A common question in commercial disputes in UAE is whether a partner of a Limited Liability Company (LLC) can be held personally liable when a cheque issued by the company is dishonoured due to insufficient funds.

The general rule under UAE law is that a partner of an LLC is not personally liable for the company’s debts and obligations merely by virtue of being a partner. Article 71(1) of Federal Decree-Law No. 32 of 2021 on Commercial Companies provides that an LLC is a separate legal entity and that each partner’s liability is limited to the extent of his or her capital contribution.

For a bounced cheque issued by an LLC

The important question raised is who signed the cheque and in what capacity:

  1. Cheque issued in the company’s name and signed by the authorised manager/signatory
    Normally, the liability arising from the company’s cheque is against the LLC itself, not against a partner personally merely because he is a partner.
  2. Partner also signed the cheque personally
    The position can be different if the partner signed in his personal capacity, gave a personal guarantee, or otherwise undertook personal liability.
  3. Partner is also the manager/signatory
    Being both a partner and manager does not automatically make him personally liable for every company debt or bounced cheque. However, personal liability may arise where there is fraud, abuse of authority, a breach of law, misuse of company assets, or another legally recognised ground for piercing/overcoming the company’s separate liability.
  4. Cheque was issued for the partner’s personal benefit or the company was used as a disguise
    Personal liability may potentially arise depending on the evidence and circumstances.

Accordingly, where a cheque is issued in the name of the LLC for a company transaction and is signed by a partner or manager in his capacity as an authorised signatory for and on behalf of the LLC, the primary obligation arising from the cheque remains that of the company. The mere fact that the signatory is also a partner does not, by itself, convert the company’s liability into a personal liability of that partner.

This position must, however, be distinguished from situations where the partner has personally guaranteed the underlying debt, signed the cheque in his personal capacity, or otherwise assumed personal liability. Under Article 69 of the UAE Commercial Transactions Law, multiple guarantors of a commercial debt may be jointly liable with the debtor where a valid guarantee exists.

There is also an important distinction between execution of a bounced cheque and personal liability of a partner. Under Article 667 of the Commercial Transactions Law, a cheque bearing a statement from the drawee confirming non-payment due to insufficient or lack of funds constitutes an executive document, allowing the cheque holder to seek compulsory execution. However, the fact that a cheque is directly executable does not, by itself, mean that the personal assets of every partner of the issuing LLC can be subjected to execution.

Personal liability may arise in circumstances involving fraud, misuse of corporate authority, personal guarantees, or other conduct for which the law imposes liability independently of the LLC’s separate legal personality. Therefore, the capacity in which the cheque was signed, the company’s constitutional documents, the signatory’s authority, the underlying transaction, and any personal guarantee or undertaking must be examined before determining whether a partner can be proceeded against personally.

In summary, a partner of Limited Liability Company in UAE cannot ordinarily be held personally liable for a bounced cheque issued by the LLC merely because he is a partner. Where the cheque was issued by the LLC for its own business purposes and signed by the partner in his authorised representative capacity, the liability ordinarily remains with the LLC, subject to the specific facts and applicable law.

However, if the partner personally guaranteed the obligation, signed in his personal capacity, acted fraudulently, exceeded his authority, or otherwise incurred personal liability under UAE law, a claim or execution against him personally may be possible.

We, Ayesha AlDhaheri Advocates and Legal Consultants, are handling cases for and against the commercial companies depending on the nature of the cases. If you require any assistance or have any related inquiries, please feel free to contact us. Our team of expert lawyers will provide you with professional guidance every step of the way.