Abu Dhabi Court of Cassation, Commercial Appeal No. 375 of 2024, judgment of 29 April 2024
Commercial companies are governed by the Commercial Companies Law, not the civil-law rules on partnerships, except where that law is silent. Article 677 of the Civil Transactions Law, which lets a majority of partners ask the court to expel a partner for serious reasons, applies to civil companies and to partnerships based on the personal relationship between partners, not to capital companies such as the LLC. The Companies Law contains no mechanism for expelling an LLC partner; a manager can be removed and a partner can transfer his shares, but while the company exists and he keeps his shares, a partner cannot be forced out.
The holder of 51% of an Al Ain limited liability company, formed in 2000, sued the 49% partner, who managed the company, asking the court to expel him and to transfer his 49% to the claimant against payment of AED 73,500, the nominal value of the shares. He alleged that the manager had tried to appropriate the business, paid no profits, prepared no accounts, refused access to the books and never called a general assembly, in breach of Articles 84, 87, 91 and 92 of the Commercial Companies Law, and relied on Article 677(1) of the Civil Transactions Law. Earlier, the manager had failed in a claim that he was the real owner and the claimant only a nominal sponsor (appeal 806 of 2023). The courts below dismissed the expulsion claim.
The Court of Cassation held that whether a company is civil or commercial depends on its form and its main activity as defined in its memorandum; a company carrying on commercial acts under Articles 4 to 7 of the Commercial Transactions Law is commercial. Under Article 3 of Federal Decree-Law No. 32 of 2021, the Companies Law governs commercial companies, and civil-law rules apply only to civil companies or where the commercial legislation is silent. Commercial companies are either partnerships, based on the personal relationship between partners, or capital companies such as the LLC, where each partner's liability is limited to his contribution. The Companies Law contains no provision allowing an LLC partner to be expelled, because the LLC is formed for a business project irrespective of the partners' identity, a partner may transfer his shares without affecting the company's continuity, and management rests with the manager. Article 677 of the Civil Transactions Law is therefore confined to partnerships. The claimant had not sought the manager's removal, so his complaints about breaches of the manager's duties were beside the point. Any incorrect legal statements in the decision below did not matter because its result was right. The appeal was dismissed.
Deadlocked LLC shareholders in the UAE sometimes try to buy out a co-shareholder through the courts at nominal value. This judgment closes that route: there is no judicial expulsion of an LLC partner. The available remedies lie elsewhere, such as removing the manager, claiming damages or profits, negotiated share transfers, or dissolution, so shareholder agreements and the memorandum of association are the practical place to provide for exit and buy-out mechanisms.
| Articles 3, 84, 87, 91 and 92 of Federal Decree-Law No. 32 of 2021 (Commercial Companies Law) — text of articles 3, 84, 87, 91, 92 |
| Articles 4 to 7 of Federal Decree-Law No. 50 of 2022 (Commercial Transactions Law) — text of articles 4, 5, 7 |
| Article 677(1) of Federal Law No. 5 of 1985 (Civil Transactions Law) — text of article 677 Decided under this law; it has been replaced by Civil Transactions Law 2025. |
“فإن تطبيق المادة 677 من قانون المعاملات المدنية بشأن فصل الشركاء يقتصر على شركات الأشخاص”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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