Legal view : Removing a partner from an LLC

Mr P. Ch. R. Dubai: I had formed a limited liability company with a UAE national and two of my friends.

After that, we passed a resolution determining to appoint one of the shareholders (partners) as the manager of the company. The said manager abused the powers vested in him and mismanaged the company. Is it possible to remove this partner from the management of the company and exclude him from the partnership?

Answer: It is expressly stipulated under the provisions of Articles 245, 249 and 250 of the Commercial Companies Act that if the company's manager is not appointed under its Memorandum of Association in accordance with the provisions of Articles 235 and 236 of the same Law, then it is permissible to remove him under a resolution to be passed by the company's General Meeting and under the approval of such number of shareholders representing at least 75 per cent, unless higher majority is expressly stated in the company's Memorandum of Association. The partner manager is not allowed to vote on the resolution for his removal, and as a result his vote is not accounted for.

Furthermore, according to Article 289 of the Commercial Companies Act, it is permissible to wind up (dissolve) the limited liability company under a resolution from the General Meeting and under the majority required for the amendment of its Memorandum of Association in case the company sustained losses amounting to half of its capital.

Yet, the Law does not empower the shareholders (partners) General Meeting to exclude one of them while the company is still in existence and he is holding his shares in the company so long as his relationship with the company and other partners, in the limited liability company, is not built on personal considerations among the shareholders.

Above all, a company should not sustain damage by one of the partners merely for being a holder of shares so long as he has no relations with its management.

Free Zone branch

Mr. S. T., Kerala: Three years ago an associate and myself, negotiated with a UAE national, and set up a branch of a Dubai-based establishment, in the Sharjah Airport Free Zone. The branch in the Free Zone was completely capitalised by me. The branch was set up after the UAE national lent his name. We now understand that the Dubai licence of the establishment is unlikely to be renewed due to financial problems. If so what are our options?

(i) Can we continue operations of the branch in the Free Zone, even if the Dubai licence expires?

(ii) We have approached the owner of the Dubai establishment to convert the existing Free Zone operations into a Free Zone Company, and the response is negative. Do we have any options? What are the formalities?

Answer: The existing licence issued from the Sharjah Airport Free Zone will clearly indicate the operations as 'XYZ Est., a branch of ABC Est., Dubai.' An establishment is a general description of a non-corporate business owned and managed by UAE citizens in the various emirates. The individual is the licensed proprietor, and liable for all the debts. This applies to the establishment in the Free Zone, which you 'have capitalised.'

We note the Dubai licence is likely to expire, and you will have to directly negotiate with the establishment proprietor, and find out means to settle the renewal charges to ensure the validity of the licence.

At this juncture, you should treat the renewal of the Free Zone licence as a priority. Till date you were managing the operations in the Free Zone, and accordingly you need to ensure the licence permitting operations in the Free Zone is renewed. Accepting that you have funded the operations, you have no legal right over the establishment, as it is likely that you have also used the profits to your benefit, with the consent of the proprietor.

As to conversion of the establishment into a Free Zone Company, you need:

(i) to renew the Free Zone licence in the name of the proprietor.

(ii) to request the proprietor to apply to the Free Zone Authority to close the existing operations.

(iii) to apply for reconstituting the establishment into a Free Zone Company.

Once the above procedures are finalised, the Free Zone Authority would positively respond to the request and your interest will be secured as a shareholder/director in the Free Zone Company as opposed to continually funding the operations of an establishment.

The Free Zone Company must have a minimum of two and a maximum of five shareholders with limited liability, limited to the extent of the paid up share capital. The share capital of Dh150,000 up to Dh500,000 must be fully paid up in cash at the time of incorporation, unless otherwise permitted by the authority.

Resignation

Mr. Om, Abu Dhabi: I am working with a 100 per cent local company, for the last six and half years. Due to health reasons I tendered my resignation. The company now refuses to pay my leave salary, and return ticket citing my resignation as a reason for refusal. I have not availed my leave for the last one and half years, and my visa renewal, health card fees are all paid by me. Please advise me?

Answer: We do not know anything about the duration of your Contract of Employment, whether it is of limited or unlimited period, yet we would advise as follows:

According to the provisions of Article 137 of the UAE Labour Law No. 8 of 1980, if the contract of employment is for an unlimited period, and the resignation is tendered after a continuous service of not less than one year and not more than three years, the employee is entitled to one third of the end of service gratuity. If the continuous service is more than three years and less than five years he is entitled to two thirds of the gratuity. If the continuous service is more than five years, he is entitled to the full gratuity.

If the contract of employment is for a limited period, and the resignation is tendered before the expiry of the contract, then end of service benefits will not be paid as per the law, except if the continuous service exceeds five years. This is clarified under the provisions of Article 138 of the same law.