Ask the Law: Businessman cannot force partners to buy his shares in UAE
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Question 1. I am a partner in a company. Currently I am in a dispute with the partners. Due to the dispute, I wished to leave the company and asked the partners to buy my shares. However, the partners asked me to search for a buyer from outside the company, as they were unable to buy my share and I, on my part, did not get any buyer. I want to leave the country. My question is, do I have the right to legally force them to buy my share? What is the appropriate measure to take against them to force them to buy my stake and leave the company?
Answer: The partner cannot force other partners to buy his share. The partners in such case must return to the MOA (Memorandum of Association) of the company which constitutes the way to deal with the assignment of the partner’s share.
As a general rule, the partner can assign or pledge his share unless the transfer or pledge violates the provisions of the Memorandum of Association or Law — taking into consideration that the other partners has the priority to pre-empt the share. Article 79 of Federal Law No. 2 of 2015 Issued on 1/04/2015 on commercial companies states — 1: A partner may assign or pledge its share in the company to another partner or to a third party. Such assignment or pledge shall be made in accordance with the terms of the Memorandum of Association of the company under an official document, in accordance with the provisions of this law. Such assignment or pledge shall not be valid against the company or third parties until the date of its entry in the Commercial Register with the competent authority. 2: The company shall not reject then entry of such assignment or pledge in the register unless the transfer or pledge violates the provisions of the Memorandum of Association or this Law.
The partner may demand the dissolution of the partnership and request the recovery of his share. But this demand is bound with reasons indicated by the law regarding the dissolution of the companies (which depends on the type of the company) or in the MOA of the company. He may request to dissolve the partnership for the non-performance by a partner or for having caused a serious damage to the company, but in this case he is responsible to prove this non-performance in front of the court.
Article (676) of Federal Law No. (5) of 1985 on the civil transactions law of the UAE states that the court may, on the demand of any one of the partners, order the dissolution of a partnership for non-performance by a partner of his obligation, or for having caused a serious damage to the partnership as a result of his management.
It is decided by Dubai Court that the dissolution of commercial companies in general, including companies with limited liability, is only for one of the reasons mentioned in Article 281 exclusively or for the objective reasons indicated in the contract of incorporation (MOA), and in the limited liability company if its losses reach the limit indicated in Article 289. The partner in the limited liability company is not entitled to request the dissolution of the company for other reasons.
It is also decided by Dubai Court that whenever the establishment of the company has been proven, the partner may not request the recovery of his share in the capital unless one of the reasons for the company’s termination or after his request to terminate the company’s contract and liquidate its funds and divide it among the partners following the provisions set forth in Articles 294 to 310 of Federal Law No. 8 of 1984 of commercial companies, unless the company’s contract or statute stipulates the method of liquidation, or the partners agree on dissolution of the company.
Question 2: As per the labour law, does the employer has the right to downgrade the employee position and refuse to pay the bonus and also reduce the salary? The reason for that is to force the employee to submit his resignation. Please advise me what action I supposed to take against the employer as per the UAE Labour Law.
Answer: As per the Dubai Supreme Court, downgrading an employee in the job by the employer for no reason is considered a form of arbitrary dismissal and the submission of resignation by the employee, in this case, is an expression of his disagreement to such undue downgrade. Also, the employer, by doing so, is in breach of his obligations towards the employee, which entitles the employee to quit work and has the right to obtain all dues along with compensation for the arbitrary dismissal. Therefore, I would advise the questioner to file a labour complaint against the employer, if he failed to reach an amicable solution with the employer to claim for all his rights.