General Reasons for the Dissolution of Companies under UAE Federal Law No. 32 of 2021

Mohamed Al-Raai
Legal Researcher at Zayed Al Shamsi Advocates and Legal Consultants.

• A company is defined in law as an agreement between two or more persons whereby each undertakes to work with the aim of making a profit, by contributing a share of money or work, and sharing in any profit or loss that may arise from the project. Federal Decree-Law No. 32 of 2021 on Commercial Companies stipulates that a company is any relationship arising from a contract between two or more persons with the intention of engaging in an economic activity for the purpose of making a profit, and it enjoys an independent legal personality.
• A company, in its nature, resembles a natural person; it is born when it is established and registered with the official authorities such as the Department of Economic Development or the Ministry of Economy, lives through the practice of its commercial or professional activity and its pursuit of the objectives for which it was established, and dies or is dissolved when one of the legal causes that ends its legal personality is fulfilled, whether that be a natural cause such as the end of its duration, by the will of the partners, or by a judicial ruling. This analogy clarifies that a company is not merely a paper entity, but a legal entity with a full life cycle independent of its owners and with its own financial liability.
• Article 302 of the Commercial Companies Law outlines the general reasons for the dissolution of companies. It states that, without prejudice to the specific provisions on the dissolution of each type of company, a company may be dissolved for several reasons. These include the expiration of the period specified in the company’s Memorandum of Association or Articles of Association unless it is renewed in accordance with the provisions therein; the achievement of the purpose for which the company was established; or the loss of all or most of the company’s assets such that continuing its activity becomes economically unfeasible. Merger is also considered a cause for dissolution, as a company is dissolved if it merges with another company in accordance with the provisions of the law, and its rights and obligations are transferred to the merging or resulting entity. Furthermore, the partners may agree, either unanimously or according to the majority specified in the contract, to dissolve the company before the end of its term. Lastly, the company may be dissolved by a judicial ruling from the competent court in the event of legal grounds, such as a dispute between the partners, engaging in illegal activities, or the occurrence of fraud.
• It is understood from this that the dissolution of a company does not merely mean the cessation of its activities, but is a legal procedure that leads to the final termination of its legal personality, after which it enters a liquidation phase during which its rights and obligations are settled. Hence, it is important for all parties involved in the management of companies to understand these reasons to ensure compliance with the law and avoid any future legal liabilities associated with the dissolution of the company.