Significance Of Corporate Governance In Moulding The Commercial Civil Laws Landscape In The UAE

Introduction

The UAE’s Federal Decree Law No. 32 of 2021 on Commercial Companies (CCL 2021) is a specialized framework for corporate governance, replacing the 2015 framework and introducing the latest framework to nurture transparency, accountability, and gain investor confidence. This framework portrays the UAE’s strategy for bringing together and aligning with the international standards. The CCL 2021 has been further subjected to amendments, particularly Federal Decree-Law No.20 of 2025, which put forth governance-related changes, including non-profit companies, class shares, deadlock resolution tools, and company migration mechanisms. These amendments are not restricted to technical adjustments but also broaden the compliance duties of the directors. As trustees of the management and supervisors of the company, directors ensure that the former provisions of CCL 2021 and its amendments are properly implemented.

The Architecture of Governance under the CCL 2021

The CCL 2021 is applicable to onshore companies incorporated in the UAE, which also includes limited liability companies (LLCs), public joint stock companies (PJSCs), and private joint stock companies (PrJSC). It announced significant amendments, such as the removal of the general requirement for a UAE national shareholder in most sectors, therefore enabling foreign ownership (subject to statutory restrictions). This aided in elevating the requirements for governance measures to guard minority investors and retain market integrity. For joint stock companies, the framework for governance is further proliferated by regulations brought by the Securities and Commodities Authority (SCA), which requires board composition, internal controls, disclosure standards, and audit committees.

Principal Fiduciary responsibilities of directors

The CCL 2021 clearly lays down the responsibilities of directors in consonance with the international standards.

Duty of care, diligence, and skill

Directors must provide due care and diligence that is expected of a reasonably prudent person. This demands active participation in board meetings, informed decision making, and oversight of executive management. Breach of duty invites civil liability if any losses are caused to the shareholders or the company.

Duty to act in good faith and loyalty

Directors must act in good faith and protect and foster the best interests of the company and avoid any disputes relating to their interests. They are forbidden from abusing corporate opportunities for personal gain or enrolling in competitive activities without authorization. When disputes arise, they must be disclosed to the board, and approvals must be acquired through statutory procedures.

Disclosures and related party transactions

Transactions including directors or related party transactions (RTP) must be transparent, and essentials should be disclosed. Directors will be held liable if transactions are not fair and prejudice the company.

Improved governance through recent amendments

Federal Decree Law No. 32 of 2021 on Commercial companies was amended on 1st October 2025 by Federal Decree Law No. 20 of 2025. The objective was to revamp and meet the global standards, offer more capital flexibility, provide protection to minorities, and increase efficiency. These amendments are:

Class shares introduced

The amendments allow companies to issue different classes of shares with different rights regarding voting, liquidation, and dividends. Even though this amendment makes structuring flexible, yet its places high burdens on directors regarding compliance. Directors have to make sure:

• The rights of each class are properly defined in the AOA.
• Permission from shareholders is obtained as laid down in the statutes.
• Shareholders are not unfairly prejudiced.

Acknowledging non-profit companies

Directors of non-profit companies have to ascertain that profits are not distributed beyond the statutory norms and that the company is operating within its mandates. This introduces a different version of compliance for traditional profit driven companies, ensuring monitoring of financial and operational conduct.

Company migration

Another important dimension to these amendments is the mechanism allowing companies to migrate in and out of the UAE, provided they comply with the statutory requirements. Directors supervising compliance will have to ensure the following:

• Approvals of shareholders are obtained.
• The rights of the creditors are protected.
• Accurate solvency declarations.
• All the statutory requirements are met.

Methods for resolving deadlocks

Deadlocks can take place at any time, and it is necessary that there are relevant provisions available to resolve them. Such mechanisms may include restructuring, buy-out provisions, only those that are mentioned in the AOA. Directors have to implement such mechanisms in accordance with the law and mandates of the company so as to prevent all sort of unfairness, mismanagement, or prejudices.  

Transparency obligations and financial reporting

The CCL 2021 makes the directors responsible for the preparation of financial statements and thereafter presenting them to shareholders. SCA regulations have to be followed by joint stock companies, and external audits are mandatory for them. The amendments signify the need for proper reporting, especially in matters involving migration procedures or new capital structure. If financial reports contain errors or omissions that could harm the shareholders and other parties, the directors would be jointly and severally liable.

Liabilities and Enforcement

CCL 2021 lays down severe liabilities:

• Civil liability results from mismanagement, statutory infractions, or breach of fiduciary obligations.
• Joint and several liability for multiple directors if they are held responsible.
• Criminal liability in cases involving fraud, false disclosures, or statutory violations.

Depending on the percentage of share that the shareholders are holding, they have the liberty to invoke actions on behalf of the company. Regulatory authorities may impose administrative penalties, including disqualifications and fines.

Conclusion

In this ever-evolving regulatory legal landscape, directors must exercise due diligence and reasonable care. Effective corporate governance in the UAE demands not only adherence to statutory requirements but also proactive stewardship of corporate integrity. The reforms allow for flexibility and brings UAE closer to global corporate standards, and they also broaden directors’ compliance responsibilities.