The legal responsibilities and authorities of the General Manager (GM) in a Limited Liability Company (LLC) under the Federal Decree-Law No. 32 of 2021 on Commercial Companies (Commercial Companies Law) are as follows:
1. Legal Status and Appointment of the GM
Under the Commercial Companies Law, the LLC must appoint at least one GM, who may be a partner or a third party. The GM can be appointed via:
- The Contract of Establishment;
- A separate managerial agreement; or
- A partners or board resolution, depending on the company's Contracts of Establishment.
The GM’s appointment must be registered with the Department of Economic Development and may be limited in time or for an unlimited period.
While the GM holds day-to-day executive authority, his powers are strictly defined by the Contract or managerial agreement or partners/board resolution. Any act beyond those powers could expose the GM to personal liability.
2. Powers and Scope of Authority
The GM acts as the legal representative of the company and typically has authority to:
- Sign contracts and agreements on behalf of the company;
- Hire employees and manage human resources;
- Represent the company before government bodies and courts;
- Open bank accounts; and
- Conduct day-to-day business operations.
However, certain decisions are reserved for the partners, such as amending the Contract of Establishment, increasing capital, liquidating the company, or any other matters as stipulated in the commercial companies law or the Contract of Establishment.
The GM must not exceed the authority granted to him. Any unauthorized act may be considered ultra vires and could lead to personal liability.
3. Fiduciary Duties and Legal Obligations
The GM owes fiduciary duties of loyalty, care, and good faith to the company and its partners. These include:
- Acting in the best interest of the company;
- Avoiding conflicts of interest;
- Disclosing any personal interest in company transactions;
- Maintaining accurate records and financial statements; and
- Complying with applicable laws and regulations.
Article 83 of the Commercial Companies Law outlines the GM’s obligations and explicitly holds him liable for any fraud, misuse of power, or gross negligence that causes damage to the company or its partners.
4. Accountability and Liability
The UAE legal framework provides mechanisms for holding the GM accountable, including:
- Civil Liability: for losses caused by breaches of duty;
- Criminal Liability: in cases of fraud, embezzlement, or violation of labor, tax, or AML laws; and
- Administrative Penalties: for non-compliance with licensing, VAT, ESR, and other regulatory frameworks
5. Termination and Dispute Resolution
The GM’s mandate can be terminated:
- By expiry of its term;
- By partners/board resolution; and
- By court order in case of breach of duty.
Termination may entitle the GM to compensation unless cause is established, such as misconduct or gross negligence.
Clearly defining the scope of the GM’s authority and clauses related to termination in the Contract of Establishment or managerial agreement reduces legal ambiguity and risk.
In summary:
The GM plays a strategic, operational, and legal role in the life of the LLC. With power comes responsibility and potential liability. It is essential for GMs to operate within their defined authority, adhere to governance standards and maintain transparency with partners.
Should you require any further information, please contact Yasser Omar, co-author of this article, Executive Partner, and Head of Corporate and Commercial, Abu Dhabi.