On 14 July 2025, the General Assembly of the Dubai Court of Cassation issued Decision No. 8 of 2025, introducing a significant change in how the validity of Limited Liability Company (LLC) incorporation contracts is assessed, particularly for companies formed before the enactment of Federal Decree-Law No. 32 of 2021 on Commercial Companies.
The decision is particularly relevant to cases involving nominee arrangements and the former minimum Emirati ownership requirement in LLCs.
Nominee Shareholding before Federal Decree-Law No. 32 of 2021
Before the new law came into force, court rulings were divided:
- First approach: Some judgments declared an LLC absolutely null and void if it was proven that an Emirati partner was merely a nominee, with no genuine intention to invest or share risk. This was based on the principle that the absence of essential elements, such as mutual intent to invest, renders the contract legally non-existent as it conflicts with public policy.
- Second approach: Other rulings favored economic and practical considerations, holding that defects in legal form should not automatically terminate a functioning business, provided the structure could be regularized.
Changes Introduced by Federal Decree-Law No. 32 of 2021
- Under the former Federal Law No. 8 of 1984, Article 22 required UAE nationals to hold at least 51% of an LLC’s share capital. In practice, this sometimes led to the use of nominee Emirati shareholders to meet the legal requirement without genuine capital contribution or management involvement.
- The new law abolished the mandatory Emirati ownership threshold and introduced the Single-Shareholder LLC, allowing one natural or legal person to own the entire company.
These changes enabled 100% foreign ownership in many sectors, with the aim of attracting foreign investment, enhancing competitiveness, and positioning the UAE among the leading global destinations for business.
Position of the Dubai Court of Cassation General Assembly
In Decision No. 8 of 2025, the General Assembly adopted the second approach, giving priority to economic and practical realities. It held that an LLC cannot be invalidated solely because an Emirati partner was a nominee with less than 51% ownership, even where the incorporation contract pre-dates Federal Decree-Law No. 32 of 2021, provided no final judgment had already declared it void before the new law took effect.
The Court applied the principle of the immediate effect of new laws to ongoing legal situations, noting that the legislative change was intended to regularize structures rather than penalize entities that were previously compliant.
It further clarified that a finding of nominee shareholding in such cases should lead to adjusting the company’s legal form, for example, converting it into a Single-Shareholder LLC or an LLC with only genuine partners, rather than dissolving it.
Likely Impact of This Judicial Approach
- Reinforces foreign investor confidence in the UAE legal system
- Supports entrepreneurs and SMEs by preserving companies that might otherwise face dissolution for historical or procedural reasons
- Reduces litigation on LLC invalidity based purely on form
- Encourages updating old incorporation contracts to comply with the new law without endangering the company’s legal existence
Legal Analysis
This ruling is a pragmatic step in modernizing the UAE’s business law framework and reflects key principles:
- Favoring economic stability over strict legal penalties where rectification is possible
- Interpreting legislation flexibly in line with public interest and fairness
- Balancing public policy considerations with the protection of good-faith investments
It signals a move towards judicial reasoning that recognizes the economic implications of corporate law, aiming to harmonies legal rules with the country’s broader commercial objectives.
If you have any questions or need further advice on related matters, please feel free to contact Mohamed Taha: mohamed.taha@sat-law.com
Written by Mohamed Taha
August 13th, 2025
