How Proper Corporate Governance Framework Structuring Saves Millions
A governance framework is worth exactly what it can prove at the moment someone asks who authorised a decision, under what authority, and where it was recorded at the time.
Governance, in the form a bank, a regulator or a buyer actually inspects, is a set of documents somebody can read: the filed constitution, a schedule of who may commit the company and for how much, minutes, the registers, and the powers of attorney still on foot. What the gaps cost - unrevoked authority, intercompany charges nobody can justify, subsidiary boards that never met.
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
Most governance failures surface as a question rather than as a penalty: can the company prove that a particular decision was properly taken, by someone who was authorised to take it, and recorded at the time? That question gets asked at predictable moments — when a bank reviews the file, when a regulator makes an enquiry, when the tax position is examined, when a shareholder objects, and when a buyer starts diligence. The cost of a weak governance framework is almost always incurred at one of those moments, long after the decision itself.
Related: Our corporate governance practice builds and repairs these arrangements for UAE-registered companies and groups.
Governance is a set of documents, not a philosophy
In practice, a company’s governance consists of five things a third party can actually read: the constitutional documents filed with its registrar; a written schedule of who may commit the company and up to what value; the minutes and written resolutions of the board and the shareholders; the registers of shareholders, directors and beneficial owners; and the powers of attorney that have been issued and not withdrawn.
Everything else — codes, charters, statements of values — is commentary. When something goes wrong, those five items are what will be produced, and their absence is what causes the loss.
Authority is the expensive one
The single most common governance defect in UAE companies is uncertainty about who can bind the company. It produces two opposite problems. In the first, a manager signs a commitment the shareholders never approved, and the company either honours it or spends money arguing that it should not. In the second, a general power of attorney issued years ago to a departed employee is still on foot, and nobody has revoked it.
The fix is unglamorous. A written delegation of authority stating who signs what, at what value, and what must go to the board or the shareholders. A register of every power of attorney granted, with its scope and its revocation date. And a rule that bank mandates and licensing-authority signatory records are updated in the same week a signatory leaves, not at the next renewal.
For mainland companies the outer limits are set by the Commercial Companies Law, Federal Decree-Law No. 32 of 2021, which fixes certain matters by reference to the form of the company and leaves others to the constitutional documents. DIFC and ADGM companies are governed by the companies legislation of those jurisdictions. In each case, the point is the same: an internal delegation that contradicts the filed constitution will not help you in front of the person asking the question.
Related: See our governance advisory work on delegated authority and board procedure.
Related-party dealings became a tax question
Transactions inside a group — management charges, intercompany loans, shared staff, a parent absorbing costs — used to be a shareholder issue. Since the introduction of corporate tax under Federal Decree-Law No. 47 of 2022, applying to financial years starting on or after 1 June 2023, they are also a filing issue. Taxable income is derived from the accounts, and a charge between related entities that has no documented commercial basis is a position the company will struggle to support if it is examined.
The governance answer is not complicated: related-party arrangements should be approved by people who are not on both sides of them, recorded in writing when they are made rather than reconstructed afterwards, and priced on a basis somebody can explain. The rates themselves are straightforward — nil on taxable income up to AED 375,000 and 9% above it — but the rate is not the risk. The risk is a set of intercompany numbers nobody can justify.
Related: We work alongside our corporate tax compliance team where governance and tax positions overlap.
Who is actually watching depends on where you registered
A mainland company answers to its licensing authority and to the federal companies regime. A DIFC or ADGM company answers to that centre’s registrar. A firm carrying on regulated financial services answers, in addition, to the Dubai Financial Services Authority in the DIFC or the Financial Services Regulatory Authority in ADGM, and for those firms governance is a licence condition rather than good practice: fitness of controllers, senior appointments, conflicts policies and record-keeping are supervised directly.
Groups often miss the distinction. A holding company in a financial centre with trading subsidiaries onshore has two governance regimes running at once, and the board packs, the approval thresholds and the record-keeping have to satisfy both. Adopting the stricter of the two across the group is usually cheaper than maintaining two standards.
Subsidiary boards that never meet
The most frequent finding in diligence on a UAE group is a set of subsidiaries whose boards have not met, whose registers stopped being updated some years ago, and whose decisions were in reality taken at the parent. It is fixable, but it is fixed retrospectively, under time pressure, by lawyers, in the middle of a transaction — which is the most expensive way to do it. Where a subsidiary’s minute book cannot show that it approved the transactions it entered into, a buyer will ask for an indemnity or hold back part of the price.
Directors’ duties are owed to each company individually, and personal exposure attaches to the individuals who hold the office. Where a group appoints the same three people to every subsidiary board as a formality, those people carry that exposure whether or not they attended anything.
Where the money is saved
Governance saves money in three places, and it is worth being plain about which. It shortens diligence, because the answers already exist in a form a buyer’s advisers can verify. It keeps disputes short, because contemporaneous minutes end arguments that recollection prolongs. And it keeps regulatory and tax enquiries proportionate, because a company that can produce its approvals and its related-party documents on request is not a company that gets examined further.
None of that requires an elaborate structure. It requires a constitution that matches practice, an authority schedule that is followed, minutes written in the week the decision is taken, and registers somebody is responsible for keeping.
Related Services: Explore our Corporate Governance Framework 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
