A reader asks: Under UAE law, can I sell my share in a partnership firm to a third party?

Sale of shares in a partnership firm

Question: We are two partners in a company, with multiple partners. Currently, there is a dispute between the partners. So one of the partners and I decided to search for a buyer and leave the company. However, the other partners are not allowing a third-party buyer. They want to buy our shares, but at a price that is less than the market rate. We want to leave the country. So, how do we resolve this problem and leave the company? Please advise.

Answer: I would like to advise the questioner that the partners in this case must return to the MOA (Memorandum of Association) of the company, which constitutes the way to deal with the assignment of the partners’ share.

As a general rule, the partner can assign or pledge his or her share unless the transfer or pledge violates the provisions of the Memorandum of Association or the law — taking into consideration that the other partners have the priority to pre-empt the share. Article 79 of Federal Law No 2 of 2015, issued on April 1, 2015, on commercial companies states that (1 — A partner may assign or pledge its share in the company to another partner or to a third party. Such assignment or pledge shall be made in accordance with the terms of the Memorandum of Association of the company under an official document, in accordance with the provisions of law. Such assignment or pledge shall not be valid against the company or third parties until the date of its entry in the Commercial Register with the competent authority. 2 — The company shall then not reject the entry of such assignment or pledge in the register unless the transfer or pledge violates the provisions of the Memorandum of Association or this law).

The partner may demand the dissolution of the partnership and request the recovery of his or her share, but this demand has to be bound by reasons as indicated by the law regarding the dissolution of companies (which depends on the type of the company) or in the MOA of the company. A partner may request to dissolve the partnership for the non-performance by a partner or for having caused a serious damage to the company, but in this case, he or she is responsible to prove this non-performance in court.

Article (676) of Federal Law No (5) of 1985, on the Civil Transactions Law of the UAE, states that (The court may, on the demand of any one of the partners, order the dissolution of a partnership for non-performance by a partner of his obligation, or for having caused a serious damage to the partnership as a result of his or her management).

It is decided by Dubai Courts that (The dissolution of commercial companies in general, including companies with limited liability, is only for one of the reasons mentioned in Article 281 exclusively or for the objective reasons indicated in the contract of incorporation [MOA], and in a limited liability company if its losses reach the limit indicated in Article 289. The partner in the limited liability company is not entitled to request for dissolution of the company for other reasons). [No 267/2010, Commercial cassation.]

It has also been decided by Dubai Courts that (Whenever the establishment of the company has been proven, the partner may not request the recovery of his or her share in the capital unless one of the reasons for the company’s termination or after his or request to terminate the company’s contract and liquidate its funds and divide it among the partners following the provisions set forth in Articles 294 to 310 of Federal Law No 8 of 1984 of commercial companies, unless the company’s contract or statute stipulates the method of liquidation, or if the partners agree on dissolution of the company). [No 162/2002 Rights cassation.]

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Arbitrary downgrading of employee

Question: According to UAE labour law, does the employer have the right to downgrade the position of an employee for no reason and also reduce his or her salary? My Labour Contract is under the Ministry of Labour. In this case, does the employee have the right to resign from the job? Please advise.

Answer: According to the Supreme Court, downgrading of an employee by the employer without furnishing any reason is considered a form of arbitrary dismissal and the submission of resignation by the employee, in that case, is an expression of his or her disagreement to such arbitrary action. Also, the employer, by so doing, is in breach of his obligations towards the employee, which entitles the employee to quit his or her work and demand all the dues, along with a compensation for arbitrary dismissal. Therefore, I would advise the questioner to file a labour complaint against the employer, if he or she failed to arrive at an amicable solution with the employer to settle the dispute.

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