When “Limited Liability” Stops Being Limited?

02 November 2026

Part of ADG Legal’s Corporate Insights series

Limited liability is one of the main reasons business owners choose to operate through a company. Generally, the company is responsible for its debts, while shareholders’ liability is limited to their capital contributions. That said, personal guarantees, misconduct and breaches of management duties can expose individuals to claims against their own assets.

This article focuses on UAE mainland limited liability companies. Separate rules may apply to free zone companies, particularly those established in the Dubai International Financial Centre and Abu Dhabi Global Market.

The distinction between ownership and management is important. A shareholder who also acts as manager assumes the obligations attached to both roles; however, a company’s failure to pay a debt does not, by itself, make that individual personally liable.

A common example is a personal guarantee, which a bank or supplier may require from a shareholder or director. If the company fails to pay, the individual may have to settle the debt personally, even if they have done nothing wrong. Before signing, they should check how much they could be required to pay, whether future debts are covered, and how the guarantee can be brought to an end. Selling their shares or leaving the company does not necessarily release them from the guarantee.

Management responsibilities create a different source of exposure. Article 84 of the UAE Commercial Companies Law provides for LLC managers’ liability for fraudulent acts and for company losses or expenses arising from misuse of powers, breaches of applicable law, the memorandum of association or the manager’s appointment contract, or gross error. Provisions in the memorandum or appointment contract that conflict with this liability are deemed null and void.

Shareholders also have obligations concerning company property. Article 82 provides for a shareholder’s liability to the company for property held in a fiduciary capacity and benefits obtained through its business, property, name or relationships. A shareholder who diverts company funds for personal use may therefore face a claim by the company.

Separately, a person’s own harmful conduct may support a compensation claim under the UAE Civil Transactions Law. For example, a director or shareholder who personally participates in a fraudulent misrepresentation may face liability if the requirements of the claim are established. The company’s involvement does not automatically remove that exposure.

Financial distress requires particular attention. Under Article 246 of the UAE Financial and Bankruptcy Law, following a bankruptcy declaration, the court may order directors, managers and persons responsible for actual management to contribute towards company debts in proportion to their fault. The provision addresses specified conduct during the two years before cessation of payment, including transfers for no or inadequate value without a proportionate benefit to the company, and payments intended to harm other creditors. It also addresses proven mismanagement causing financial deterioration where assets cannot cover at least 20% of debts. That threshold alone does not establish liability.

Accordingly, when a company starts struggling to pay its debts, those running it should review what it owes and whether it can meet upcoming payments. They should seek advice before transferring assets or making payments to shareholders or related businesses. It is also important to keep a written record of major decisions, the reasons behind them and any objections raised. These risks can also affect someone who runs the business in practice, even if they have not been formally appointed as a director or manager.

Even when the business is doing well, company money should be kept separate from personal funds, and its accounts should be accurate and up to date. Loans, payments and asset transfers involving shareholders should be properly recorded and approved where required. Directors and managers should understand their responsibilities, stay informed about the company’s finances and act promptly when problems arise.

This article was prepared by Bahriddini Sultan.

Want to know more about shareholders’ agreements, corporate governance or business structuring? Get in touch with Bahriddini Sultan or the ADG Legal team