Liquidation of Joint Liability Companies in UAE

A joint liability company is a UAE partnership structure formed by two or more partners who are jointly and personally liable, with all their assets, for the company’s debts and obligations, distinct from a limited liability structure where liability is capped at each partner’s capital contribution. Because this structure is built around personal trust between the partners, dissolution and liquidation work somewhat differently than for a typical limited liability company.

Liquidation is the termination of the company’s business and settlement of all its rights and debts, to determine its net funds and divide them among the partners. It’s the series of operations following the dissolution of the joint-liability company, ending its commercial activities and preceding its actual dissolution, dissolution being one of the general grounds triggering liquidation. This guide covers the reasons a joint liability company dissolves, who appoints the liquidator, the effect of liquidation on the company’s legal personality, VAT and Corporate Tax deregistration, and a worked example.

Also check: Company Liquidation / Bankruptcy / Insolvency

Reasons for Dissolving and Liquidating a Joint Liability Company

General Reasons for Dissolving Companies

General rules applicable to all commercial company forms, including joint liability companies, cover:

• Expiration of the company’s term stipulated in its contract, unless renewed under its articles of association
• Unanimous partner agreement to end the company’s term, unless the contract specifies a smaller majority or prohibits this
• The purpose for which the company was established being fulfilled or becoming impossible
• Total or partial loss of the company’s capital, to the extent that effective investment becomes impossible
• Merger, per the relevant legal provisions

Special Reasons for Dissolving a Joint Liability Company Specifically

Since a joint liability company is founded on personal trust between the partners, it dissolves when that trust or the underlying personal relationship collapses. Since these dissolution grounds aren’t matters of public order, partners can agree to override them, allowing the company to continue despite an event that would otherwise trigger dissolution. The reasons for dissolution of a joint liability company are set out in Articles 296 and 297 of the UAE Commercial Companies Law, Federal Law No. 32 of 2021.

1. Withdrawal of a Partner

Under Article 55 of the law, a partner withdraws through written agreement with the remaining partners. Absent agreement, the matter goes before the judiciary for a ruling on withdrawal, and the other partners must be informed by reliable means at least 60 days before the specified withdrawal date. The company retains the right to claim compensation for damages arising from the withdrawal where:

• The withdrawal was made in bad faith to serve the withdrawing partner’s own interests, or
• The withdrawal occurs at an inappropriate time, such as when the company has contracted for large deals that would become impossible to complete following the partner’s exit

2. Death, Bankruptcy, or Precautionary Seizure Against a Partner

As a general rule, this dissolves the business by operation of law, since it removes the personal trust underlying a joint liability company, unless the articles of incorporation specifically address the situation. Two exceptions apply depending on partner count:

• Two-partner company. Not automatically a dissolution ground until 6 months pass with the business operating on a single remaining partner, having failed to correct the situation or find a new partner.
• More than two partners. The company dissolves after 60 days unless the remaining partners unanimously decide to continue.

Must check: Mainland Company Liquidation

Worked Example: The 60-Day Continuation Window

A joint liability company has three partners. One partner passes away, triggering the standard dissolution ground since the personal trust element is now disrupted. The articles of incorporation don’t address succession, so the general rule applies: the remaining two partners have 60 days from the event to unanimously agree to continue the company. If they reach that agreement within the window, the company continues, generally requiring formal documentation of the continuation decision and, where relevant, admission of a new partner. If the 60 days pass without unanimous agreement, the company dissolves, triggering the liquidation process described below.

Who Appoints the Liquidator?

The liquidator, or liquidators where more than one is appointed, is designated by judicial ruling, by the partners in the company’s charter or upon commencement of dissolution, or by decision of the company’s general assembly, provided the appointee hasn’t served as the company’s auditor at the time of appointment or within the preceding five years. The liquidator’s appointment must be recorded in the commercial license.

1. Judicial Ruling

Articles 306 to 326 of the Commercial Companies Law govern liquidator nomination and the general liquidation stages in two scenarios: where the articles of incorporation don’t specify a liquidation method differing from statutory procedure, or where the partners didn’t agree on a specific liquidation method when deciding to dissolve.

2. By the Partners

The company charter should include the liquidation mechanism, method, and the liquidator’s name and powers. Absent this, liquidation proceeds according to judicial ruling instead.

3. By the General Assembly

Through an official decision following the voting rules in the charter, with the liquidation method, mechanism, powers, liquidator identity, remuneration, and duration all specified in the decision.

VAT and Corporate Tax Deregistration

Dissolving and liquidating a joint liability company under the Commercial Companies Law doesn’t automatically close out its VAT and Corporate Tax registrations. A separate VAT deregistration application must be filed with the Federal Tax Authority, generally within 20 business days of ceasing taxable supplies, and a final Corporate Tax return covering the period up to cessation of business is generally still required under Federal Decree-Law No. 47 of 2022. Financial records must be retained for 7 years from the end of the relevant tax period, regardless of the company’s liquidated status. Partners should treat these tax deregistration steps as running in parallel with, not automatically resolved by, the commercial liquidation process.

Effect of Liquidation on the Company’s Legal Personality

The joint liability company retains its legal personality during liquidation, to the extent the liquidator deems appropriate and sufficient to facilitate the liquidation process. Key consequences include:

• The company retains its nationality, domicile, and eligibility to litigate, and remains registered in the commercial registry, maintaining its financial liabilities and remaining subject to potential bankruptcy declaration if it stops paying its debts.
• The company’s commercial name remains, with “under liquidation” or an equivalent phrase added to it, applying to all correspondence and transactions.
• The authority of the directors or board ends with dissolution, though they remain responsible for managing the company to the extent the liquidator deems sufficient, and are considered accountable to the liquidator on behalf of third parties.
• The company’s legal personality disappears upon completion of liquidation, meaning the actual, substantive completion of liquidation, not merely a formal step partners might take to prejudice creditors, which both partners and the liquidator can challenge.

Frequently Asked Questions (FAQs)

How Farahat & Co. Can Help

Farahat & Co., a trusted Audit And Accounting Firm, provides liquidation services for joint liability companies, including liquidator appointment support, VAT and Corporate Tax deregistration, and full compliance with the Commercial Companies Law dissolution process.

Contact Farahat & Co. today to discuss your joint liability company liquidation requirements.