Directors are the backbone of corporate governance, bridging the gap between a company’s operations and its shareholders. While the corporate veil shields shareholders from personal liability, directors carry fiduciary responsibilities that ensure the company acts lawfully, ethically and in its best interests.
This article, the second in a three-part series on corporate compliance in the UAE and DIFC, explores directors’ duties, the legal frameworks that apply and practical steps for good governance.
All directors, including alternates and nominees, are bound by these duties. Individuals who are directors in title only, however, are not subject to the same legal standards as those formally appointed to the board.
Directors’ duties are primarily owed to the company itself, meaning decisions must serve the company’s interests above personal gain. In certain circumstances, such as insolvency, fraud or statutory breaches, duties may also extend to shareholders, creditors or regulators.
The table below highlights the main duties of directors under onshore UAE law and DIFC law:
|
Duty |
Onshore UAE Companies |
DIFC Companies |
|
Act within powers / objects of the company |
Duty to act consistently within the objects of the Company and within the limits of his/her power (Art. 22);
Duty not to commit fraudulent acts or abuse power (Art. 84) |
Duty to act within powers (s.69) |
|
Promote company interests / act in best interest |
– |
Duty to promote the success of the Company (s.70) |
|
Skill, care and diligence |
Duty to carry out work with due care (Art. 51);
Duty not to make gross errors (Art. 84) |
Duty to exercise reasonable care, skill and diligence (s.71) |
|
Avoid conflicts of interest |
Duty to avoid conflict of interests (Art. 150);
Duty not to compete with the Company (Art. 152) |
Duty to avoid conflicts of interest (s.73);
Duty to declare interest in proposed/existing transactions or arrangements (s.75/77);
Duty not to accept benefits from third parties (s.74) |
|
Independence |
– |
Duty to exercise independent judgment (s.71) |
The core duties (acting within powers, exercising skill and care, and avoiding conflicts) are consistent across both onshore UAE and DIFC companies. DIFC law adds formal guidance on independence, disclosure and promoting the company’s success, while onshore laws rely mainly on general principles. In both cases, duties are primarily owed to the company.
The business judgment rule protects directors when making decisions in good faith. While not formally codified in UAE or DIFC law, it is applied in spirit and requires directors to:
This principle encourages directors to take reasonable business risks without fear of automatic liability.
Following good governance practices helps directors comply with their duties and strengthens the board’s overall effectiveness. This includes holding regular board meetings, seeking external legal, financial or technical advice when needed and staying informed about the company’s operations, risks and regulatory requirements.
Failure to fulfil director duties can lead to serious consequences:
Onshore UAE: Removal as director, disqualification, fines or imprisonment for serious breaches
DIFC: Removal, disqualification, fines and liability for damages to the company
Proactive compliance, proper documentation and good governance are the best ways to mitigate these risks
Directors play a crucial role in balancing opportunity and accountability. By understanding their duties, acting with skill and care, avoiding conflicts and staying informed, directors can protect themselves, the company and its shareholders.
Stay tuned for Part 3: Data protection obligations in the UAE and DIFC, and how companies can future-proof compliance frameworks.
For companies seeking guidance on board responsibilities, corporate governance frameworks, or compliance best practices, Get in touch with us by emailing our lawyer Natacha El Azar via email at natacha@meyer-reumann.com or call the office directly on +971 4 331 7110 for tailored advice and support.
