The Strategic Guide to Partnership Agreement in the UAE

A partnership agreement earns its cost on the day the partners stop agreeing. Everything else it does — recording who put in what, who decides what, how profits are shared — is preparation for that day. In the UAE the drafting has a further dimension: the same commercial arrangement can be housed onshore, in the Dubai International Financial Centre (DIFC) or in the Abu Dhabi Global Market (ADGM), and the default rules that fill the gaps in the agreement differ in each.

This guide covers the choice of vehicle and jurisdiction, the terms an agreement has to settle before the business starts trading, how the DIFC and ADGM regimes differ from the onshore position, and how to write a dispute clause that works when it is needed. Advice on a partnership agreement is most useful before the parties have shaken hands on heads of terms they will later be reluctant to reopen.

The vehicle and the jurisdiction

Onshore, business vehicles are governed by Federal Decree-Law No. 32 of 2021 on Commercial Companies, which came into force on 2 January 2022 and replaced Federal Law No. 2 of 2015. It recognises the general partnership, in which the partners are jointly liable for the firm's obligations, and the limited partnership, which separates managing partners from partners whose exposure is limited to their contribution. In practice most joint ventures between commercial parties are housed in a limited liability company rather than a partnership proper, and the "partnership agreement" is a shareholders' agreement sitting alongside the memorandum of association.

The ownership position has changed and is still frequently misstated. Federal Decree-Law No. 26 of 2020, effective 1 June 2021, removed the requirement that a UAE national hold 51% of a mainland LLC. Full foreign ownership is now permitted for most mainland activities, subject to a list of activities of strategic impact and to the activity schedule each emirate applies. That is separate from the local service agent arrangement used by a foreign company's branch, which remains lawful and serves a different purpose. Any agreement drafted on the assumption that a local partner must hold a majority stake should be revisited.

Related structures raise the same questions in different form. A franchise agreement uae allocates brand control and territory rather than equity, while a joint venture agreement dubai may be purely contractual, with no vehicle incorporated at all. Choose the form before drafting the terms; retrofitting a contractual joint venture into a company is expensive.

What the agreement has to settle

The clauses that matter are the ones that operate without further consent from the other partner.

• Contributions. Cash, assets, licences, intellectual property, staff and customer relationships. State what is being contributed, at what value, and — for intellectual property — whether it is assigned to the venture or licensed to it. Licensed IP that walks out with a departing partner has ended more ventures than any drafting error.
• Further funding. What happens when the venture needs more money: who may call for it, on what notice, and what dilution or loan treatment follows if a partner does not contribute.
• Profit and loss. Distributions need not track shareholdings, but the agreement must say so expressly and set out when distributions are made and out of what.
• Management. Who runs the business day to day, what board or managers' committee exists, and which decisions require unanimity or a supermajority. A reserved-matters list that is too long produces paralysis; one that is too short produces surprises.
• Deadlock. Escalation to the principals, then mediation or expert determination, then a defined exit mechanism. A deadlock clause with no final step is not a deadlock clause.
• Transfers. Pre-emption rights, permitted transfers within a group, tag-along and drag-along rights, and a valuation method that does not itself require agreement to operate.
• Information. Access to the accounts and underlying records, the right to appoint an auditor, and management reporting. A partner without information cannot exercise any other right in the agreement.
• Restraints. Confidentiality, non-solicitation and any restriction on competing activity, drafted so that it remains enforceable in the jurisdiction chosen.
• Exit. Voluntary withdrawal, default and insolvency of a partner, death or incapacity of an individual partner, and how the business is wound up or bought out.

Reviewing a draft partnership agreement against that list usually reveals two or three items the parties assumed were covered and were not.

DIFC and ADGM

The DIFC and ADGM are common-law jurisdictions with their own courts, their own regulators — the DFSA and the FSRA — and their own companies legislation. For partnership drafting that produces three practical differences.

First, contractual freedom is broader. Shareholder and partner agreements in these centres can vary a wide range of default positions, allowing tailored classes of interest, weighted voting and negotiated indemnities. Second, the constitutional documents filed with the registrar and the private agreement between the partners must say the same thing; where they conflict, the registered document is what a registrar and, usually, a court will apply, and reconciling the two after a dispute has begun is costly. Third, proceedings are conducted in English before judges accustomed to commercial and financial disputes, which changes how evidence and expert accounting material are prepared.

A partnership agreement in the DIFC and ADGM therefore tends to be longer than its onshore equivalent, because more is left to the parties and less is supplied by statute.

The dispute clause

Write one dispute clause, not three. Inconsistent references to courts and arbitration in different parts of the same document, or between the shareholders' agreement and the constitutional documents, produce a preliminary fight before the actual dispute is reached.

For arbitration seated onshore, Federal Law No. 6 of 2018, as amended in 2023, applies. In Dubai, DIFC-LCIA was abolished by Decree No. 34 of 2021 and its cases moved to the Dubai International Arbitration Centre; clauses in existing agreements that still name the former institution should be checked. In Abu Dhabi, ADCCAC was restructured as arbitrateAD and has operated under that name since 2024. The DIFC remains available as a seat for arbitrations administered by other institutions. Whichever is chosen, state the institution, the seat, the language and the method of appointing the tribunal — and check that the clause matches the one in every related contract in the same transaction.

Practical steps for UAE businesses

Most of the work of partnership agreement compliance is done before signature, and consists of the following.

• Settle the vehicle and the jurisdiction before drafting substantive terms.
• Check whether the activity you intend to carry on appears on a restricted or strategic-impact list in the emirate concerned before assuming the ownership structure you want is available.
• Align the agreement with the memorandum or articles filed with the registrar, and update both together.
• Make sure every exit route has a valuation method that operates without further agreement.
• Record contributions of intellectual property in writing, with an assignment or a licence that survives a partner's departure.
• Review the agreement when the business changes shape — new funding, new activity, new partner — rather than only when a dispute arises.

Related Services: Explore our partnership agreement drafting and partnership compliance 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

Additional Resources

Explore more of our insights on related topics:

• The Strategic Guide to Franchise Agreement in the UAE
• The Strategic Guide to Shareholders Agreement in the UAE
• The Strategic Guide to Prenuptial Agreement in the UAE
• Resolving Partnership Agreement Disputes Effectively