Recent Judicial Decision Grants Justice to Partners in Limited Liability Companies Facing Negligence by Company Management and General Assemblies in Complying with Legal Procedures for Profit Calculation and Distribution
The manager of a limited liability company is required—pursuant to the Companies Law—to prepare the company's annual financial statements, calculate profits and losses, draft an annual report on the company's activities and financial position, and submit proposals regarding profit distribution to the general assembly within three months of the end of the fiscal year. Additionally, the general assembly must convene within four months following the end of the fiscal year to review the profit and loss accounts and determine the distribution of profits among partners.
Accordingly, a partner's entitlement to profits is determined by the company's general assembly, which has the exclusive authority to decide on the profits to be distributed. The partner's right to receive their share of net profits remains contingent upon the completion of these procedures by the company's manager and its general assembly. If a partner seeks to claim their profits through legal action before these procedures are completed, their lawsuit would be inadmissible for being premature. This situation has posed a significant burden on partners and created obstacles to their ability to claim their rightful profits.
Decision of the General Authority:
In response, the General Authority of the Court of Cassation in Abu Dhabi issued a landmark decision, diverging from previous practice, in Case No. (3) of 2025. The decision affirms that if the manager of a limited liability company fails to prepare the company's annual financial statements, or if the general assembly does not convene to approve the profit distribution despite the expiration of the legally prescribed deadlines—contrary to the provisions of the Companies Law—the partner has the right to initiate legal proceedings to claim their share of net profits. In such cases, the lawsuit will be deemed admissible, marking a departure from the previous legal position.
Significance of the Decision:
Undoubtedly, this decision represents a significant shift in protecting the rights of partners in limited liability companies. It curtails managerial misconduct and negligence by company management or general assemblies and plays a direct role in fostering a more attractive and secure investment climate. The ruling reassures investors—particularly partners in limited liability companies—that their financial rights are safeguarded and enforceable, without undue delays or obstruction by company management or its general assembly.
Moreover, this decision reinforces confidence in the country's legal framework and encourages further investment by ensuring a fair and transparent business environment. It provides partners with legal recourse against administrative delays, making investment in limited liability companies more stable and appealing. Ultimately, this contributes positively to the national economy and its sustainable growth.
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