Legal pitfalls of a partnership agreement in the UAE

Most business models in the UAE are built on various types of partnerships that require legally sound arrangements. And here, most entrepreneurs from the CIS countries face unfamiliar rules regarding affiliate programs, agency relationships, commissions, and fees. AntwortLaw is often approached by companies that promote their products and services, including or exclusively, through referral and affiliate programs, recommendation systems, and influencer marketing. We help entrepreneurs and their marketers, new to the UAE market, properly draft agreements with referral partners to ensure their smooth operation.

As lawyers with over three years of successful experience in the UAE, we warn our clients about the fine line between partnership and agency agreements. Let's take a closer look at the difference between a partner and an agent in this jurisdiction and the potential consequences for your company if your initially intended partnership agreement is recognized as an agency agreement. In this article, we will rely on Federal Law No. 3 of 2022 on Commercial Agencies.

First of all, we would like to point out that only UAE citizens or companies wholly owned by UAE citizens can act as agents in the UAE. Therefore, your partnership agreement may be deemed an agency agreement only if the counterparty meets the above description. Only such entities have the right to register their agreements with the Ministry of Economy (MoE) and subsequently enjoy the legal protection of exclusive representatives.

If you have entered into an agreement with a UAE citizen or a company owned by UAE citizens, be extremely careful, as even calling the document a "partnership agreement" or anything other than an agency agreement can lead to the counterparty having it recognized as an agency agreement in court and receiving the following benefits:

• the right to exclusive representation of the brand in a given territory;
• the right to a commission on all sales in that zone, even if the counterparty was not involved in the transaction, and in the event of a conflict, the right to demand compensation for the "market created";
• The right to prohibit the import or sale of the brand's products without its participation.

In addition to these rights granted to the "agent," you, as a foreign company, cannot terminate the agreement without its consent or the permission of the Ministry of Economy, even if you violate its terms. Generally, any violation of the agreement may result in a ban on imports and a blocked license.

To prevent this scenario, protect yourself by taking the following steps in the agreement:

• Specify that all transactions are conducted on behalf of and at the expense of the foreign company, and that the partner only provides marketing services;
• Eliminate commission provisions and replace them with a fixed remuneration (service fee);
• Specify that the partner has no right to enter into contracts or receive payments from clients;
• Avoid terms such as "sales commission," "exclusive rights," or "brand representation";
• Add the following statement: "This Agreement does not constitute a commercial agency agreement as defined under Federal Law No. 3 of 2022."

If you include these key points confirming the counterparty's non-exclusivity, your agreement will fall under the definition of a Partnership Agreement, which does not require registration with any authorities and whose terms are determined solely by the parties.

In such an agreement, the partner does not officially represent the company, but collaborates with it for joint marketing, project development, or investments. We also recommend ensuring that your partner is not listed on the Ministry of Economy's Register of Registered Agents and, of course, conducting a general due diligence check on the counterparty.

By adhering to these rules, you will protect your brand from losing sales rights in the UAE and your business interests in relation to the company's partners. The international team at Antwort Law will help you avoid the risk of reclassifying a partnership agreement as an agency agreement, develop sound partnership, marketing, and distribution agreements, and advise you at every stage of establishing and growing your business in the UAE.

Lidia Ivanova

International lawyer
Antwort Law