Legal Risks of Informal Business Agreements Between Partners in the UAE
In the UAE’s fast-growing business environment, many partnerships begin with trust, mutual understanding, and verbal promises. While this informal approach may seem convenient in the early stages, it creates significant legal risks when disagreements arise. Without a formal written agreement, partners have limited protection under UAE law, making it difficult to enforce rights or resolve disputes effectively.
Why Informal Agreements Are Risky
Informal or verbal agreements between business partners often fail to define essential elements such as profit-sharing, responsibilities, capital contributions, voting rights, exit terms, or dispute-resolution mechanisms. When partners rely solely on goodwill, misunderstandings can quickly escalate into conflict.
Common risks include:
- Ambiguity in Roles and Rights: Without documented obligations, disputes over workload, authority, or ownership are inevitable.
- Disputes Over Profit Distribution: Informal promises are hard to prove, especially when financial disagreements arise.
- Lack of Legal Enforceability: UAE courts prioritize written, signed agreements. Verbal arrangements are difficult to validate unless strong evidence exists.
- Exposure to Personal Liability: Without official documentation, partners may unintentionally expose themselves to financial, regulatory, or criminal liability.
- Breakdown of Trust: When expectations differ, relationships deteriorate, putting the entire business at risk.
People can also read: Understanding Your Rights During Police Investigation in the UAE
UAE Law on Partnership Agreements
The UAE Commercial Companies Law requires proper documentation for establishing any commercial partnership. A written agreement is critical because it:
- Defines each partner’s economic and management rights
- Establishes voting mechanisms and decision-making authority
- Specifies capital contributions and exit procedures
- Provides legally binding terms for resolving disputes
In the absence of a written agreement, the default provisions of UAE law apply—but these may not reflect the partners’ original intentions or protect minority partners adequately.
When Informal Agreements Lead to Disputes
Disputes commonly arise when the business grows, financial pressure emerges, or partners develop conflicting visions. Issues such as unpaid profits, unapproved withdrawals, breach of fiduciary duties, or attempted removal of a partner often surface when there is no formal contract to guide conduct.
In such cases, courts require documentary evidence—emails, messages, financial records—but these rarely offer the clarity and protection that a written partnership agreement provides.
How TLG: The Legal Group Supports Partners in Such Cases
Under the leadership of Saif Al Shamsi, TLG: The Legal Group assists partners by offering practical, strategic solutions for both preventing and resolving disputes arising from informal agreements. The firm helps partners by:
- Reviewing the existing business arrangement to identify legal vulnerabilities
- Drafting comprehensive partnership agreements tailored to the business model
- Advising on compliance with UAE Commercial Companies Law
- Representing partners in disputes, whether through negotiation, arbitration, or litigation
- Securing evidence and structuring claims when informal agreements have already caused conflict
TLG’s strong understanding of commercial partnerships ensures clients are protected before problems escalate—and receive expert support if disputes arise.
Conclusion
Informal agreements may help partners begin quickly, but they offer little security when conflicts arise. Clear, legally sound documentation is essential to protect rights, preserve relationships, and safeguard the future of the business. With the right legal guidance, entrepreneurs can avoid unnecessary risks and build partnerships on a strong foundation of trust and legal certainty.