In the United Arab Emirates, the nuances of pre-incorporation contracts are crucial for businesses aiming to establish themselves within the jurisdiction’s legal framework. A solid comprehension of the UAE’s contract law can safeguard parties involved in business transactions prior to formal company registration.
Under the Commercial Companies Law No. 8 from 1984, the UAE mandates that any business engaging in contracts must register with the Commercial Register along with their memorandum of association. This law, particularly outlined in Article 11, asserts that no company can possess a corporate personality or conduct commercial activities unless it’s duly registered. Consequently, until registration is finalized, any transactions made in the company’s name are severally owned by the individuals involved. This regulation extends to public joint stock companies as well.
According to Article 72, a company is only granted corporate personality to the degree necessary for its incorporation during this period. Thus, until full registration, the founding members of a company can be held liable for its business dealings. Similarly, Article 225 specifies that limited liability companies must register before starting any activity, reinforcing the significance of formal registration in mitigating personal liabilities.
In Free Zones across the UAE, the principles of the 1984 Law are generally applicable, although specific Free Zone regulations may be in place. These regulations often align with the general provisions of the law, especially concerning pre-incorporation contracts. For instance, the Implementing Regulation 1/2006 for the Dubai Silicon Oasis decrees that a Limited Liability Free Zone Company is considered officially incorporated upon its registration in the FZCO Register.
The question of personal liability before a company’s formal registration is a significant concern. Under Article 12’s final paragraph, a company can act to a limited extent prior to complete registration, such as opening a bank account or securing a lease. Contracts signed in the company’s name before incorporation often mark the company as “XYZ LLC (under formation).” It is crucial for those involved to understand that they bear personal liability for these contracts until the company’s incorporation is completed. UAE contract law typically allows for pre-registration contracts to be assumed by the company once it is legally established, thereby relieving the individual signatories from personal obligations.
Free Zone regulations generally mirror the broader UAE contract laws, offering continuity and stability across business transactions. Companies formed in Free Zones can expect the same foundational legal principles to apply, minimizing risks associated with pre-incorporation contracts.
Understanding the legalities of pre-incorporation contracts in the UAE is fundamental for any entrepreneur or business entity. Compliance with registration requirements ensures that once a company is properly formed, it can assume responsibility for prior contracts, protecting the founders from personal liability. This alignment with UAE contract law is particularly beneficial in Free Zones, where regulations are harmonized to support business stability.
