How Proper Corporate Governance Advisory Structuring Saves Millions
Every governance fix is a short document while the shareholders still agree and close to unobtainable once one of them benefits from the paralysis.
Governance failures in UAE companies surface as a stalled sale, a bank mandate nobody can operate, a tax adjustment, a shareholder claim. The ones we are most often called in to fix: the deadlocked fifty-fifty company, signing authority nobody wrote down, unapproved related-party contracts, registers left to drift, intra-group money moving on no contract, and a founder with no succession position.
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
Governance work is bought reluctantly because its value is invisible while everything is going well. The bill for skipping it arrives later, and it arrives in a form that looks like something else: a stalled sale, a frozen bank mandate, a tax adjustment, a shareholder claim. What follows are the failures we are most often called in to fix in the UAE, and the mechanism by which each one turns into money.
Related: Explore our corporate governance review services.
The fifty-fifty company that cannot decide
Two founders, equal shares, no shareholders' agreement, or one that says nothing about deadlock. The relationship holds until the first serious disagreement, and then nothing can be resolved: no resolution passes, the manager cannot be replaced, the accounts cannot be approved, and neither side can force the other to sell.
The cost is not the legal fee. It is the trading months lost while the licence renewal, the bank facility and the customer contracts all wait on a company that cannot sign anything. The fix, written into the constitution at the start, is unglamorous: a casting vote or a rotating chair, an escalation route, a buy-out mechanism with a stated valuation basis, and a default that keeps the company operating while the shareholders argue. Drafted at incorporation this is a short document. Negotiated during a deadlock it may be impossible, because by then the party benefiting from paralysis has no reason to sign.
The signature that bound the company
Most UAE companies have a general manager named on the licence and very little written about what anyone else may commit. In practice, staff sign supply contracts, settlement letters and facility documents. When one of those turns out badly, the company argues internally that the signatory had no authority — and finds that the counterparty reasonably believed otherwise, because nothing in the company's dealings ever suggested a limit.
Related: Our Corporate Governance Advisory team handles delegation frameworks and board mandates.
A delegation of authority matrix, approved by the board and reflected in the bank mandates and the standard contract templates, sets the ceilings by value and by transaction type and says which decisions come back to the board. It takes an afternoon to draft and it is the single cheapest piece of governance a growing company can put in place.
The related-party contract nobody approved
Group companies contract with each other constantly: management services, staff secondments, intercompany loans, shared premises, guarantees given by one entity for another. Frequently the same individuals sit on both sides, and the approval formalities the Commercial Companies Law and the articles require for a director's or shareholder's interested transaction are never observed.
Nothing surfaces while the same people sit on both sides of the table. It surfaces in diligence, when someone from outside the group asks who approved the management fee and on what basis, and the file has no answer in it. The guarantee given by the profitable entity for the loss-making one then becomes the first item on the price-adjustment list, and the fee income the seller has been counting towards its valuation is written down because it rests on a contract nobody can produce.
The registers that drifted out of date
Shareholder registers, the register of ultimate beneficial owners, board composition at the licensing authority, and the signatory records at the bank all have to reflect reality. They drift, because updating them is nobody's job. The consequence appears at the worst moment: a transfer that cannot be registered, financing that stalls in condition-precedent review, a bank that will not release funds because the mandate names a director who resigned two years ago, and penalties for late notification.
This is administrative work, not advisory work, but it is the reason a transaction slips by a quarter, and delay on a sale of that order costs far more than keeping the registers current ever would.
The intra-group arrangements with no paper behind them
Federal Decree-Law No. 47 of 2022 brought corporate tax to financial years starting on or after 1 June 2023, at 9% on income above AED 375,000 and 0% on taxable income up to that figure. For a group, the consequence is that arrangements which used to be a matter of internal convenience now have to be defensible on a return: management charges, intercompany funding, and the allocation of profit between entities need agreements in writing and a pricing basis that can be explained.
Groups that have shuffled cash between entities on the strength of nothing more than a director's instruction then have to produce something that supports the treatment, and there is nothing to produce. Reconstructing agreements after the period they were meant to govern is both expensive and unconvincing.
Related: Where the numbers behind those arrangements need attention as well as the paperwork, our corporate tax compliance uae practice picks that up.
The founder with no succession position
A closely held UAE company where one person holds the shares, the licence signature and the banking relationship is a single point of failure. On death or incapacity, the shares pass to heirs under whichever succession regime applies, the bank mandate lapses, and the business may be unable to pay salaries while the position is resolved.
Pre-emption rights in the articles, a written position on what happens to shares on death, an alternate authorised signatory, and where appropriate a holding structure or foundation, all address this in advance. None of it can be arranged afterwards.
What the exercise actually involves
A governance review of a private UAE group is a short, concrete piece of work. It starts from the constitutional documents the registry actually holds, since those are the ones that will govern if anyone argues about it, and works through the decisions being taken by people with nothing in writing that lets them take them, the registers that no longer describe the company, and the money moving between entities on no contract at all. The output is a list of documents to sign, not a policy manual.
It is also work that has to be done while the shareholders still agree with each other. Once they do not, every one of these fixes requires the consent of the party who benefits from the current mess.
Related: Explore our Corporate Governance Advisory Solutions in | Nour Attorneys services.
Related Services: Explore our Corporate Governance Advisory services for practical legal support in this area.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.
Nour Attorneys Team
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