UAE Civil Code: An Overview of Key Innovations for Businesses

The Federal Decree by Law No. 25 of 2025 Promulgating the Civil Transactions Law governs a broad spectrum of civil relations and essentially serves as the Civil Code of the United Arab Emirates (hereinafter – the Law, UAE Civil Code). This overview covers key business-relevant provisions in the fields of corporate and contract law reflected in the revised UAE Civil Code.

Key Innovations of the UAE Civil Code

The new UAE Civil Code came into force on 1 June 2026, completely replacing the 1985 law that had been in effect for over forty years. It modernises civil regulation, removes duplicative provisions found across separate laws, and eliminates outdated rules that no longer align with modern commercial practice. Among the key updates relevant to companies and business owners under the 2025 Civil Code are the following:

In contract law

• Freedom of the parties to choose the law applicable to the contract has been established, along with the mechanism for determining applicable law where no such choice has been made.
• A good faith requirement now applies at the pre-contractual stage – that is, when initiating, conducting and terminating negotiations. Liability has been introduced for a party that negotiates or withdraws from negotiations in bad faith, in the form of compensation for actual damage.
• The parties to negotiations are now under an obligation to disclose to each other any information essential for the conclusion of the contract.
• A contract may be concluded (an offer accepted), among other means, through the use of electronic means of communication. 
• The concept of a framework agreement has been established, setting out the basic terms of a future contract between the parties. By default, the provisions of a framework agreement are deemed to form part of the main contract. 
• The criteria for abuse of rights (unlawful exercise of a right) have been defined, together with the principle of liability for the person committing the abuse.
• The courts now have the power to “rebalance” the parties’ rights and obligations under contracting agreements (Muqawala contracts) where performance is disrupted by unforeseen circumstances. 
• Before making a claim against a surety (guarantor), a creditor is now required to first pursue the claim directly against the principal debtor. 
• Compensation agreed in advance by the parties for non-performance of an obligation may be reduced or increased by the court only in certain specified circumstances.

In corporate law 

• The incorporation and ownership of a company by a single person is now expressly permitted.
• Where partners (members) withdraw, the company may continue its activities with a sole remaining partner.
• The reinvestment of net profit is now expressly recognised by law as a legitimate company objective, alongside the distribution of profit.
• Professional companies – bringing together licensed professionals to provide services – are now subject to dedicated regulation.
• A professional company may cooperate with foreign professional companies, as well as with other persons who are not licensed partners.
• To avoid conflicts of interest, a person may be a partner in only one professional company.

Relationship Between UAE Civil and Commercial Law

Alongside the Civil Transactions Law of 2025 (CivTL), the UAE also enforces the Commercial Transactions Law of 2022 (ComTL). In terms of commercial relations between business entities, these two statutes interact as general law and special law (lex specialis).

To prevent duplication, the CivTL excludes matters that are comprehensively governed by specific commercial legislation (such as the ComTL, as well as laws governing commercial companies, competition, bankruptcy, trademarks, and other related areas).

Law	Scope of Regulation
Civil Transactions Law 2025 (CivTL)	General rules on contracts and obligations, key contract types, ownership rights, civil liability, conflict of laws, and other fundamental principles.
Commercial Transactions Law 2022 (ComTL)	Commercial contracts (such as commercial sale, commercial agency, carriage, bank guarantee, letters of credit, and bills of exchange) as well as some other aspects of business operations.

If an issue is explicitly governed by the ComTL, that law takes precedence. However, if the ComTL is silent on a matter, the relevant provisions of the CivTL apply. Furthermore, many critical business issues – such as the definition and validity of a contract, pre-contractual conduct, primary contract types, and the determination of governing law – are governed directly by the CivTL.

Corporate Law Fundamentals in the UAE Civil Code

General Provisions on Legal Persons  

The Civil Code outlines only the fundamentals of corporate law in the UAE, whereas specific rules governing corporate entities are set out in separate federal laws or the internal regulations of free zones.

Article 94 sets out the standard characteristics of a legal person, including: separate financial status, legal capacity (within the limits defined by its constitutional documents or the law), the right to sue and be sued, a distinct domicile, and a representative who acts on its behalf.

A legal person’s domicile is deemed to be the place where its centre of management is located. For entities whose principal centre of management is abroad but which conduct activities in the UAE, the centre of management (for the purposes of applying UAE law) is deemed to be where its local management is situated.

The Concept of a Company in the UAE Civil Code

A “company” is defined as a contract whereby two or more persons undertake to participate in an enterprise by contributing assets or services towards that enterprise, with a view to investing in it and sharing in the resulting profits or losses.

By way of exception to this definition, the Law explicitly permits the formation and ownership of a company by a single person, as well as the reinvestment of the company’s net profits to achieve its objectives.

A company acquires legal personality upon its formation. However, it may only assert its status as a legal person against third parties after completing all statutory procedures (such as registration and licensing).

Application of the UAE Commercial Companies Law

The company provisions in the UAE Civil Code are general in nature and do not prejudice any specific laws governing corporate entities – most notably the UAE Commercial Companies Law of 2021.

The provisions of the UAE Commercial Companies Law apply automatically if a company carries out commercial activities or is established in one of the legal forms specified for commercial companies. In addition, companies are subject to specific sector regulations governing their activities within the UAE.

The UAE Commercial Companies Law provides for three main types of companies – Limited Liability Companies (LLC), Private Joint Stock Companies (PrJSC), and Public Joint Stock Companies (PJSC) – as well as two forms of partnership (General Partnership and Limited Partnership). For foreign investors, an LLC is the most straightforward and practical entity for setting up a business in the UAE. Similar entity structures can be established within UAE free zones (such as FZCO and FZ-LLC); however, these are governed by the specific regulations of each free zone rather than federal law.

Contributions of Partners

A company’s capital may consist of monetary contributions or non-monetary (in-kind) contributions that can be assigned a financial value. A contribution may also take the form of services.

Partners’ contributions may be equal or unequal; however, a partner’s contribution cannot consist merely of their influence or financial standing. Furthermore, claims against third parties (debts) cannot serve as a capital contribution to a company.

Financial Year and Profit Distribution Principles

A company’s financial year is specified in its memorandum of association. The first financial year must not exceed 18 months nor be less than 6 months from the date of the company’s registration. Subsequent financial years consist of consecutive 12-month periods commencing immediately upon the conclusion of the preceding financial year.

The mechanism for distributing profits and losses is established by the memorandum of association. Any clause stipulating that a partner will receive a fixed sum of profit is void. Profits are to be distributed in proportion to each partner’s share in the capital. Any memorandum of association providing that a partner is excluded from profit distribution or exempt from sharing in losses is void.

Powers of Partners

Unless the law or the memorandum of association specifically provides otherwise for the management of the company, each partner:

• is deemed to be authorised by the other partners to manage the company; and
• may perform management and disposition acts within the scope of the company’s objectives without the approval of the other partners.

Such acts are binding on the company and all its partners, provided they do not conflict with the memorandum of association or the law. However, any disposition acts by a partner that fall outside the scope of the company’s objectives require the unanimous consent of all partners.

Where a decision requires a majority vote, that majority is calculated based on the value of the partners’ shares, unless otherwise provided by law or agreement.

Partners holding a majority of shares in the capital may petition the court to expel any partner if there are substantial grounds for doing so.

Practical Commentary: The scope of matters requiring decisions by the company’s partners (whether through general meetings or a sole shareholder), the procedures for adopting those decisions, and the manager’s operational authority are usually defined in the memorandum or articles of association.

Duty of Partners to Act in the Company’s Best Interests

A partner entrusted with managing the company’s affairs is obliged to refrain from any act that may cause harm to the company or run counter to the purpose of its formation.

In managing the company’s affairs, a partner must exercise the same degree of care as they exercise in their own affairs. If appointed for remuneration, they must act with no less diligence than that of an ordinary prudent person.

Rights of a Partner’s Creditors Regarding Company Assets and Profits

During the existence of the company, personal creditors of a partner are not entitled to satisfy their claims out of that partner’s share in the company’s assets; however, they may seek satisfaction from the partner’s share of profits. 

Upon liquidation of the company, creditors are entitled to enforce their claims against the debtor’s share in the company’s assets. A personal creditor of a partner is entitled to apply for a protective attachment over the assets that will be due to their debtor from the company’s assets upon its liquidation.

Manager

The partners may appoint a company manager (a position equivalent to a director) from among themselves or from third parties. The manager acts on behalf of the partners pursuant to the memorandum of association or a separate contract, on a remunerated or unremunerated basis.

A company may have multiple managers, each of whom must act strictly within the scope of their granted authority without encroaching on the authority of other managers. Where there are multiple managers and their duties have not been specifically allocated, nor is there a requirement for them to act jointly, each manager may perform any managerial action independently.

Grounds for Liquidation of a Company under UAE Civil Code

Grounds for the company liquidation in the UAE include:

• expiry of the term for which the company was formed;
• achievement of the objectives for which it was formed;
• loss of all or a substantial part of its assets, rendering its continued existence impractical;
• adoption of a unanimous resolution by the partners to liquidate the company;
• issuance of a court order for the company’s liquidation;
• death of a partner (unless the company continues its operations with their heirs or the remaining partners); and
• any other grounds provided for by law.

The court may order the liquidation of the company upon the application of any partner if another partner fails to fulfil their obligations or causes substantial harm to the company. Any agreement to the contrary is null and void.

Consequences of a Partner’s Withdrawal from the Company

A company (established for an indefinite term) is also subject to liquidation upon the good-faith withdrawal of a partner. A withdrawal is deemed to be made in good faith if it is executed with due notice to the other partners, without any indication of fraud, and at a time when it will not cause harm to the company or its partners.

Nevertheless, the company may continue its business among the remaining partners – either by replacing the outgoing partner with a new partner or by having the remaining partners acquire the outgoing partner’s share in proportion to their existing holdings (or in another manner agreed upon between them).

If the company consisted of two partners, the remaining partner may continue the company’s business solely (provided that such a company may lawfully be established by a single person). In this case, the partner must convert the company into the appropriate legal form.

Business Partnership Concept in the UAE Civil Code

A business partnership (as distinct from a company) is defined as a contract under which two or more persons undertake to provide a service to third parties for remuneration, regardless of whether the division of duties between them is equal or unequal.

Each partner is entitled to their share of profits even if they did not directly participate in rendering the service. The client may make payment to any of the partners, which will constitute proper discharge of the client’s payment obligation.

A partner who has undertaken to provide services is entitled to delegate their performance to another partner or a third party, unless the client explicitly stipulated that the services must be rendered by that partner personally.

Profits are distributed among partners in the proportions agreed in the partnership agreement, regardless of the nature or volume of services rendered by each partner. An unequal profit distribution may be agreed, even where equal participation in the provision of services is specified.

Professional Company Definition under the UAE Civil Code

A professional company is a company formed by one or more individuals licensed to practise a liberal profession, either individually or jointly with other persons, for the purpose of exercising that profession.

This type of company is designed for the provision of professional services based on personal expertise and intellectual or technical skills (such as consultancy, accounting, legal services, medical services, and various personal services).

A professional company carries out its activities through licensed partners. It is also entitled to engage other individuals licensed to practise the same activity, provided they act under the supervision and responsibility of the company.

A professional company may be formed in partnership with a foreign professional company, or with other individuals or legal entities, unless otherwise provided by law or agreement.

Liability and Restrictions on Partners in a Professional Company

A partner in a professional company is not entitled to transfer, sell, or pledge their share without the approval of the majority of partners.

A partner may not be a founder or partner in more than one professional company, nor may they be employed by another professional company.

Each partner is personally liable to the company and the other partners for their own professional errors, while the company is liable to third parties for errors committed by its partners.

A professional company is liable for any acts of its manager within the scope of ordinary management activities, as well as for any act of its employee or representative, provided they were authorised to act on its behalf and a third party relied on such authority when dealing with them.

Contract Law Issues in the UAE Civil Code

Law Applicable to Contractual Relations

Article 19 of the Law lays down the principles for determining the law applicable to contracts, including the freedom of parties to choose the governing law: 

• Contractual obligations, regarding both form and substance, are governed by the law of the country expressly agreed upon by the parties.
• In the absence of such agreement, the law of the country where the parties share a common domicile applies. 
• If their domiciles differ, the law of the country where the main obligation under the contract is to be executed applies, unless it clearly appears from the circumstances that a different law should apply. 

An applicable law clause is typically incorporated directly into the text of an international contract. However, in certain instances, the parties’ freedom to choose the governing law is restricted. For example, contracts relating to real estate are governed by the law of the place where the property is situated. An agreement for the sale and purchase of real estate located in the UAE will invariably be governed by UAE law.

If a conflict-of-law issue (that is, a question regarding applicable law) is not resolved pursuant to the relevant articles of the Law, the principles of private international law apply. For example, under the principle of the “closest connection,” the law of the country with which the legal relationship is most closely connected applies. To this end, the court will analyse all facts and circumstances establishing a link between the parties’ contractual relationship and a specific jurisdiction.

Interpretation of Contracts under the UAE Civil Code

Articles 119 and 120 of the Law set out certain principles governing the interpretation of contracts:

• if the terms of a contract are clear and unambiguous, departing from their literal meaning in order to establish the common intention of the parties is not permitted;
• where room for interpretation exists, the true common intention of the parties must be ascertained, without limiting the inquiry to the literal meaning of the words;
• no implied term may prevail over an express term;
• that which is customary in business practice is deemed to be a term agreed between the parties; and
• any ambiguity or contradiction is interpreted in favour of the party bearing the burden of performing the obligation, or the weaker party to the contract.

Pre-Contractual Duty of Good Faith

Negotiations preceding the conclusion of a contract must be conducted in accordance with the requirement of good faith.

A person who conducts or terminates negotiations in bad faith is liable to compensate the other party for the actual damage incurred. Such compensation does not include anticipated profits under the unexecuted contract or lost opportunities to acquire such profits, unless the parties have agreed otherwise.

Bad faith includes, among other things, the intentional non-disclosure of essential information that has a decisive effect on the validity of the contract.

Rule Breakdown: The principle of good faith requires the parties to act towards one another honestly, fairly, and reasonably, without attempting to deceive, mislead, or derive an unfair advantage. Article 121 of the Law extends the requirement of good faith to the pre-contractual stage – that is, to the negotiation process. Good faith at this stage entails entering into negotiations with a genuine intention to reach an agreement, providing full and accurate information, and maintaining confidentiality. Bad faith can manifest both in the conduct of negotiations and in their termination (for example, in the case of an unpredictable or unmotivated withdrawal from them at the final stage).

Disclosure of Information During Negotiations

A party negotiating or entering into a contract must disclose any information that would decisively influence the other party’s consent, provided the other party is unaware of it or reasonably relies on them. Information is deemed “essential” and “decisively important” if it directly relates to the core terms of the contract or the status of the parties.

The disclosure of essential information of decisive importance is a mutual obligation of both parties to negotiations or a contract. The party claiming information was concealed must prove it. Once they do, the other party must prove that they actually shared the information.

The parties may not, by agreement, exclude or restrict the obligation to disclose essential information; any terms to that effect are void. A party whose interests have been prejudiced is entitled to seek the annulment of the contract on the grounds of the other party’s failure to perform this obligation.

The unauthorised use or disclosure by any person of confidential information obtained during negotiations or the execution of a contract gives rise to liability under general rules of law.

Understanding the Rule: The requirement for mutual disclosure of essential information by negotiating parties is aimed at enhancing the transparency and predictability of commercial transactions. At the same time, entering into negotiations solely for the purpose of obtaining confidential information or trade secrets from a prospective counterparty constitutes a breach of the requirement of good faith.

Principles Governing the Formation, Performance, and Termination of Contracts

A contract must be performed in accordance with its terms and in a proper manner, consistent with the requirements of good faith. A contract binds a contracting party not only to its express terms, but also to everything that flows from it by virtue of the law, custom, and the nature of the obligation.

Upon the rescission or termination of a contract, the parties must be restored to the position existing prior to the conclusion of the contract. If this is not possible, compensation is payable.

A contract is deemed to be concluded at the time and place where acceptance is communicated, including where the parties are in different locations but remain in contact via direct means of communication (unless otherwise provided by law or agreed by the parties).

The ability to conclude a contract remotely using “direct means of communication” (for instance, through an exchange of electronic messages) is now explicitly provided for under the Law, reflecting modern commercial practice.

Abuse of Rights

Article 106 of the Law establishes liability for the abuse of rights (unlawful exercise of a right) and sets out its defining criteria. These include:

1. the intention to cause harm;
2. the pursuit of an interest that contravenes the law, public order, or public morals;
3. the disproportion of the interest pursued relative to the harm caused to third parties;
4. the exercise of a right in excess of the limits established by custom and practice.

Liability that may potentially arise in the event of an abuse of rights encourages the parties to act reasonably when exercising their contractual rights.

Specific Types of Contracts in the UAE Civil Code

Book Two of the UAE Civil Transactions Law is dedicated to specific types of contracts, among which the most significant for business activities are:

• Sales Contract and its specific variants;
• Loan Contract;
• Company Contract;
• Mudaraba Contract (an Islamic financial partnership agreement);
• Settlement Contract;

• Lease Contract and its specific variants;
• Muqawala Contract (a contract for works);
• Employment Contract (these provisions apply in the absence of specific regulation under labour law);
• Agency Contract;
• Insurance Contract;
• Suretyship Contract.

Framework Agreements 

A framework agreement is a contract under which the parties specify the general terms governing contracts entered into between them in accordance with such framework agreement. The framework agreement is deemed an integral part of these contracts, unless the parties expressly or impliedly agree otherwise.

The framework agreement mechanism can be particularly useful for trading and distribution companies engaged in long-term supply relationships.

Contractually Pre-Agreed Compensation

If specific performance of an obligation becomes impossible, the debtor is bound to pay compensation for non-performance (unless they prove that the impossibility arose from an external cause beyond their control). The parties to a contract may agree in advance upon the amount of compensation, specifying it in the contract or in a subsequent agreement.

The court may reduce the amount of pre-agreed compensation if the debtor proves that the assessment was excessive or that the principal obligation has been performed in part. The court may also reduce the agreed compensation if the creditor, through their own fault, contributed to causing or increasing the loss, or it may refuse to award compensation altogether if the fault of the creditor outweighs that of the debtor.

The creditor, in turn, may claim an amount exceeding the agreed compensation if they prove that the debtor committed fraud or gross negligence. Any agreement to the contrary is void.

This mechanism is recognised in contract law as liquidated damages. The new Law restricts judicial discretion, permitting the court to adjust (reduce or increase) the pre-agreed amount of compensation determined by the parties only under strictly defined circumstances.

Restoration of Contractual Balance

With respect to contracts for work (Muqawala contracts), the court is granted explicit powers to restore the contractual balance (equilibrium) disrupted by unforeseen circumstances.

If the contractual balance between the obligations of the employer and the contractor is disturbed by exceptional circumstances of a general nature — circumstances that could not have been foreseen when the contract was concluded — such that the basis on which the contract’s financial terms were originally calculated is undermined, the court may, having regard to the circumstances and after weighing the interests of both parties, issue an order to restore that contractual balance. Such an order may include:

• extending the time allowed for performance;
• increasing or reducing the consideration payable; or
• rescinding the contract.

Practical context: Such rebalancing may be necessary, for instance, where exceptional circumstances hinder the performance of obligations under construction or real estate development contracts. Upon the occurrence of such circumstances, the court may adjust the contractual timelines and/or financial parameters, or issue an order for termination.

Creditor’s Claims Against the Surety

Article 1009 clarifies the procedure for a creditor to enforce claims against a surety. Whereas a creditor was previously entitled to seek recourse against either the debtor or the surety in any order (including directly against the surety in the first instance), a creditor must now first submit its claim to the principal debtor.  

A creditor may not enforce a claim against the assets of the surety until all assets of the debtor have been exhausted, unless the surety is jointly and severally liable with the debtor, or unless otherwise provided by law or agreed by the parties. In the event of non-compliance by the creditor with this procedure, the surety is entitled to raise an appropriate objection before the court.

Scope and Intent: This rule protects the interests of the surety without relieving them of the obligation to guarantee the performance should the debtor default. The participation of a surety is frequently required, for example, in connection with credit facilities, leasing arrangements, or the use of trade finance instruments.

Principles of Application and Interpretation of Civil Law in the UAE

Article 1 of the UAE Civil Transactions Law establishes the order of priority for applying sources of law to civil relationships:

1. First, legislative provisions apply to all matters addressed by such provisions, whether expressly or implicitly.
2. If the court finds no applicable statutory provision, it is guided by the rules of Islamic Sharia.
3. In the absence of a ruling under Islamic Sharia, custom applies, provided it does not contravene public order or public morals.
4. In the absence of custom, the court decides the matter in accordance with the principles of natural law and the rules of justice.

In the interpretation, clarification, and application of statutory provisions, the Law requires adherence to the rules and principles of Islamic jurisprudence. A number of these rules are set out in Articles 31 to 71 of the Law.

It is also important to note that the official Arabic text of the UAE Civil Transactions Law is controlling for the purposes of interpretation and application. In the event of any discrepancy between an English translation and the Arabic original, the Arabic text will prevail.

Final Points to Keep in Mind Regarding the UAE Civil Code

• Effective Date: The new UAE Civil Transactions Law came into force on 1 June 2026. Businesses are advised to align their contract drafting and execution practices with the updated provisions from this date forward.
• Relationship with Special Legislation: Specific commercial laws – such as the Commercial Companies Law and the Commercial Transactions Law – take precedence over the Civil Transactions Law on matters directly regulated by them. However, the core provisions of the Civil Transactions Law continue to apply to fill any gaps in specialised legislation.
• Jurisdictional Scope: The Civil Transactions Law governs civil legal relationships across the entire territory of the UAE, with the exception of the ADGM and DIFC. As financial free zones in the UAE, the ADGM and DIFC operate under their own legal frameworks based on English common law for civil and commercial matters.

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