A limited liability company (LLC) is defined in Article (71/1) of Federal Decree-Law No. 32 of 2021 regarding Commercial Companies Law, referred to as the UAE Companies Code, as “A company in which the number of shareholders is not less than two and does not exceed (50) fifty shareholders, and each shareholder is only liable to the extent of their share in the capital”.

Upon reviewing the Companies Codein general, the law organizes the forms of companies according to Article (9) and allocates a section for each company in the law, detailing the definition, name, contract, establishment procedures, and so forth. The LLC is one of the forms of companies subject to the UAE Commercial Companies Law.

Part Three, Chapter One of the Companies Codeis dedicated to limited liability companies (LLCs) (Articles 71 to 104). This chapter defines the company, the number of shareholders, the liability of each shareholder, the general assembly meetings, and other relevant aspects. The legislator has considered that this chapter encompasses everything related to companies in general and LLCs in particular.

However, the legislator has overlooked a key point related to disputes between shareholders: the desire of shareholders to remove a shareholder or a shareholder’s request to leave the company.

Looking at the Companies Code, it does not address the conditions or reasons for dismissing or removing a shareholder, leaving the matter for the courts to decide.

Returning to the UAE Civil Transaction Law referred to as the ‘UAE Civil Code’, this matter is regulated under Article (677), which states:

1. The majority of the shareholders may apply to the Court for the exclusion of any shareholder, whenever their request is based on serious grounds, justifying such exclusion.

2. A shareholder may also, if the duration of the partnership is fixed, apply to the Court to authorize his retirement from the partnership if he gives adequate reasons for his request.

3. In both the above instances, the discharged or retired shareholder’s share shall be governed by the provisions of Article (675/2) and such share shall be estimated according to its value as at the date of introducing the case in Court”.

According to the prevailing and established legal principles in the UAE, specific laws take precedence over general laws. However, in the absence of specific provisions, reference should be made to the general law. This principle was affirmed in a judgment by the Federal Supreme Court, which stated, “It is established jurisprudence that reference should be made to the general law in matters not addressed by the specific law.”

Therefore, applying the legal principle, the shareholders have the right to request the expulsion or removal of a shareholder under “Article (677) of the UAE Civil Code” due to the absence of specific provisions in the Commercial Companies Law.

Turning to the UAE Courts of Cassation (Federal Supreme Court, Dubai Court of Cassation, and Abu Dhabi Court of Cassation), each court has taken a separate stance regarding the expulsion or removal of a shareholder from an LLC.

The Federal Supreme Court in its recent judgments, has determined that reference should be made to general law where specific law is silent. Upon reviewing the Companies Code, it found no provision granting the majority of shareholders the right to request the expulsion/ removal of a shareholder.

The Court noted that expelling or removing a shareholder does not affect the company, as it continues amongst the remaining shareholders. The expelled shareholder is entitled to their share of the company’s assets, valued at the date of filing the case.

The Federal Supreme Court, in their Judgement, no. 108/2024 (Commercial Cassation), concluded a legal principle stating: “It is established that reference should be made to general law where specific law is silent. Upon reviewing the Commercial Companies Law, it is found that there is no provision granting the majority of shareholders the right to request the expulsion of a shareholder. The Civil Code, in Chapter Three of Book Two on contracts, regulates this in Articles 654 to 709, with Article (677) stating: “1. The majority of the shareholders may apply to the Court for the exclusion of any shareholder, whenever their request is based on serious grounds, justifying such exclusion / 2. A shareholder may also, if the duration of the partnership is fixed, apply to the Court to authorize his retirement from the partnership if he gives adequate reasons for his request / 3. In both above instances, the discharged or retired shareholder’s share shall be governed by the provisions of Article (675/2) and such share shall be estimated according to its value as at the date of introducing the case in Court”. Therefore, the company continues among the remaining shareholders, and the expelled shareholder is entitled to their share of the company’s assets, valued at the date of filing the lawsuit.”

Based on this legal principle, the Federal Supreme Court adopted Article (677) of the UAE Civil Code, applying it to issues related to the expulsion or removal of a shareholder from a company due to the absence of specific provisions in the Companies Code.

Regarding the Dubai Court of Cassation, it has taken a different approach. The court ruled that a shareholder in an LLC cannot be removed as long as the company exists, retaining their shares in it as the relationship between shareholders is not based on personal considerations.

The Article (677) of the Civil Code requires serious reasons to justify the expulsion or removal, and it is up to the trial court to determine the existence of such reasons without interference from the Court of Cassation. Since an LLC is a capital company, a shareholder cannot be removed because the company does not rely on personal considerations among shareholders.

The Dubai Court of Cassation in judgment no. 1441/2022 (Commercial Cassation), stated that, “A shareholder cannot be removed from an LLC as long as the company exists and retains their shares in it. The relationship with the shareholders is not based on personal considerations, and the company is not harmed by a shareholder as long as they have no connection with its management. If there are damages, the shareholder responsible as a manager is accountable, not as a shareholder.”

Thus, the approach of the Dubai Court of Cassation differs entirely from the Federal Supreme Court’s approach.

On the other hand, the Abu Dhabi Court of Cassation has taken another distinct approach, differentiating between capital companies and personal companies. It applies Article (677) of the Civil Code only to personal companies, not capital companies, because personal companies rely on personal considerations of shareholders, whereas shareholders in capital companies, including LLCs, is not based on personal considerations. If a shareholder in such a company exceeds their authority, the company can seek compensation, but the shareholder cannot be removed as long as the company exists.

The Abu Dhabi Court of Cassation, in Judgement no. 375/2024 (Commercial Cassation) stated: “The provisions of the Commercial Companies Law do not allow the expulsion of a shareholder from an LLC. The purpose of forming these companies is to undertake specific projects regardless of the shareholders’ identities. A shareholder in an LLC can transfer their share to another shareholder or a third party without affecting the company’s continuity. The company’s management is entrusted to its director, regardless of their personality.

Therefore, Article (677) of the Civil Code concerning the expulsion of shareholders applies only to personal companies, not capital companies. A shareholders’ relationship with the company and its general assembly is subject to legislative regulations, and the company can seek compensation for any excesses by the shareholder.”

In summary, there is a divergence among the UAE Courts of Cassation regarding the application of Article (677) of the Civil Code to commercial companies. Each court has settled on a different view, with no consensus on a unified ruling for this legal provision.

As the Civil Code is the foundation law, its provisions should be applied when the matter is not covered by specific legislation and in the absence of such an article,we argue that the Commission for the Unification of Federal and Local Judicial Principles (“CUFLJP”)should issue a principle regarding this matter to unify legal practices. We believe that since the issue of shareholder dismissal is not addressed in the Commercial Companies Law, the Civil Code should be applied according to the legal principle which states “in the absence of a specific provision, the general law shall apply”.