Strategic Corporate Governance Framework in the UAE: Navigating Legal Framework with Precision

The first sign of a governance failure is almost always a missing document. A board cannot produce the resolution that authorised a transaction. The register of members has not been touched since incorporation. A related-party contract turns out to have been signed by the same person on both sides. None of this is exotic, and all of it becomes expensive the moment somebody — a regulator, a buyer’s due diligence team, a departing shareholder — asks to see the file.

Start with the instrument that governs the company

Mainland companies answer to Federal Decree-Law No. 32 of 2021 on Commercial Companies, which replaced Federal Law No. 2 of 2015. It fixes the floor: what the memorandum of association must contain, which decisions belong to the general assembly rather than to management, how managers and directors are appointed and removed, the obligation to keep accounting records, and the conditions attaching to distributions. A shareholders’ agreement can add to that floor. It cannot sit below it, and a clause that contradicts the statute will not protect a board that relied on it.

One legacy point deserves attention. The requirement for majority UAE-national ownership of mainland LLCs was removed by Federal Decree-Law No. 26 of 2020, and most mainland activities can now be wholly foreign-owned, subject to a strategic-impact list. Many companies changed their shareholding and stopped there. The side arrangements built around the old position — nominee declarations, blanket powers of attorney, undated share transfer forms — often stay on file, contradicting the current register and confusing anyone who later reads the constitutional documents as a set. Unwinding them is unglamorous work that pays off at exit.

The DIFC and the ADGM are separate common-law jurisdictions with their own courts, regulators and companies statutes: DIFC Companies Law No. 2 of 2015 and the ADGM Companies Regulations 2020. Each addresses board composition, directors’ duties, disclosure and shareholder rights in its own terms, and each is administered by its own registrar. A DIFC entity does not discharge its obligations by complying with the federal law, and a group holding companies in more than one of these places is running more than one governance calendar. Working out which entity answers to which registrar, on what timetable, is where a corporate governance framework review begins.

Offshore companies, of which RAK ICC is the usual example, are formed under a regime oriented towards holding assets rather than trading locally. They still need governance records. Directors remain accountable to shareholders, beneficial ownership has to be recorded accurately, and the entity has to satisfy anti-money-laundering expectations whenever it opens accounts or transacts. One obligation has narrowed: the Economic Substance Regulations were cancelled for financial years ending after 31 December 2022 by Cabinet Decision No. 98 of 2024, so those filings survive only for the financial years 2019 to 2022. Older years still surface in due diligence, and whether the notifications and reports were made should be established before a buyer asks.

What a board has to be able to produce

Governance quality is measurable in documents. The set a UAE board should be able to hand over at short notice is short and specific:

• the constitutional documents as currently in force, with every amendment properly passed and registered;
• a register of members and a register of directors or managers that agree with the trade licence and with the registrar’s record;
• minutes of board and general assembly meetings that record the decision, the date, who attended and who abstained;
• a written schedule of authority: whose signature commits the company to what value, and above which threshold the board must approve;
• a register of directors’ interests, updated when an interest changes rather than once a year as a formality;
• audited financial statements where the entity’s governing law or licence requires them.

Larger and regulated companies delegate to committees — audit, remuneration, risk. A committee earns its place only if its terms of reference state what it decides and what it merely recommends, and if its minutes go back to the full board. Without that, a committee adds meetings and removes accountability, because no one can later say who took the decision.

Independence, conflicts and the closely held company

The DIFC and ADGM regimes push companies towards independent and non-executive directors and towards a visible split between the people who run the business and the people who supervise it. The reasoning is plain: an executive cannot meaningfully review their own report, and an audit committee staffed by the finance function is an audit committee in name only. Where a director has an interest in a matter before the board, the workable practice is to record the interest, exclude that director from the vote, and note the exclusion in the minutes — so that the decision can be defended on the paper years later.

In family-held and closely held companies the pressure point is different. Ownership, management and the board are often the same three people, and trouble arrives as deadlock rather than as a challenge to a particular decision. The protections that work are drafted before the argument: quorum rules that do not let one branch of a family stall the company by staying away, reserved-matter lists that identify which decisions need more than a bare majority, pre-emption on share transfers, an agreed route to putting a price on a departing holding, and a dispute clause that names a forum rather than leaving it to be fought over. Retro-fitting any of these once relations have broken down requires the consent of the person they would constrain.

Where governance meets the tax and accounting file

Corporate tax under Federal Decree-Law No. 47 of 2022 applies for financial years starting on or after 1 June 2023, at 0% on taxable income up to AED 375,000 and 9% above that. Two consequences follow for governance. First, the accounting records that company law already required now support a filing position, so the board’s approval of the financial statements has a second audience. Second, because tax is computed entity by entity, intra-group arrangements that were previously handled as book entries — management charges, shared staff, loans between affiliates — need to exist as agreements the board actually approved, with terms someone can point to. Aligning the governance record with corporate tax compliance is easier done in the same exercise than in two.

A sensible order of work

Start by listing every entity in the group with its jurisdiction, its governing statute and its registrar. Then check the registers against the licences and against reality, since that is where most discrepancies live. Rebuild the minute book for decisions still being relied on. Put the schedule of authority in writing and circulate it to the bank signatories. Only then turn to committee structures and codes, which are cheap to write and worthless on top of records that do not reconcile. An annual corporate governance review keeps the exercise from becoming an archaeology project every few years.

Related services: our corporate governance advisory team advises boards on constitutional documents, board and committee structure, and the records that support them.

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

Additional Resources

Explore more of our insights on related topics:

• The Strategic Guide to Corporate Governance Framework in the UAE
• The Strategic Guide to Corporate Governance Advisory in the UAE
• Corporate Governance and Compliance: The Rules of the Road
• Resolving Corporate Governance Framework Disputes Effectively