Partners - until the parting

The Life: Some executives who help manage small and medium-sized companies in the emirates are discovering - the hard way - that they are not the partners nor shareholders they were led on to believe.

Barton Hoggard, a lawyer in Dubai, says it pays to have proper documentation of share ownership in a company. Sarah Dea / The National
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Some executives who help to manage small and medium enterprises in the Emirates are discovering - the hard way - that they are not the partners they were led to believe they were.

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One former employee at a technology firm, who ran the company as chief executive for three years, says he had numerous conversations and papers noting that he was also a partner in the business with more than 15 per cent of its shares.

The problem, however, was that he never bothered to check whether his name and the allocation of shares were on a company document called the "memorandum of association", which plays a part in securing a commercial licence from an emirate's economic development department but can be drafted at any time.

"I was thinking the document was there," the executive says.

But he never bothered to check.

When he was recently let go, his former employer noted that - legally - he was neither a partner nor entitled to any shares that could be cashed out. His severance package then shrank to just a fraction of what he believes was owed to him, says the executive, who spoke to The National but asked to remain unnamed as he takes his battle to court.

Legal experts say others in the UAE have found themselves in similar situations - and that others will, too, unless they take appropriate action in advance to protect their interests.

"This is a significant issue, and not only crops up with CEOs," says Barton Hoggard, a partner in the corporate department of the law firm Hadef & Partners in Dubai.

Mr Hoggard warns that many individuals who manage businesses in the Emirates believe that they own up to 100 per cent of the share capital of their companies but are not registered in the relevant company's memorandum of association, or register of partners as the owner of those particular shares. This exposes the manager to significant risk.

The key is to ensure this document is notarised.

Some aggrieved executives have tried to escalate their fight to the courts on the basis of promises that they were entitled to a certain portion of shares.

But the UAE companies law states that "an oral agreement wouldn't be admissible in courts", Mr Hoggard says.

"You'd have to have a written document - a contract - with the parties that this is the true intentions of the parties," he says. "The courts will then look at the intent."

New chief executives or company managers can request that the shares from a former executive be transferred over. Once again, though, they should ensure the right document is drawn up in English and Arabic - and is notarised - to ensure the validity of any such transfer.

Badal, an entrepreneur from Dubai, is not taking a chance with being left out of a business he is forming with two partners.

He asked that his last name not be used in this report in case it causes conflict or distrust with his new partners.

"Usually, those who have signed an agreement with two or more partners would procrastinate and wait a year or so, then get it [written] on a legal term," says Badal, who until recently ran a business in Sharjah. "I want it before any projects come in, or new financial commitments are presented.

"It's better to get this on paper in a legal manner as soon as possible."

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