Management is doing things right, and leadership is doing the right things
-Peter Drucker
One of the primary duty and obligation imposed on all managers and directors of limited liability companies under the Companies’ Law of UAE is to comply with all legislation and laws issued in the state, comply with the provisions of the MOA and AOA, their employment or management contracts and the resolutions issued by the general assembly.
In the CCL( Arabic extract) there is no clear distinction between a director or manager, thereby at times there is confounding interpretation. However, it is clear that a manager or a specifically designated general manager is in charge of the day to day management of the business, and may sometimes be referred to as the director , if he is designated as such, as well. He may also be a part of the Board of Directors. By law, it is not necessary that an LLC should have Board of Directors, nevertheless an LLC may always choose to have one.
With respect to representation with the Third Parties, the general legal principles governing the responsibility for acts, stipulate that companies are held responsible for the act/omission of a manager and/or director, if the latter has acted within the limits of his authorities and legal capacity granted to him within the company’s MOA or AOA, or within a special written document or statement such as a Power of Attorney (POA).
Nevertheless, if a manager or director exceeds his capacity limits and his act has an adverse impact, the Company will not be responsible for such dispositions towards third parties. Thereby it is essential that the manager/ director acts indispensably within the precincts of 1. The Law, 2. The MOA, the AOA, and 3. Any specific agreement regulating the relationship between the manager/director and the company , such as employment agreement if any , etc.
Thereby it can be surmised that when a manager or director of a registered LLC is bound by laws and regulations, as well as the provisions of the company’s MOA or AOA , then in case of a breach or violation of his duties and or any act involving fraud, deception or gross misconduct, he will be personally liable towards the company, partners or shareholders and third parties
At this juncture , we shall refer to A.22 of the CCL, UAE– Art. 22 avers that a person authorized to act as a manager/director of the company shall extend the care of a “diligent person” to company matters. Such person shall do all such acts in agreement with the objective of the company by virtue of an authorization issued by the company.
Thereby the question that comes to the fore is, whether at all , authorization is required to be issued to the manager to enter into contract with the third party without a Board resolution (incase of any existing Board under the internal bylaws) , presuming the MOA of the company provides for passing of a Board resolution with majority consent of the members on the motion , to be passed into a resolution.
As per Art. 23 of CCL, UAE, the liability of a manager/ director cannot be exempted through the company’s memorandum or articles of association. Further that the company is bound by any act or behavior arising out of its manager/director (as well as any employee acting on behalf of the company) ,during the usual course of conducting business.
Further, if a manager is also the director of a LLC company, then he may enter into a contract with any third party, without the permission of the Board of Directors, if such powers are conferred upon him. The internal primary document of the company specifically the MOA/ AOA shall prescribe the limits within which the manager or even a director can act. If the internal documents of the company provide for passing of board resolution before entering into a contract with any third party then the incumbent manager , cannot act independently, beyond the provisional limitation of the internal primary documents of the company. Under UAE law, the MOA is the constitution of the LLC. Should the manager, in this case enter into a third-party agreement without a board resolution, it will be considered as ultravires (beyond the scope of, not in the usual course) . However, it must be understood here that, as a representative of the company, the ultravires act can make him personally liable in case of any liabilities that arise out of such an agreement /contract.
Further A. 83 of the CCL stipulates that the manager of an LLC company shall be authorized to exercise full powers to manage the company, and such managers’ acts shall be binding upon the company, provided that they state their capacity upon such action. The Manager/general manager’s name normally reflects in the CR/ Trade license. In view of the fact that the manager is primarily the point of reference for the company in the business streets, he is generally authorized by a power of attorney provided by the shareholders of the company or via the MOA of the company. In certain cases exceeding the powers given to the manager may make the manager, or the LLC itself, liable, depending on the nature of the manager’s actions.
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©Henrietta Newton Martin 2020
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