Appointment, removal, and resignation of Managers from a Limited Liability Company (LLC)
Date Posted: Wed, 14 Sep, 2022
A Manager or a member of the board of the Limited Liability Company is a pillar of the company and its most important employee, thus Federal Law No. 2 of 2015 on Commercial Companies in the United Arab Emirates regulated clearly and in details a chapter of legal articles regarding the management of the company, specifying the method of the manager appointment, removal and resignation.
The Manager Appointment
The appointment of a Manager or board member of the Limited Liability Company shall be made by a resolution from the shareholders in the Company’s Memorandum of Association or a separate contract or in the resolution of the General Assembly Meeting in accordance with the provisions of the UAE Companies Law, where more than one Manager or Board of Managers can be appointed and granted powers which shall be determined in accordance with the absolute discretionary authority of the Shareholders.
It is remarkable that the UAE Companies Law did not specify a certain number of Managers, unlike many comparative legislations that stipulate an upper limit for the number of Managers in the Limited Liability Company. This is a loose pattern established by the UAE Companies Law on the manner of appointment, number of Managers, and the freedom to determine the scope of powers, but this expansion, which is convenient for shareholders and Managers alike, collides with procedural restrictions that sometimes limit and narrow it. These restrictions imposed by the competent authorities are the "Department of Economic Development” and “Notary Public Department” by refusing to attest a Company’s Memorandum of Association without including the name of a Company’s Manager although the law permits the appointment to be under a separate contract or according to a resolution issued by the General Assembly Meeting. In some Emirates in the UAE, the Department of Economic Development also refuses to include more than one Manager’s name in the Commercial License of the Company even if several managers have been appointed or a board of managers has been appointed for the company under the Memorandum of Association or the resolution of the General Assembly Meeting, the Department of Economic Development permits the inclusion of only one Manager’s name in the Commercial License of the Company.
The competent authorities in the United Arab Emirates condone the request to be provided with the contract for the Manager’s appointment signed by the Manager himself or at least to provide them with the approval to be appointed as a Manager of the company. It is sufficient for the shareholders or their representatives to attend and sign the appointment of the Manager by the resolution of the General Assembly Meeting or the Memorandum of Association or its amendment, knowing that most countries require in their laws and regulations to submit a written approval from the Manager himself to be appointed as a Manager before his name as a Manager is added in the Company’s Memorandum of Association or in its Commercial License. Therefore, a name of a manager could be adopted without his consent, and the ramification over that is such appointed manager may find himself against a claim from third party as a legal representative of the company.
The Manager Removal
Occasionally, Shareholders in the Limited Liability Companies terminate a Manager who was appointed according to the Company’s Memorandum of Association and appoint a new Manager through a shareholder’s resolution in a General Assembly Meeting. The powers of the new appointed Manager are determined either by referring to the same powers mentioned in the Company’s Memorandum of Association that the dismissed Manager had, or by mentioning new powers of the appointed Manager in the text of the General Meeting Resolution itself. The shareholders take the necessary process to notarize the Resolution of the General Assembly Meeting before the Notary Public, then execute it at the Department of Economic Development by updating the Commercial License of the company by removing the name of the dismissed Manager and adding the name of the new appointed Manager. At this point, the shareholders may be satisfied that the Company’s Memorandum of Association that includes the name of the previous Manager is not amended, however, in such case, this procedure collides with the internal regulations of commercial banks operating in the UAE.
When the new Manager appointed under a resolution of shareholders in a General Meeting contacts some banks in the UAE to carry out financial transactions on behalf of the company, his representation of the company might refuse despite the fact that this appointed Manager holds a commercial license that includes his name as a Manager and a duly attested Shareholders Resolution that contains his name and powers, which includes representing the company in financial transactions before the commercial banks. Some banks in the UAE refuse to deal with the appointed Manager according to the shareholders resolution and require his name to be inserted in the Company’s Memorandum of Association through an Amended Memorandum of Association or an addendum to the Memorandum of Association to allow him to represent the company and carry out financial transactions on behalf of the company. Therefore, this disposition of commercial banks by refusing the representation of the appointed Managers by a shareholder’s resolution in a General Assembly Meeting, obliges the shareholders to update the Company’s Memorandum of Association to reflects the shareholders resolution in it.
In accordance with the provisions of the UAE Commercial Companies Law, the shareholders absolute consent – 100% – is required in one case only for the purposes of amending the Memorandum of Association of the Limited Liability Company, which is the case of the amendment that results in increasing the obligations of the shareholders. Accordingly the law has permitted the amendment of the clause related to the management of the company, including the removal and appointment of managers with the same majority required to amend the Company's Memorandum of Association, which is 75% of the shareholders present at the General Meeting as long as the legal quorum required by law to hold the meeting is complete, this quorum is 75% of the shareholders present in the first meeting or 51% at the second meeting or any percentage in the third meeting, taking into account the terms and the notification of invitations to meet.
Although, the UAE Companies Law is clear and several judgments of the Dubai Court of Cassation have confirmed the possibility of removing and appointing Managers with the same majority required to amend the Company's Memorandum of Association, i.e. 75% of the shareholders present at the full quorum of the General Meeting, but the Notary Public in the United Arab Emirates may refuse to attest the resolutions of the shareholders and the minutes of the General Assembly Meetings, whatever their content, including resolutions to remove and appoint Managers if not 100% of the shareholders in the company sign before the notary.
The Notary Public in the United Arab Emirates, for the purposes of attesting the Shareholders Resolutions or amendments of the Company’s Memorandum of Association, requires the presence and the signing of all shareholders of the company and does not attest any shareholders resolutions, minutes of General Meetings or amendments of a Memorandum of Association in the event of the absence of one of the shareholders, no matter how small the shares percentages of the absent shareholders in the Company.
Therefore, the only way for the shareholders to attest and execute a shareholder’s resolution that has a legally defined quorum and does not have the consensus of 100% of the shareholders is to recourse to the competent court and file a case to obtain a judgment of the validity and enforcement of the resolution on the bases it fulfills the enforcement requirements, this means delaying the implementation of resolutions and imposing financial burdens on the shareholders.
The Manager Resignation
The Manager in the Limited Liability Company would sometimes resign from his position, which is a frequent matter, for this reason, the UAE Companies Law has regulated the case of the Managers’ resignation with explicit, clear and unequivocal article, where the resignation of the Manager shall be submitted to the shareholders and shall be decided upon by the shareholders within a maximum of 30 days from the date of submission to them. The company shall inform the competent authority of the end of the manager’s service within a maximum of 30 days from the date of termination of service, and the company must appoint someone to replace resigned manager during this period.
The UAE Companies Law has also clearly regulated the case in which the shareholders do not agree to the resignation or the case where the shareholders disregard the resignation, the UAE Companies Law stipulates that the resignation of the Manager shall be deemed effective by virtue of the law after thirty days from the date of its submission to the shareholders, provided that the competent authorities have been notified unless the Company’s Memorandum of Association or the Manager’s appointment contract stipulate otherwise.
Despite the clarity of the legal text regarding the right of the Manager to resign by taking the path stipulated for him by law in the event where the shareholders do not agree to the resignation or the case where the shareholders disregard the resignation, the resigned Managers face procedural obstacles to execute their resignations and remove their names from the Company’s Memorandum of Association and its commercial license and cannot execute the resignation in the event that the resignation has not been decided upon or approved and implemented by the 100% of the shareholders, the competent authorities refuse to remove the name of the Manager from the Company’s Memorandum of Association and its trade License without submitting an amended Memorandum of Association or shareholders resolution signed by all shareholders that include the decision to remove the Manager and appoint an alternate Manager.
In practice, managers who wish to resign and to initiate to remove their names from Companies' Memorandum of Association and Commercial Licenses through submitting their resignation to the shareholders and notifying the competent authority, which is the Department of Economic Development. However, despite the clarity of the legal texts in this regard, the competent authority refuses to give effect to the resignation without providing it with a shareholder’s resolution or an amended Memorandum of Association includes the removal of the Manager and the appointment of an alternative. As a result of this practice, the resigned Managers will have to recourse to the competent court and file a case to obtain a judgment to oblige the competent authorities to remove his name from the Company’s trade license and Memorandum of Association.
Undoubtedly, the United Arab Emirates has a well-developed and well-defined Commercial Companies Law that is being reviewed and amended continuously to follow the rapid global developments and encourage foreign investment, the last of these amendments were issued on 27th September 2020 and were in force respectively as of 2nd January 2021. The law enforcement authorities in the United Arab Emirates are working continuously to issue the executive regulations, resolutions to ensure the proper implementation of the law and achieve the objectives of the law.
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