Draft Operating Agreement in the UAE
An operating agreement helps business owners establish how their company will be managed, how important decisions will be approved, and what responsibilities will be assigned to managers. Clear governance arrangements become particularly important when owners contribute different amounts of capital, participate in the business to different degrees, or hold equal voting rights.
In the UAE, however, the term operating agreement must be understood within the applicable corporate framework. Unlike the approach commonly associated with US limited liability companies, a UAE company’s internal arrangements may need to be documented through its Memorandum of Association (MOA), management appointment documents, or a separate agreement between its owners.
The appropriate approach depends on the company’s legal form, place of incorporation, and existing constitutional documents.
Abdulrahman Alshaali Advocates & Legal Consultants assists entrepreneurs, investors, and business owners with preparing and reviewing operating arrangements and corporate governance documentation under UAE law.
Operating Agreements Under UAE Law
Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended by Federal Decree-Law No. 20 of 2025, establishes the principal legal framework governing commercial companies within its scope.
For a mainland limited liability company (LLC), the MOA is a fundamental document establishing the company’s constitutional arrangements.
The Commercial Companies Law regulates the appointment of managers, management authority, general assembly procedures, and the relationship between the company and its owners.
Article 83 addresses the management of LLCs. It provides for management by one or more managers appointed in accordance with the company’s MOA or a separate appointment contract.
The law also establishes rules governing managers’ powers and the circumstances in which their actions bind the company.
An agreement titled Operating Agreement does not automatically replace the MOA or satisfy requirements that must be fulfilled through constitutional documentation and registration.
Businesses established in the Dubai International Financial Centre (DIFC), Abu Dhabi Global Market (ADGM), or other free zones may be subject to different company regulations.
The drafting process should therefore begin by identifying the applicable legal framework.
Is an Operating Agreement the Same as a Memorandum of Association?
An operating agreement and an MOA may address similar matters, but they are not necessarily interchangeable.
A mainland LLC’s MOA establishes essential corporate arrangements and must comply with the Commercial Companies Law.
A separate agreement may address additional understandings between owners, provided those arrangements are legally permissible and consistent with the company’s constitutional documents.
For example, two investors may agree that one will manage daily operations while both must approve substantial borrowing.
The parties must determine whether this arrangement should be incorporated into the MOA, documented through a management appointment contract, or addressed through supplementary contractual provisions.
The distinction matters because an arrangement agreed privately between owners does not automatically amend the company’s registered documents or alter the authority formally granted to its manager.
Where the proposed provisions primarily concern rights between company owners, a Draft Shareholders Agreement may provide a more appropriate contractual structure.
Establishing the Company’s Management Structure
An operating arrangement should identify who will manage the business and how management responsibilities will be divided.
A company may appoint a single manager or establish a management structure involving several individuals, subject to its legal form and applicable requirements.
Article 83 of the Commercial Companies Law provides the statutory framework for appointing LLC managers.
The relevant constitutional documents or appointment arrangements should establish the manager’s position and authority.
For example, an LLC owned by three investors may appoint one individual to supervise daily operations.
The other investors may prefer to remain involved only in decisions concerning major financial commitments or changes to the company’s activities.
The governance documentation should identify these responsibilities and establish a practical reporting relationship between management and the owners.
It should also consider who will perform the manager’s responsibilities during an absence and whether any delegation requires formal approval.
The objective is to establish an organisational structure that corresponds to how the business will actually operate.
Defining Management Powers and Approval Limits
A manager may have substantial authority to enter into transactions and act on behalf of the company.
Article 83 of the Commercial Companies Law provides that, unless the manager’s appointment contract or the company’s constitutional documents restrict those powers, the manager has broad authority to manage the company, with actions binding the company where the statutory conditions are satisfied.
Business owners should therefore consider whether particular decisions require additional approval.
For example, a manager may be permitted to enter into ordinary supplier agreements while being required to obtain owner approval before:
- Obtaining financing above an agreed amount.
- Selling substantial company assets.
- Providing guarantees for another business.
- Entering into specified related-party transactions.
- Making investments outside the approved business plan.
Approval limits should reflect the company’s size and commercial activities.
A threshold that is appropriate for a small consultancy may be unsuitable for a manufacturing business with significant recurring expenditure.
The drafting must also distinguish internal approval requirements from the manager’s authority when dealing with third parties.
An internal restriction should not be assumed to invalidate a transaction automatically. Its legal effect depends on the applicable law, the company’s documents, and the circumstances.
Establishing Voting and Decision-Making Procedures
Ownership does not necessarily mean that every company decision requires unanimous approval.
The applicable voting requirements depend on the company’s legal form, constitutional documents, and the nature of the proposed decision.
The operating arrangement should distinguish between ordinary management matters and decisions reserved for the owners or general assembly.
For example, purchasing routine office equipment may fall within the manager’s authority, while amending the MOA requires compliance with the relevant corporate approval procedures.
The documentation may identify how proposals will be submitted, who is entitled to vote, and how decisions will be recorded.
However, contractual voting arrangements must be consistent with mandatory statutory requirements.
A private agreement should not attempt to replace a corporate resolution required by law with an informal approval process.
The drafting should also consider how the company will proceed when a proposal receives insufficient support.
Where appropriate, the owners may establish additional consultation procedures without overriding the statutory powers of the competent company bodies.
Financial Oversight and Spending Controls
An operating arrangement can establish practical controls over company expenditure.
These controls are particularly useful where the owners do not participate directly in daily management.
The documentation may address annual budget approval, spending thresholds, payment authorisations, and reporting requirements.
For example, the manager may be authorised to approve expenditure within an agreed annual budget.
An unbudgeted purchase exceeding a specified amount may require further approval.
The arrangement should establish how exceptional expenditure will be considered and who is authorised to make the relevant decision.
Financial controls must also be coordinated with the company’s banking arrangements.
A contractual requirement for two approvals does not automatically change the signing authority recorded with the bank.
Where the owners intend to change banking authority, the necessary corporate and banking procedures should be completed separately.
The agreement should therefore provide a practical governance framework rather than relying on contractual wording alone to implement operational changes.
Access to Company Information and Management Reporting
Owners may require financial and operational information to assess the company’s performance and exercise their rights.
An operating arrangement can establish the frequency and content of management reports.
For example, the manager may be required to provide quarterly financial summaries, information concerning substantial liabilities, or updates on significant projects.
The agreement should distinguish routine reporting from access to information required for a specific corporate decision.
It must also respect any information and inspection rights established by the applicable legislation.
A supplementary agreement should not attempt to exclude mandatory statutory rights.
Where commercially sensitive material is provided to owners or their advisers, the company may also require appropriate confidentiality arrangements.
The reporting requirements should be proportionate to the business’s activities and provide useful information without imposing unnecessary administrative obligations.
Conflicts of Interest and Related-Party Transactions
A conflict of interest may arise when a manager or owner has a personal financial interest in a transaction involving the company.
For example, an LLC manager may propose appointing a supplier in which the manager holds an ownership interest.
The transaction may be commercially appropriate, but the company should have a clear procedure for identifying and addressing the potential conflict.
The governance documentation may establish disclosure requirements and identify which corporate body must consider the proposed transaction.
Article 84 of the Commercial Companies Law addresses the liability of LLC managers for fraud, improper exercise of powers, violations of applicable requirements, and gross errors.
It also provides that conflicting provisions in the MOA or management appointment contract cannot exclude the liability established by the relevant statutory provision.
An operating arrangement should therefore support compliance with managers’ legal obligations rather than attempt to remove mandatory responsibility.
Appropriate procedures can help ensure that relevant decisions are considered by the correct persons and documented properly.
Planning for Management Resignation and Replacement
The departure of a company manager can create operational difficulties if no replacement procedure has been established.
The company may need to update banking authorisations, transfer records, appoint new signatories, or maintain ongoing contractual commitments.
Article 85 of the Commercial Companies Law, as amended, addresses the vacancy of an LLC manager’s position.
The 2025 amendments introduced additional arrangements concerning management continuity, including a limited continuation period following the expiry of a manager’s term and procedures for addressing a continuing vacancy.
The operating arrangement should establish practical steps to be taken when a manager resigns, is removed, or reaches the end of an appointment.
These may include transferring company records, identifying outstanding obligations, and completing the necessary corporate procedures.
Where the manager is also an owner, the documentation should distinguish the management position from ownership rights.
The termination of a management appointment does not automatically resolve that person’s separate position as a shareholder or partner.
Operating Agreements and Different Classes of Ownership Interests
Investors may wish to establish different financial and governance rights within the same company.
For example, one investor may provide substantial funding but prefer limited involvement in management, while another may seek greater voting influence because of their operational responsibilities.
Federal Decree-Law No. 20 of 2025 introduced provisions allowing different classes of ownership interests in LLCs, subject to the applicable requirements.
These arrangements may involve distinctions concerning voting rights, profit entitlements, capital recovery, or transfer restrictions.
However, the rights associated with a particular class must be established through the legally appropriate corporate arrangements and reflected in the required company records.
A separate operating agreement should not purport to create ownership rights that conflict with the company’s registered structure.
Where differentiated rights are contemplated, the owners should first establish whether the proposed arrangement is legally available and what approvals and documentation are required.
A Practical Example: Two Owners and One Manager
Consider an LLC established by two investors in Dubai.
Both hold equal ownership interests, but only one participates in daily management.
The managing investor begins negotiating a substantial loan to finance the company’s expansion.
The other investor objects, arguing that such a significant financial commitment requires approval from both owners.
Their existing documents do not clearly establish the internal approval requirements for borrowing.
The disagreement delays the financing decision and raises questions about management authority.
Appropriate governance documentation could have established the manager’s borrowing authority, the financial threshold requiring additional approval, and the procedure for considering financing proposals.
The parties would still need to ensure that these provisions were consistent with the company’s MOA and applicable legislation.
This example demonstrates the importance of establishing authority before a significant transaction is proposed rather than attempting to resolve it during a disagreement.
Documents Required to Draft an Operating Agreement
The relevant documents depend on the company’s legal form and existing governance arrangements.
They may include:
- The company’s trade licence.
- Memorandum of Association and amendments.
- Details of the current ownership structure.
- Existing management appointment documents.
- Corporate resolutions concerning management authority.
- Current banking and signing authorisations.
- Existing agreements between company owners.
- Information concerning proposed governance changes.
For a newly established company, the drafting process may begin with the proposed ownership and management structure.
For an existing company, the current constitutional documents should be reviewed before preparing supplementary arrangements.
This helps determine whether the proposed changes require amendments to the MOA, new corporate resolutions, or separate contractual documentation.
Operating Agreement Drafting Assistance from Abdulrahman Alshaali Advocates & Legal Consultants
Internal governance documentation should reflect the company’s legal structure and the practical responsibilities of its owners and managers.
Abdulrahman Alshaali Advocates & Legal Consultants assists entrepreneurs, investors, and business owners with preparing and reviewing corporate agreements and related documentation.
Our services may include examining constitutional documents, developing management provisions, reviewing approval requirements, and considering arrangements for changes in management.
Where the owners require documentation concerning their broader commercial relationship, a draft partnership agreement may address their contributions and responsibilities.
Clients seeking assistance with other agreements can also explore our contract drafting services.
The appropriate documentation is determined according to the company’s legal form, existing arrangements, and applicable UAE legislation.
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Request Assistance with Drafting Your Operating Agreement
Whether you are establishing a company, reorganising management responsibilities, or reviewing governance arrangements between existing owners, the appropriate documentation should reflect the business’s legal structure and applicable corporate requirements.
Abdulrahman Alshaali Advocates & Legal Consultants assists clients with preparing and reviewing company governance agreements and related constitutional documentation.
Contact our team to discuss your company’s management arrangements and contractual requirements.
Frequently Asked Questions
Is an Operating Agreement Mandatory for Every UAE LLC?
A separate document titled an operating agreement is not a universal requirement for every UAE LLC.
A mainland LLC must comply with the constitutional and registration requirements established by the Commercial Companies Law.
Its owners may require supplementary agreements depending on their governance requirements.
The necessary documents should be determined according to the company’s place of incorporation and applicable legislation.
Can a Single-Owner LLC Have an Operating Agreement?
A single-owner LLC may require documentation addressing internal management responsibilities, delegated authority, and operational procedures.
However, the applicable constitutional requirements differ from those governing companies with several partners.
The owner should determine whether the proposed arrangements belong in the company’s constitutional documents, management appointment documents, or internal policies.
Does an Operating Agreement Need to Be Registered with a UAE Authority?
The answer depends on the nature and contents of the document.
If the proposed arrangements amend the company’s MOA or registered corporate information, the applicable approval, authentication, and registration procedures must be considered.
A separate private agreement does not automatically update the company’s official records.
The required procedure should be established before the document is executed.
Can an Operating Agreement Override an Existing Memorandum of Association?
A supplementary operating agreement should not be assumed to override the company’s registered MOA or mandatory statutory requirements.
Where proposed provisions conflict with the existing constitutional documents, the parties should examine whether a formal amendment is necessary.
The legal effect of any inconsistency depends on the relevant documents and applicable legislation.
Sources
Federal Decree-Law No. 32 of 2021 on Commercial Companies.
UAE Legislation Platform – Official Legislation
Federal Decree-Law No. 20 of 2025 Amending Certain Provisions of Federal Decree-Law No. 32 of 2021 on Commercial Companies.
UAE Ministry of Economy and Tourism – Official Legislation and Amendments
