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Companies in the UAE Civil Code

 

The UAE Civil Code which was promulgated in 1985, i.e. subsequent to the Company Law of 1984, adopted a different classification of companies than the Company Law, but similar to that of Islamic Law. It provided for:

1. Work Companies: are defined as companies where two or more partners join together to perform specific work.

2. Persons' Companies: are established when two or more persons join together to purchase goods on credit based on  goodwill and reputation to sell such goods for a profit.

3. Speculative (Mudharaba) Companies: are defined as those companies in which a person lends capital to another to carry out speculative business. 

Questions might arise regarding the exact meaning of a 'civil company'. In some Arab countries commercial laws define the concept of trade and categorise the different operations or transactions that are considered as trade, such as the purchase and sale of goods, contracting, transport, banking and finance and other similar transactions. The main difference between civil and commercial companies, which can be quite significant, depends primarily on the intention to trade, and can be compared to the distinction made between a 'merchant' and an 'investor'.

A merchant is a person who has the capacity to engage in his name and for his account in commercial transactions making a profession of the practice of these transaction. A company performing commercial activities or adopting one of the types specified in the Company Law shall also be considered commercial concern or merchant.  Consequently, he should declare his intention to trade by registering with an appropriate authority, keep proper books of account, pay taxes and dues on profits and may be subject to all commercial laws and regulations including bankruptcy.  An investor is defined by the absence of the intention to trade as a profession irrespective of the odd commercial transaction.  The investor is therefore not obliged to declare his intention to trade by registering nor need he fulfil the other requirements of a merchant.

As the definition of the merchant clearly provides, the same criteria apply to companies. A company formed to carry on commercial business with the intention to trade will be considered a commercial company and is obliged to register, maintain books of account and be subject to commercial laws and regulations, unlike a company which merely invests and is considered a civil company. 

Thus, when a person or a company is performing an activity not classified as trade and that person or company does not have the intention to trade as a profession, then that person is not classified as a merchant and that company is not classified as a commercial company but as a civil company. The legal concepts and differences may be clear, yet the practical application could be more problematic.

 

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For further information on UAE Company Law and Practice, it is recommended that the full text be referred to. Click on the link to obtain a copy. For specific legal advise, please contact Sabah M A mahmoud or other reputable Law Firm.

 

 

 
Companies in the UAE Civil Code

 

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