Acts Prohibited for the Manager in General Partnership Companies

A general partnership is one of the most important forms of partnership companies recognized by the UAE Commercial Companies Law issued under Decree No. (32) of 2021. It is based on personal consideration and mutual trust among the partners. The UAE legislator defined it as:

“…a company formed by two or more natural persons who are personally and jointly liable, in all their assets, for the company’s obligations.”

A general partner in such a company acquires the status of a merchant and is deemed to be conducting commercial activities personally under the company’s name. Importantly, the declaration of bankruptcy of a general partnership automatically entails the declaration of bankruptcy of all its partners by operation of law.

The management of the company is, in principle, entrusted to all partners, whereby each partner in a general partnership is considered an agent of the company and of the other partners in matters related to the company’s business—unless the memorandum of association or a separate agreement entrusts management to one or more partners or even to a non-partner. A non-managing partner may not interfere in management unless otherwise agreed, but he may request access to the company’s records and documents, review its activities, and provide observations to the manager.

Given the extensive legal liability of each partner, the day-to-day management of the company is often delegated to one or more managers who legally represent the company before third parties and act on its behalf in transactions and contracts.

However, since the manager’s decisions directly affect all partners, the law does not grant him unlimited authority. Instead, it imposes specific restrictions on certain acts, which the manager may not perform without the consent of all partners or unless explicitly authorized by the company’s memorandum of association. Article 49 of the UAE Commercial Companies Law of 2021 enumerates these prohibited acts, which include:

• Making substantial donations;

• Selling or mortgaging the company’s key assets, such as real estate or essential holdings (this prohibition applies even if the manager is generally authorized to sell the company’s real estate);

• Acting as a guarantor for third-party obligations;

• Selling, mortgaging, or leasing the company’s commercial establishment (its business or “store”).

Moreover, the manager is prohibited from entering into contracts for his own account or for the account of any of his relatives up to the second degree with the company, unless a written authorization from all partners is granted for each specific case. Likewise, the manager may not engage in any business similar to that of the company without a written authorization from all partners, which must be renewed annually.

The purpose of these restrictions is to protect the company’s assets and preserve the trust among partners. Collectively, they serve as safeguards for the rights of both the partners and third parties dealing with the general partnership.