In the United Arab Emirates, the legal framework governing economic activity varies from one jurisdiction to another. In this column, we will look at the legal aspects of a limited liability company’s management structure. The most frequent kinds of corporate orders are those with limited liabilities.
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What is a Limited Liability Company (LLC) and how does it work?
A limited liability company (LLC) is a kind of corporate structure that is allowed under state law. A kind of organisational structure like this has been established in order to minimise the personal responsibility of the owners (like in a corporation). Additionally, this enables companies to be taxed in the same way as partnerships are taxed. Members are the proprietors of such companies, in a similar way to how shareholders are referred to in a corporation.
What is the benefit of a limited liability company as a management structure?
Whether you are starting a business for the first time or have been in operation as a single proprietor or a partnership for some time, you may be wondering: How do I know whether I need a limited liability company?
When deciding on the organisational structure of your company, a number of factors must be taken into account. Personal responsibility, ownership, and management, the expense of establishing and registering the company, and taxes are all factors to consider.
There are many reasons why you may want limited liabilities.
Your personal responsibility for company debts may be reduced or eliminated. If you have an LLC management structure, only the assets held in the name of the limited liability company are susceptible to the claims of business creditors, including any litigation filed against the company itself. It is not possible to seize the personal assets of LLC members in order to pay company obligations. This is, by far, the most significant reason for most individuals to select an LLC as their management structure.
Obtaining money from other sources. To do this, more members who provide money, property, or services to the company may be recruited.
Tax benefits are available. When a limited liability company is formed, there is often no separate tax paid on the entity itself, unlike when a corporation is formed. Profits and losses accrue to LLC members in the same way that profits and losses accrue to partnerships.
Creating a Limited Liability Company (LLC)
The procedures for establishing a limited liability company differ from one Emirate to the next. In most cases, you would draught an LLC operating agreement that outlined the rights and responsibilities of the members and management of the LLC (similar to articles of incorporation).
In a limited liability company, the manager’s responsibilities include
It is essential that the person in charge of an LLC’s management structure falls within the following parameters:
1. The rule of law
2. The Memorandum of Association of the limited liability company (MoA)
The existence of any particular agreement governing the connection between the responsible management and the business, such as a labour agreement
As a result, when the responsible manager in a limited liability company is bound by laws and regulations in addition to the company’s Memorandum of Association, he or she will be personally liable to the company, partners or shareholders, and others in the event of a breach or violation of his or her duties and / or committing any act involving fraud, deception, or gross misconduct.
What the law says about it
In accordance with Article 22 of the UAE Commercial Companies Law, “a person authorised to administer the business must protect its rights and give such care as a diligent person would.” In accordance with the business’s objectives and the authorities conferred on such person by virtue of a permission given by the company in this regard, such individual shall carry out all of the above acts.”
Moreover, the director may enter into contracts with third parties without first getting the approval of the board of directors if he or she is given these authority. It should provide an overview of the fundamental internal papers of the business, namely the company’s Memorandum of Agreement and the boundaries within which it may operate.
The name of the management is typically included in the commercial register / trade licence application. With respect to commercial matters, given that a company’s director is in the first instance its point of reference in the marketplace, he or she is usually allowed by a power of attorney granted by the company’s shareholders or by the company’s Memorandum of Association. The director, or the limited liability company itself, may be held legally liable in certain instances if he or she exceeds the power given to them by the shareholders, depending on the nature of their activities.
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