Draft Partnership Agreement in the UAE
Establishing a business partnership involves decisions that can affect the company’s ownership, management, financial stability, and future operations. Partners need to determine what each person will contribute, how profits will be distributed, who will make important decisions, and how changes in the business relationship will be handled.
A partnership may begin with a shared commercial objective, but disagreements can emerge when the parties have different expectations concerning management authority, additional investment, or the withdrawal of a partner.
For entrepreneurs and investors in the UAE, drafting a partnership agreement requires consideration of the company’s legal form and the corporate legislation applicable to its activities.
Abdulrahman Alshaali Advocates & Legal Consultants assists clients with preparing and reviewing partnership agreements that establish their respective rights, responsibilities, and commercial commitments.
Partnership 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 in the UAE.
The legal requirements depend on the company’s structure. A general partnership is subject to different rules concerning ownership, management, and liability from those applicable to a limited liability company (LLC).
Article 42 of the Commercial Companies Law identifies information required in the Memorandum of Association (MOA) of a general partnership. This includes the partners’ identities, capital contributions, management arrangements, profit and loss ratios, and conditions governing the transfer of partnership interests.
An LLC must instead comply with the statutory provisions governing that company type.
The agreement should therefore be developed according to the intended legal structure rather than assuming that one standard partnership document is suitable for every business.
Companies established in financial free zones or operating under specialised corporate frameworks may be subject to different legislation.
Choosing the Appropriate Partnership Structure
The legal form of the business affects the partners’ exposure to liabilities and the way the company operates.
General Partnership
Under the Commercial Companies Law, a general partnership consists of two or more natural persons who are jointly and personally liable for the company’s obligations.
This structure creates significant personal liability considerations.
The agreement should address the partners’ financial responsibilities, management arrangements, and the authority to enter into transactions on behalf of the company.
Limited Liability Company
An LLC provides a different structure in which partners’ liability is generally limited to their respective shares in the company’s capital, subject to applicable statutory exceptions and other legal obligations.
The company’s MOA establishes its constitutional arrangements.
Partners may also require supplementary documentation addressing additional funding commitments, management procedures, or other matters concerning their commercial relationship.
Any supplementary agreement must remain consistent with the MOA and applicable legislation.
The correct contractual structure should be determined before the parties commit funds or begin operating the business.
Establishing Each Partner’s Capital Contribution
A partnership agreement should identify the contributions that each partner is required to provide.
Depending on the company’s legal form, contributions may involve cash, assets, or other legally permissible arrangements.
Article 42 of the Commercial Companies Law requires the MOA of a general partnership to specify its capital, the partners’ respective shares, their estimated values, the valuation method, and the dates on which contributions become due.
For example, one partner may agree to contribute AED 400,000 while another provides equipment required for the company’s operations.
The agreement should establish how the equipment will be valued and when ownership or possession must be transferred.
It should also address the consequences of failing to deliver an agreed contribution.
Where a partner proposes contributing professional expertise, intellectual property, or services, the arrangement must be evaluated against the rules applicable to the particular company structure.
The agreement should not assume that every form of contribution is legally suitable for every type of company.
Drafting Profit and Loss Distribution Provisions
Partners should establish how the company’s financial results will be allocated.
Ownership percentages and profit distribution arrangements are related matters, but they should not automatically be treated as identical.
The applicable legal framework determines the extent to which partners may agree on different financial arrangements.
Article 42 of the Commercial Companies Law requires the MOA of a general partnership to specify profit and loss sharing ratios.
Article 61 addresses the determination of profits, losses, and each partner’s entitlement at the end of the financial year by reference to the company’s financial statements.
For example, two partners may make different capital contributions but agree to share certain management responsibilities equally.
That arrangement does not, by itself, establish how profits must be distributed.
The agreement should identify the agreed financial entitlements and ensure that they comply with the statutory requirements applicable to the company.
Defining Management Authority and Decision-Making
Management provisions determine who can act on behalf of the business and which decisions require approval from the partners.
Article 45 of the Commercial Companies Law provides that a general partnership is managed by its partners unless management is delegated through the MOA or a separate contract.
The article also establishes unanimity as the general rule for resolutions concerning the company’s business unless the MOA provides otherwise.
The agreement should identify the managers and establish their respective powers.
For example, a managing partner may be authorised to approve routine expenditure but require additional approval before obtaining substantial financing or disposing of important business assets.
The document should distinguish ordinary management decisions from matters reserved for partner approval.
These may include changes to the company’s activities, significant borrowing, admission of new partners, or disposal of substantial assets.
The arrangements must comply with the decision-making rules applicable to the company’s legal structure.
Managing Conflicts of Interest Between Partners
Partners may participate in other businesses or have financial interests outside the company.
These activities can create conflicts where a partner uses the company’s resources, information, or commercial opportunities for personal benefit.
Article 46 of the Commercial Companies Law restricts a general partner from carrying on competing business activities without the written consent of the other partners.
It also addresses the consequences of engaging in prohibited competing activities.
A partnership agreement should establish practical procedures for disclosing potential conflicts and obtaining any required consent.
For example, a partner who owns another company operating in the same market may need to disclose that interest before entering into a transaction involving both businesses.
The agreement may establish procedures for reviewing related-party transactions and determining who is authorised to approve them.
These provisions should reflect the applicable legislation and the particular risks associated with the company’s activities.
Planning for Additional Capital Requirements
A business may need additional funding after its establishment.
The initial capital may be insufficient to finance expansion, acquire equipment, or respond to unexpected financial requirements.
The agreement should establish how funding proposals will be considered and approved.
For example, a company may require AED 1 million to open another branch.
One partner may prefer contributing additional capital, while another may wish to obtain external financing.
The agreement should establish an appropriate decision-making procedure and address the consequences of any agreed contributions.
Where the proposed funding involves issuing new ownership interests or changing existing capital arrangements, the statutory requirements applicable to the company must be considered.
An additional funding arrangement should not inadvertently change ownership percentages or financial rights without the necessary approvals and documentation.
Drafting Partner Exit and Ownership Transfer Provisions
A partner may wish to withdraw from the business, sell an ownership interest, or transfer it to another person.
These circumstances can affect the company’s continuity and the interests of its remaining owners.
Article 56 of the Commercial Companies Law regulates transfers of interests in general partnerships, including the requirement for the partners’ consent, the conditions established by the MOA, and the relevant registration requirements.
An agreement permitting unrestricted transfers in a general partnership is not valid under that provision.
Federal Decree-Law No. 20 of 2025 also introduced additional flexibility concerning certain ownership transfer arrangements for LLCs and private joint stock companies.
These amendments permit specified arrangements involving rights to participate in a sale or require a sale under previously agreed conditions, subject to the applicable legal requirements and approvals.
A partnership agreement should establish how a proposed exit will be handled.
Relevant matters may include notification requirements, valuation procedures, necessary approvals, and completion arrangements.
Where a transfer requires amendment of constitutional documents or registration with the competent authority, those procedures must also be completed.
Establishing a Method for Valuing Partnership Interests
The value of a partner’s interest may become disputed when an owner wishes to leave the company.
A valuation based solely on the original capital contribution may not reflect the current financial position of an established business.
The agreement should consider whether an appropriate valuation procedure is required for specified transactions.
For example, partners may agree that an independent financial expert will determine the value of an ownership interest when a permitted exit occurs.
The procedure may address the valuation date, the information available to the expert, and responsibility for the associated expenses.
Where a statutory valuation mechanism applies, the agreement must comply with the relevant requirements.
The 2025 amendments to the Commercial Companies Law also address the valuation of interests belonging to deceased partners or shareholders in specified company structures where the parties cannot agree on their value.
A clearly developed procedure can help the parties address valuation disagreements without relying exclusively on negotiations after an exit event has occurred.
What Happens When Partners Cannot Agree?
Disagreements between partners can prevent a company from making important commercial decisions.
This is particularly relevant where voting rights are divided equally.
For example, two partners may disagree about whether the company should obtain financing to expand its operations.
If neither partner can approve the proposal independently, the company may be unable to proceed.
The agreement may establish a procedure for addressing specified disagreements.
Depending on the legal structure, this may involve further negotiations, escalation to an agreed decision-making body, or another legally appropriate arrangement.
The drafting should distinguish an ordinary disagreement from a continuing deadlock that materially affects the company’s operations.
Any proposed mechanism must comply with mandatory corporate requirements and the powers of the competent company bodies.
The purpose is to establish an agreed procedure before a disagreement threatens the continuity of the business.
A Practical Example: Partners with Different Financial Expectations
Consider two entrepreneurs establishing a company in Dubai.
The first contributes most of the initial capital, while the second takes responsibility for daily management.
They agree to share ownership equally but do not determine whether the managing partner will receive a separate salary.
After several months, the managing partner requests remuneration in addition to a share of the profits.
The other partner maintains that the management responsibilities were already reflected in their original arrangement.
The disagreement arises because the parties did not distinguish ownership rights from compensation for management services.
An appropriately prepared partnership agreement could establish the managing partner’s responsibilities and clarify whether separate remuneration is payable.
It could also specify the approval procedure for changing management compensation.
This example illustrates why capital contributions, management duties, and financial entitlements should be addressed as distinct contractual matters.
Documents Required to Draft a Partnership Agreement
The documents required depend on whether the company is being established or already exists.
Relevant materials may include:
- Identification documents of the proposed partners.
- The company’s trade licence, where available.
- Existing Memorandum of Association and amendments.
- Details of the proposed ownership structure.
- Records of agreed capital contributions.
- Information concerning existing company assets and liabilities.
- Proposed management and signing arrangements.
- Relevant term sheets or correspondence recording agreed conditions.
- Required corporate approvals, where applicable.
For an existing company, its constitutional documents should be examined before preparing a separate partnership agreement.
The proposed contractual arrangements must reflect the company’s legal structure and existing obligations.
Partnership Agreement Drafting Assistance from Abdulrahman Alshaali Advocates & Legal Consultants
A partnership agreement should reflect the owners’ commercial arrangements while addressing the legal requirements governing the company.
Abdulrahman Alshaali Advocates & Legal Consultants assists entrepreneurs, business owners, and investors with preparing and reviewing partnership agreements.
Our services may include examining ownership arrangements, assessing capital commitments, developing management provisions, and reviewing partner exit conditions.
Where the proposed structure involves more detailed arrangements concerning shareholder rights or equity investment, a Draft Shareholders Agreement or Draft Investment Agreement may also be relevant.
Clients seeking broader contractual assistance can explore our contract drafting services.
We assist clients in developing documentation that reflects their intended business arrangements and the applicable UAE corporate framework.
Explore Our Contract Drafting Services
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Request Assistance with Drafting Your Partnership Agreement
Whether you are establishing a new business, entering into a partnership with an investor, or reviewing existing arrangements between business owners, the agreement should accurately establish the parties’ responsibilities and financial commitments.
Abdulrahman Alshaali Advocates & Legal Consultants assists clients with preparing and reviewing partnership agreements under the applicable UAE legal framework.
Contact our team to discuss your proposed partnership and contractual requirements.
Frequently Asked Questions
Can a Partnership Agreement Be Changed After the Company Is Registered?
Yes. Partners may agree to amend their arrangements, subject to the approval requirements and legislation applicable to the company.
Where the changes affect the company’s Memorandum of Association or registered information, the relevant amendment and registration procedures must also be completed.
A private agreement alone should not be assumed to update the company’s official records.
Can a Partner Inspect the Company’s Financial Records?
Article 45 of the Commercial Companies Law permits a general partner who is not a manager to request access to the company’s activities, books, and records and provide observations to the manager.
Inspection rights in other company structures depend on the applicable statutory provisions and constitutional arrangements.
The agreement should not attempt to exclude mandatory information rights.
Can a Partnership Continue If One of the Partners Dies?
The consequences depend on the company’s legal form, its constitutional documents, and the applicable legislation.
For a general partnership, the Commercial Companies Law establishes specific rules concerning the death of a partner and the circumstances in which the company may continue.
The agreement should address succession and continuity through arrangements permitted by law rather than assuming that the same outcome applies to every company.
Does a Partner Automatically Have Authority to Sign Contracts on Behalf of the Company?
Not necessarily. Signing authority depends on the company’s legal form, constitutional documents, and any valid delegation of management powers.
Article 45 of the Commercial Companies Law establishes a management framework for general partnerships, subject to delegation through the MOA or a separate contract.
Other company structures have different management provisions.
The relevant authority should be verified before a partner signs an agreement intended to bind the company.
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 Companies Legislation and Amendments
