Resolving Partnership Agreement Disputes Effectively
Partnership agreements form the backbone of collaborative business ventures, defining the rights, duties, and expectations of involved parties. However, disputes arising from these agreements can destabilize
Partnership agreements form the backbone of collaborative business ventures, defining the rights, duties, and expectations of involved parties. However, disputes arising from these agreements can destabilize
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
Partnership disputes are rarely disputes about law. They are disputes about three things: money coming out of the business, who decides, and how someone leaves. The agreement either has a mechanism for each of these or it does not, and that single fact determines whether the disagreement takes six weeks or three years.
Related: See our partnership agreement practice for the drafting side of this work.
Establish which document actually governs
This sounds elementary and it is where a surprising number of UAE partnership disputes are won or lost. Business partners routinely describe their arrangement as a partnership when the vehicle is in fact a limited liability company incorporated under Federal Decree-Law No. 32 of 2021 on Commercial Companies, which replaced Federal Law No. 2 of 2015. In that case the constitutional document is the notarised memorandum of association held by the licensing authority, not the shareholders' or partnership agreement signed privately afterwards. Where the two say different things about voting, profit distribution or transfer of shares, the notarised document is the one the registrar and an onshore court will work from, and the private agreement operates only as a contract between the people who signed it.
The position differs in the financial free zones. DIFC and ADGM are common-law jurisdictions with their own company and partnership statutes, including distinct forms of limited partnership and limited liability partnership, where the partnership deed does most of the work. And an arrangement that was never incorporated at all, a purely contractual joint venture between two licensed businesses, is governed by the contract and by the general law of obligations under Federal Decree-Law No. 50 of 2022 on Commercial Transactions, which replaced Federal Law No. 18 of 1993. The same question arises under a franchise agreement or a joint venture agreement: what has actually been registered, and what merely signed.
Until that is settled, nobody can say who is entitled to what, or which forum decides. It should be the first hour of work on any partnership dispute, not the last.
The dispute resolution clause may name an institution that no longer exists
The arbitration clause in an older UAE partnership agreement needs reading again before anyone relies on it. The DIFC-LCIA Arbitration Centre was abolished by Dubai Decree No. 34 of 2021 and its caseload transferred to the Dubai International Arbitration Centre. In Abu Dhabi, ADCCAC was restructured and has operated as arbitrateAD since 2024. Agreements are still in force across the market naming institutions and rules in the form they took before those changes.
How such a clause operates now is a question that has had to be argued, at cost, before the substance of anyone's dispute was reached. If the partnership is functioning, the sensible step is to agree a replacement clause in writing while relations are good enough for that to be a five-minute conversation. If the partnership is not functioning, expect the other side to take a point on it.
Related: Our partnership agreement team reviews and replaces dispute resolution clauses in existing agreements.
What partnership fights are actually about
Money coming out
The recurring complaint is not theft but drawings: one partner taking salary, expenses, a company car and related-party payments while the other takes a share of declared profit that never quite gets declared. Most agreements set out how profits are shared and say nothing about how they are determined. The fix, both in drafting and in resolving a live dispute, is an accounts mechanism: who prepares the figures, on what basis, who audits them, and what happens when a partner disputes them. Expert determination of an accounting question is faster and cheaper than putting the same question to a tribunal.
Control and deadlock
A fifty-fifty partnership with no casting vote and no deadlock provision is not a governance structure; it is a mutual veto. When it fails, the business freezes: no accounts approved, no manager appointed, no bank mandate changed. Onshore, the memorandum of association and the Commercial Companies Law supply some default answers about general assembly majorities, but they are rarely the answers the partners would have chosen. A deadlock clause that actually resolves matters, whether by an escalation to the principals, a referee, a buy-out trigger or an agreed separation of the business, is worth more than any other clause in the agreement.
Exit and valuation
Nearly every partnership dispute ends with one partner buying out the other or the business being wound up. The agreements that resolve quickly are the ones that state a valuation method rather than leaving it to be agreed. "Fair value as agreed between the partners" is not a mechanism. A named basis of valuation, a named class of valuer, a timetable and a default rule if a party will not participate turn the endgame into an administrative exercise. Transfer restrictions matter here too: pre-emption rights, tag-along and drag-along provisions, and, onshore, the reality that a share transfer must be notarised and registered before it takes effect against the company.
Choosing the forum with the trade-offs in view
The choice is not simply arbitration versus court. It is which court, and where the arbitration is seated.
Onshore proceedings are before the local courts, conducted in Arabic, with every document translated, and on a civil law model that does not offer the document disclosure a party from a common-law background will expect. The DIFC and ADGM courts operate in English on common-law lines with their own judiciary, but a partnership without a real connection to either free zone will normally need to have opted in by agreement for them to hear the case.
Arbitration seated onshore is governed by Federal Law No. 6 of 2018, as amended in 2023, with DIAC the principal institution in Dubai and arbitrateAD in Abu Dhabi. DIFC remains available as a seat, which brings the DIFC courts in as the supervising jurisdiction. Awards benefit from enforcement under the New York Convention, which matters where a partner or the assets sit outside the UAE. Against that, arbitration is not cheap and does not suit a dispute that is really about an unpaid sum with no defence, where a court is faster.
The first fortnight of a live dispute
- Secure the records before access is withdrawn: accounts, bank statements, the corporate register, board and general assembly minutes, and the correspondence.
- Read the escalation clause and comply with it. Skipping a contractual notice or negotiation step is the most common way to lose a jurisdictional argument that should never have arisen.
- Do not change bank mandates, remove a partner's signing authority or lock anyone out of the premises unilaterally. It converts a commercial dispute into a personal one and hands the other side a grievance.
- Check what is registered against what was agreed, including the manager of record and the shareholding at the licensing authority.
- Take advice on time limits early. They vary with the nature of the claim, and they are not extended by the fact that the parties were still talking.
Drafting so that the next dispute is shorter
The agreements that hold up have unremarkable features in common. One governing law and one forum, stated consistently across the memorandum of association, the shareholders' agreement and any side letters, so there is nothing to argue about. A deadlock mechanism that produces an outcome without anyone's consent. A named valuation basis. An accounts and information regime, so a partner can see the numbers without a court order. Defined events of default with defined consequences. And a clause the parties actually read before signing, rather than one carried over from an unrelated deal. Reviewing an existing partnership agreement against these points takes an afternoon; discovering the gaps in the middle of a dispute takes considerably longer.
Related Services: Explore our partnership agreement advisory and partnership agreement strategy 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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