Introduction
Corporate governance in the UAE has been evolving steadily over the last few years. Regulators are no longer focused only on company formation and licensing. There is now a clear shift towards how companies are managed, how decisions are taken, and how accountability is ensured at the board and senior management level. For founders, directors, and in house legal teams, understanding these changes is no longer optional. Strong governance is increasingly seen as a core compliance requirement rather than a best practice.
This article explains the new and evolving corporate governance requirements in the UAE. It focuses on practical implications for companies, directors, and shareholders, and highlights steps that businesses should consider to remain compliant and investor ready.
Why Corporate Governance Is Getting More Attention in the UAE
The UAE has positioned itself as a global business hub. With increased foreign investment, cross border transactions, and institutional funding, regulators have felt the need to strengthen trust and transparency in corporate structures.
Several factors are driving this increased focus:
First, international investors expect governance standards that are broadly aligned with global norms. Second, the introduction of UAE corporate tax has made financial reporting and oversight more critical. Third, free zones such as ADGM and DIFC operate under common law frameworks where director duties and fiduciary responsibilities are taken very seriously.
As a result, governance is no longer limited to listed companies or financial institutions. Even privately held companies and startups are now expected to follow basic governance discipline.
Key Sources of Corporate Governance Obligations in the UAE
Corporate governance requirements in the UAE do not come from a single law. Instead, they flow from multiple sources depending on the type of entity and its jurisdiction.
For mainland companies, the primary source is Federal Decree Law No. 32 of 2021 on Commercial Companies. This law sets out duties of directors, management responsibilities, and shareholder rights.
For companies in financial free zones, ADGM and DIFC have their own company regulations, supported by detailed guidance on director conduct, conflicts of interest, and decision making.
In addition, sector specific regulators such as the Central Bank, SCA, and healthcare regulators impose governance obligations on regulated entities.
Board Structure and Composition: What Has Changed
One of the most important governance developments relates to how boards are structured and how they function.
Directors are expected to actively participate in decision making rather than act as name lenders. Boards should have a clear understanding of the company’s business, financial position, and risk exposure.
While the law does not mandate independent directors for all private companies, there is a growing expectation that boards should not be entirely promoter driven, especially where external investors are involved.
Companies are also being encouraged to clearly define the roles of executive and non executive directors. This helps avoid overlap, confusion, and excessive concentration of power.
Duties and Liabilities of Directors
Director duties have been clarified and strengthened under modern UAE company laws.
Directors are expected to act in good faith, exercise due care, and act in the best interests of the company. This includes balancing the interests of shareholders, employees, and in some cases creditors.
Importantly, directors can now be held personally liable for losses caused by misconduct, gross negligence, or abuse of power. This applies even in private companies and family-owned businesses.
Another key development is the increased focus on conflict of interest disclosures. Directors must disclose any direct or indirect interest in transactions involving the company. Failure to do so can result in penalties and potential invalidation of the transaction.
Role of Shareholders in Governance
Shareholders are no longer passive participants. Governance frameworks now emphasize informed and documented shareholder decision making.
Key matters such as appointment and removal of directors, approval of major transactions, and amendments to constitutional documents require proper shareholder approvals.
Minority shareholder protection has also gained attention. Courts and regulators are more willing to intervene where majority shareholders act in an oppressive or unfair manner.
Well drafted shareholders agreements are therefore becoming a central governance tool, rather than a purely commercial document.
Internal Controls and Risk Management
Strong governance is closely linked to internal controls and risk management systems.
Companies are expected to maintain basic financial controls, proper accounting records, and clear approval matrices. This is particularly important in light of corporate tax, AML, and economic substance compliance.
Risk management is no longer limited to financial risk. Companies should identify legal, regulatory, data protection, and operational risks, and ensure that these are periodically reviewed at a senior level.
Even small and mid-sized companies are increasingly adopting internal policies on approvals, delegations, and reporting lines.
Transparency and Disclosure Expectations
Transparency has become a recurring theme in UAE corporate governance.
Companies are expected to maintain updated statutory registers, file accurate information with authorities, and ensure that financial statements reflect the true position of the business.
In regulated sectors, disclosures relating to beneficial ownership, ultimate controlling persons, and related party transactions are closely scrutinized.
Misstatements or incomplete disclosures can now attract not only fines but also reputational damage and regulatory follow up.
Governance in ADGM and DIFC: A Higher Benchmark
Companies incorporated in ADGM and DIFC are subject to more sophisticated governance expectations.
Directors in these jurisdictions owe fiduciary duties similar to those under English law. Board decisions must be taken with proper consideration, documentation, and rationale.
Written resolutions, board minutes, and conflict disclosures are not mere formalities. They are often reviewed during disputes, audits, and regulatory inspections.
For startups and holding companies in these free zones, adopting proper governance from day one can significantly reduce future legal risk.
Impact on Startups and Growing Businesses
Many founders assume that governance becomes relevant only after external funding. This assumption is increasingly risky.
Early-stage companies are now expected to maintain basic governance hygiene, including clear founder roles, documented decisions, and separation between personal and company finances.
Poor governance is often flagged during due diligence and can delay or even derail investment discussions.
Founders who treat governance as a strategic asset rather than a burden are better positioned for scale and institutional capital.
Practical Steps to Strengthen Corporate Governance
Companies looking to align with evolving governance expectations should consider a few practical steps.
First, review board composition and clearly define roles and responsibilities. Second, implement basic internal policies covering conflicts, approvals, and reporting. Third, ensure that key decisions are properly documented.
Periodic legal and compliance reviews can help identify gaps before they become regulatory issues. Training directors and senior management on their duties is also becoming a common practice.
Governance does not need to be complex. What matters is clarity, consistency, and accountability.
Conclusion
Corporate governance in the UAE is no longer a secondary consideration. It is a core element of legal compliance, risk management, and business credibility.
As laws mature and enforcement becomes more structured, companies that proactively adopt strong governance practices will enjoy greater trust from regulators, investors, and business partners.
For directors and shareholders, understanding and respecting governance obligations is not just about avoiding liability. It is about building sustainable and resilient businesses in a rapidly evolving legal environment.
