A NOTE FOR THE UNWARY - SIGNING CONTRACTS IN THE UAE FOR A COMPANY UNDER INCORPORATION

Incorporating a company, whether in the UAE or the UK entails signing documents before the
company comes into existence. Most often business owners sign documents such as bank
opening forms, a lease, Memorandum of Association etc. during the company formation process
or nominate a third party to do so on their behalf under a Power of Attorney. A question that
most entrepreneurs and business owners rarely ask themselves is “who will be bound by these
agreements?”

A company is a separate legal entity from its owners and does not come into existence until the
company is licensed by the relevant authorities to carry out business. The company therefore
cannot conduct any business, enter into contracts, conduct business dealings, assume
responsibilities, liabilities or take up benefits from a contract until it has a legal existence, i.e. a
license or certificate of incorporation.

The general view (arguments that can be raised in support), is that a licensed company should be
bound and take the place of the signatories to all contracts and documents, provided that those
contracts and documents were “essential and necessary” to forming the company in accordance
with the prescribed legal procedures. Founding members and their duly appointed representatives
signing on the company’s behalf are equally bound and liable and should protect themselves by
ensuring that all such contracts and documents are in the name of the company and are qualified
with the words “company under formation”. As soon as a license or certificate of incorporation
is issues, their personal liability will be removed.
As regards other contracts and documents signed that are not essential, necessary or linked with
the company formation process, all persons signing the same will be personally liable.

Continuing liability under such contracts and documents can be removed by means of a novation
of all responsibilities, liabilities of the signatories vis - a -vis third parties, to the company after it
is duly licenses. The sooner this is done the better to bridge any gaps between signing and the
novation of responsibilities and liabilities.

Arkhurst & Abdellah Solicitors 

Creative Tower, 17th & 18th Floors, P.O. Box 4422, Fujairah, UAE.

www.aasolicitors-ae.com