Key Elements of a Business Partnership Agreement in the UAE

A business partnership agreement UAE sets out the rights, duties, profit-sharing and dispute-resolution mechanisms for partners operating under the UAE Commercial Companies Law (Federal Decree-Law No. 2 of 2015) and, where applicable, the DIFC Companies Law or ADGM Regulations. It governs partnerships formed in mainland UAE, free zones and the DIFC/ADGM jurisdictions.

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WHAT MUST A BUSINESS PARTNERSHIP AGREEMENT UAE INCLUDE TO BE ENFORCEABLE?

A partnership agreement must contain the partners' names, capital contributions, profit-and-loss sharing ratio, management structure, admission and withdrawal procedures, and dispute-resolution clause, as required by Article 22 of Federal Decree-Law No. 2 of 2015. The Arabic text of UAE legislation as published in the Official Gazette prevails over any translation.

The agreement should also specify the partnership's purpose, duration, and the method for allocating liabilities. Under the Commercial Companies Law, a partnership that lacks any of these essential terms may be deemed void or subject to default rules that impose equal sharing of profits and losses, regardless of the parties' intentions. To avoid unintended consequences, partners should detail each contribution in cash or kind, assign a monetary value to non-cash assets, and record the valuation method. Management provisions must clarify whether decisions require unanimity, a majority, or a designated managing partner, and should outline voting thresholds for major actions such as admitting new partners or amending the agreement. The dispute-resolution clause should elect either UAE courts, DIFC Arbitration Centre, DIAC, or another recognised forum, and specify the governing law and language. Including a clear exit mechanism-notice period, buy-out formula, and valuation approach-helps prevent deadlock when a partner wishes to retire or sell their interest. Finally, the agreement should be signed by all partners and, for mainland entities, notarised and submitted to the relevant Department of Economic Development for registration, as stipulated by Article 24 of the same decree-law.

HOW DOES THE UAE COMMERCIAL COMPANIES LAW AFFECT PROFIT DISTRIBUTION IN A PARTNERSHIP?

The law requires that profits and losses be shared according to the ratio stipulated in the partnership agreement; absent such a stipulation, they are shared equally, as per Article 23 of Federal Decree-Law No. 2 of 2015. The Arabic text of UAE legislation as published in the Official Gazette prevails over any translation.

Partners may agree on any profit-sharing ratio that reflects capital contributions, expertise, or other considerations, provided the ratio is expressed clearly in the agreement. The law does not prescribe a fixed percentage, allowing flexibility for silent partners who contribute capital but not labour, or for managing partners who receive a salary or fee in addition to profit shares. However, any arrangement that attempts to exempt a partner from liability for partnership debts while still allocating profits may be challenged as an attempt to evade statutory liability under Article 25, which holds partners jointly and severally liable for the partnership's obligations. To safeguard against such challenges, the agreement should expressly state that profit sharing does not alter liability, and that each partner remains liable for debts to the extent of their capital contribution unless otherwise agreed and registered. Additionally, the agreement should address interim distributions, specifying whether profits may be distributed during the fiscal year or only after annual accounts are approved, and should require the preparation of audited financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted in the UAE, per Article 26. This ensures transparency and provides a basis for calculating each partner's share accurately.

WHAT PROCEDURES GOVERN THE ADMISSION OR WITHDRAWAL OF A PARTNER UNDER A BUSINESS PARTNERSHIP AGREEMENT UAE?

Admission of a new partner requires a unanimous vote of existing partners unless the agreement provides otherwise, and must be recorded in an amendment to the partnership agreement that is notarised and filed with the relevant licensing authority, as outlined in Article 27 of Federal Decree-Law No. 2 of 2015. The Arabic text of UAE legislation as published in the Official Gazette prevails over any translation.

The process begins with a written proposal detailing the incoming partner's capital contribution, proposed profit-sharing ratio, and any special rights or obligations. Existing partners must review the proposal, conduct due diligence on the prospective partner's background and financial standing, and approve the amendment. Once approved, the amendment must be drafted, signed by all parties, and notarised by a UAE notary public. For mainland companies, the notarised amendment is submitted to the Department of Economic Development (or the relevant free-zone authority) to update the commercial licence and the partnership register. In the DIFC or ADGM, the amendment is filed with the respective registrar of companies, following the DIFC Companies Law or ADGM Companies Regulations.

Withdrawal follows a similar route: the departing partner must provide notice as stipulated in the agreement-commonly 60 to 90 days-and the remaining partners must approve the withdrawal and agree on a buy-out price. The buy-out is typically based on the partnership's audited net asset value or a pre-agreed formula, and the payment must be made within the timeframe set out in the agreement. The departing partner's liability for existing debts continues until the withdrawal is formally recorded and the creditor is notified, unless the agreement provides for an indemnity. The agreement should also address the treatment of the withdrawing partner's capital account, any accrued profits, and the transfer of any intellectual property or client relationships. Failure to follow these procedural steps can result in the withdrawal being ineffective, leaving the departing partner still liable for partnership obligations and potentially exposing the remaining partners to claims for wrongful expulsion.

HOW ARE DISPUTES RESOLVED UNDER A BUSINESS PARTNERSHIP AGREEMENT UAE, AND WHAT FORUMS ARE AVAILABLE?

Disputes are resolved according to the dispute-resolution clause in the partnership agreement, which may elect UAE courts, DIFC Arbitration Centre, DIAC, or another recognised arbitral institution, as permitted by Article 34 of Federal Decree-Law No. 2 of 2015 and the DIFC Arbitration Law No. 1 of 2008. The Arabic text of UAE legislation as published in the Official Gazette prevails over any translation.

If the agreement specifies arbitration, the parties must first attempt any agreed-upon mediation or negotiation period, often 30 days, before initiating arbitral proceedings. The arbitration notice must include the names of the parties, a brief description of the dispute, the relief sought, and the nominated arbitrator or the method for appointing one under the chosen arbitration rules. The seat of arbitration determines the procedural law; for example, DIFC-seated arbitration follows the DIFC Arbitration Law, while DIAC-seated arbitration follows the DIAC Arbitration Procedure. The arbitral award is final and binding, and can be enforced in the UAE through the execution courts under Article 215 of the UAE Civil Procedure Code, or in the DIFC through the DIFC Courts under the DIFC Courts Law No. 10 of 2004.

Should the agreement opt for litigation, the claim must be filed in the competent court based on the defendant's domicile or the location of the partnership's principal place of business, as per Article 19 of the UAE Civil Procedure Code. The claimant must submit a statement of claim, supporting documents, and pay the prescribed court fees, which vary according to the claim value. The proceedings follow written pleadings, exchange of evidence, and a hearing where both parties may present oral arguments and witness testimony. Judgments are subject to appeal within 30 days of notification, as stipulated by Article 184 of the same code. Regardless of the chosen forum, the partnership agreement should preserve confidentiality, specify the language of proceedings (Arabic or English), and allocate the costs of dispute resolution, including arbitrator fees, legal representation, and administrative expenses, to the losing party unless otherwise agreed.

Frequently Asked Questions

What is the minimum capital required to form a partnership under UAE law?
There is no statutory minimum capital for a general partnership under Federal Decree-Law No. 2 of 2015; partners may agree on any amount. However, certain activities regulated by specific authorities (e.g., banking, insurance) may impose capital requirements. The Arabic text of UAE legislation as published in the Official Gazette prevails over any translation.

Can a foreign individual be a partner in a UAE mainland partnership?
Yes, foreign nationals may hold up to 100 % of a partnership in most sectors, subject to the UAE's Foreign Direct Investment Law and any sector-specific restrictions. The partnership must obtain the appropriate licence from the Department of Economic Development. The Arabic text of UAE legislation as published in the Official Gazette prevails over any translation.

How is a partnership agreement terminated?
Termination occurs upon expiry of the agreed term, mutual written consent of all partners, a court order for dissolution, or the occurrence of an event specified in the agreement (e.g., bankruptcy of a partner). The process requires settlement of debts, distribution of remaining assets, and cancellation of the commercial licence. The Arabic text of UAE legislation as published in the Official Gazette prevails over any translation.

Are profits from a UAE partnership subject to corporate tax?
As of the 2023 introduction of Federal Decree-Law No. 47 of 2022 on the taxation of corporations and partnerships, partnerships are generally tax-transparent; profits are allocated to partners and taxed at the individual level unless the partnership elects to be taxed as a corporate entity. The Arabic text of UAE legislation as published in the Official Gazette prevails over any translation.

What role does the DIFC play in partnership agreements?
Partnerships registered in the DIFC are governed by the DIFC Companies Law and the DIFC Partnership Regulations, which provide a common-law framework similar to English law. Disputes may be resolved in the DIFC Courts or through DIFC-seated arbitration. The Arabic text of UAE legislation as published in the Official Gazette prevails over any translation.

Is notarisation mandatory for a partnership agreement in the UAE?
For mainland partnerships, the agreement must be notarised and submitted to the relevant licensing authority for registration; free-zone and DIFC/ADGM partnerships follow their respective registration procedures, which may also require notarisation or attestation. The Arabic text of UAE legislation as published in the Official Gazette prevails over any translation.

If your matter involves business partnership agreement in the United Arab Emirates, you are welcome to request a consultation with Nour Attorneys. Our team can assess your position under the law currently in force and outline the options available to you. Request a consultation

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