responsibilities. It has been proved very useful business structure. The law governs the structure of such partnerships, the liabilities of each partner (meaning their legal and financial obligations), and the rules for registering these entities. Additionally, the law distinguishes between partnership (joint management and risk) and ownership (exclusive control by one entity or individual).

The partnership agreement shall be presented in written form. It avoids business disputes. Court only recognizes the written format of agreements, where there is no benefit or support is provided to verbal commitments. Therefore, verbal communication in business has no weightage. Therefore, when a business is in a partnership agreement, the profit and loss terms and conditions are mentioned. Also, these partnerships have mentioned the responsibility of decision-making to avoid any confusion over power dynamics.

The significance of a partnership agreement is strengthened when it has clauses and roles defined properly, ensuring the capital contribution from both sides. However, a written partnership agreement in the UAE would be essential in case of disputes.

A general partnership agreement is signed by at least two or more than two partners. They share the liability.

In this agreement, every manager is liable for obligations. However, they have the authority on managerial level. These kinds of partnerships are based on trust, rather than building corporate relationships.

A limited partnership agreement will have one general partner with other partners. The general partner is given the authority to manage the business, whereas the limited partners work provides the capital only. When it comes to contribution, the limited partners have limited liability. An investor in the UAE must be interested to do such kind of partnership to lower the business risks. We strongly recommend that you must need to consult the business lawyers first, if

The limited partners may not be active in daily management. Their inactive participation in the business is to protect the legal structure of the business.

Civil partnerships in the UAE are used for professional activities, including consultancy, legal services, and medical practice. Under this law, commercial law does not apply. Everything is managed in accordance with civil transaction laws. They prioritise responsibility over commercial profit.

The partners in the civil partnerships are responsible for maintaining professionalism within the organisation. They must get professional indemnity insurance in the UAE.

The international businesses in the UAE can work in partnerships. However, the rules and regulations of international business laws are applied. It has boomed the UAE business market, where several investors are interested in exploring profitable business opportunities every day.

However, approval from relevant authorities may still be required. Therefore, legal due diligence is necessary before structuring cross-border partnerships. Partnership laws can be different in different territories.

International entrepreneurs can have a partnership agreement. They need approval from the authorities and special licenses to participate as a partner in the business. Therefore, both parties should know the corporate rules and regulations of doing a partnership with international businesses.

A partnership agreement should clearly define the profit and loss distribution to avoid any disputes in the future. The UAE laws are flexible for businesses; but written clauses are important. This means if there is nothing mentioned about the profit and loss in a business, it would be divided equally among the partners, automatically.

It is important to have financial transparency in the business, to keep the audit records clean and clear. Moreover, having transparency mitigates the risk of internal conflicts between the parties.

The partnership agreement must have a clause of dissolution and exit scenarios for the partner. No one should be disrespected when a partner is leaving the company. The exit mechanisms should be professional and must have a buy-out clause or asset liquidation.

A partner leaving the business might not be good for some companies, yet people need closure. When it comes to dissolution, the clause of liabilities and asset distribution shall be considered carefully.

If a conflict arises in a partnership agreement, it is resolved through mediation or arbitration. Clauses for dispute resolution are mentioned in the partnership agreements. It means using those laws and rules will clear out the air and keep the business intact from any loss.

Depending on the partnership agreement, the UAE law is applied. Therefore, tribunal courts have the authority over such cases.

A partnership agreement must be registered in accordance with UAE law. This means an international partnership agreement will require additional documentation and a UAE business partnership. The registered document can be challenged in court if a dispute arises.