What Is the Law of Firm in UAE?

What Is the Law of Firm in the UAE? A Quick Answer

If you're trying to figure out what the "law of firm" means under UAE law, you're probably looking at a partnership agreement, a draft commercial contract, or a court filing that references a firm and you want to know what rules actually apply. Short version: in UAE legal drafting, "firm" usually means a commercial partnership or a sole establishment, and the law of firm sits inside the Commercial Companies Law and the Commercial Transactions Law.

Quick answer

In UAE practice, the law of firm refers to the body of rules governing partnerships, sole establishments, and trade names registered with the Department of Economic Development (DED). The main sources are Federal Decree-Law No. 32 of 2021 on Commercial Companies and Federal Decree-Law No. 50 of 2022 on Commercial Transactions. These cover how a firm is formed, who is liable for its debts, how partners share profits, and what happens when the firm dissolves. Free zones (DIFC, ADGM, JAFZA, and others) have their own parallel regimes.

What "firm" actually means here

The word firm is one of those translations that causes more confusion than it solves. In Arabic commercial law texts, the underlying word is often sharikat al-tadamun (joint liability partnership) or muassasa fardiyya (sole establishment). When a UAE contract or judgment says "the firm," it usually means one of three things:

• A sole establishment owned by one person, registered under a trade name, where the owner is personally liable for all debts.
• A joint liability partnership under Article 39 of the Commercial Companies Law, where two or more partners are jointly and severally liable.
• A professional firm (law, audit, consultancy) licensed under a separate professional companies regime.

Honestly, most clients I see misuse the word "firm" to mean LLC. An LLC is a company, not a firm in the technical sense. The distinction matters because liability is completely different.

Who is liable when a firm owes money?

This is the part that catches people out. Under the law of firm in the UAE, if you're a partner in a joint liability partnership or the owner of a sole establishment, creditors can come after your personal assets. Your villa, your car, your salary account — all on the table.

Federal Decree-Law No. 32 of 2021, Article 39 onwards, makes partner liability in a joint liability firm unlimited and joint. That means a creditor can sue one partner for the full debt and let that partner chase the others later. Article 41 also restricts a partner from carrying on a competing business without the other partners' written consent — breach this and you're on the hook for damages plus any profits earned.

Compare that to an LLC under Article 71 of the same law, where liability is capped at the share capital. Different planet.

How a firm is registered and named

A firm's trade name has to be registered with the DED in the relevant emirate, and the name of at least one partner usually has to appear in the firm name for a joint liability partnership — that's a longstanding rule reflecting the unlimited liability principle. Adding "and partners" or "and co." is standard.

Trade name registration fees vary by emirate. In Dubai, DED initial approval and trade name reservation typically run AED 620 to AED 1,200 as of 2024, with the commercial licence itself depending on activity. Free zone firms (for example a DIFC recognised partnership under the DIFC General Partnership Law, DIFC Law No. 11 of 2004) follow the free zone's own registrar — the ROC (Registrar of Companies) in DIFC's case.

One practical tip: if you're forming a professional firm (law, audit, engineering), the activity needs a professional licence, not a commercial one, and many activities require regulator approval before DED will issue the licence.

How a firm ends

Dissolution of a firm under UAE law happens in a handful of ways: expiry of the term in the partnership deed, completion of the purpose, mutual agreement, withdrawal or death of a partner (unless the deed says otherwise), bankruptcy, or court order. Article 56 of the Commercial Companies Law covers the grounds. Once dissolved, the firm goes into liquidation, debts get paid, and anything left is distributed per the partnership agreement.

If a partner dies and the deed is silent, the default is dissolution. Most well-drafted partnership agreements override this with a continuation clause. If yours doesn't, fix it.

Watch out: Personal liability in a UAE firm survives dissolution. Creditors can still pursue former partners for debts incurred during their time in the firm, subject to limitation periods under Federal Decree-Law No. 50 of 2022.

Need this checked for your situation? Talk to a UAE-licensed lawyer →

Citations

^[1] Federal Decree-Law No. 32 of 2021 on Commercial Companies — UAE Ministry of Economy. https://www.moec.gov.ae ^[2] Federal Decree-Law No. 50 of 2022 Promulgating the Commercial Transactions Law — UAE Official Gazette. ^[3] DIFC General Partnership Law, DIFC Law No. 11 of 2004 — DIFC Laws. https://www.difc.ae/laws-regulations ^[4] Dubai Department of Economy and Tourism — Trade Name and Licence Fees. https://ded.ae

Also searched for: UAE partnership law, sole establishment UAE liability, joint liability partnership Article 39, commercial companies law 2021.