In a recent ruling issued by the Court of Cassation in Abu Dhabi on November 18, 2024, a case was addressed concerning the ownership of commercial enterprises and the associated legal responsibilities. The ruling highlights several important legal points related to the sponsorship of foreigners by citizens in conducting commercial activities, the responsibility of the owner of the commercial enterprise, and the effect of concealed contracts.

Difference Between the Owner of a Sole Proprietorship and a Service Agent in Legal Responsibility

Sponsorship of Foreigners by Citizens: Service Agent

The court clarified that the sponsorship of a citizen for an establishment or a foreign person, which is not accompanied by actual participation by the citizen in money or work, known as a service agent, is limited to providing the administration with assurance of the foreigner’s ability to conduct commercial activity. This sponsorship does not extend beyond accountability to the administration regarding the license, and it is an implementation of administrative regulations in the state that require the foreigner to be authorized to conduct commercial and professional activities through a citizen.

Responsibility of the Owner of the Commercial Enterprise

The court confirmed that the owner of the commercial enterprise is responsible for the obligations and actions carried out in the name of their enterprise, provided that the actions are performed by the owner or their representative. If the enterprise is leased or invested by another person other than the license holder, the actions carried out by the lessee or investor in the name of the sole proprietorship or private enterprise are attributed to this lessee or investor, not the license holder, provided that the creditor dealing with the enterprise is aware of this.

Legal Ownership and Actual Ownership

The court indicated that the issuance of a commercial license by the competent administrative authority in the name of a specific person to conduct commercial activity through a private enterprise or sole proprietorship is evidence of the ownership of this person for that enterprise or establishment, and thus they bear all its obligations and debts. If the contracting parties conceal a real contract with an apparent contract, the effective contract between them is the real contract, and the consideration between them is based on this contract alone. If either party relies on the concealed contract against the apparent contract or wants to negate what is established in this contract, they must prove the existence of the real concealed contract or negate the apparent contract according to general rules of evidence, which require written proof unless there is fraud or deception.

The Court of Cassation in Appeal No. 1094 of 2024 on November 18, 2024

The court rejected the appeal filed by the owner of the commercial licenses (the appellant) in the case of the fictitious ownership of the commercial license and stated in the reasons that the appellant did not present any real or concealed contract with the first respondent (the investor) indicating that he is the real owner or investor of them or that she is merely a nominal sponsor of the license. It was evident from the documents that the commercial licenses issued by the Department of Economic Development for the second and third respondent enterprises that the appellant is the owner of them and had issued a special legal power of attorney to the first respondent in her capacity as the owner of each of them to be her agent and representative according to the powers specified therein. Thus, the appellant is the actual owner of them, considering that these enterprises are part of her financial assets, especially since it was evident from the documents that several judgments were issued against the appellant as the owner of the aforementioned commercial licenses, and she did not prove that the first respondent was an investor of them or the real owner of them or that the creditors were aware of this before the issuance of those judgments, which are considered as the truth, especially since she had entered into settlement agreements with some creditors as the owner of the second and third respondent enterprises. 

The appellant did not present any real or concealed contract with the first respondent indicating that he is the real owner or investor of them or that she is merely a nominal sponsor of the license. The expert report at the Court of Appeal, which concluded that the appellant is a nominal owner of them, was based on the statements of witnesses familiar with the appellant and the first respondent, but their statements contradicted what was established by the judgments, execution cases, and settlements attached to the documents. The sponsorship of the first respondent for one of the debts does not itself indicate that he is the real owner of the enterprises. Therefore, the appealed judgment, which was upheld by the decision under appeal, adhered to this view, and it is consistent with the law, and the appeal is dismissed.

Therefore, the ruling confirmed that a sole proprietorship does not have a separate legal personality from its owner or the holder of its commercial license and does not have separate financial assets from those of its owner. It is considered an element of the owner’s financial assets, and the owner is responsible for the debts and financial obligations of the commercial enterprise in their personal capacity unless it is proven that the owner is merely a nominal sponsor of the enterprise and that there is an actual owner (investor) of the enterprise with written evidence according to the rules of evidence, such as a real concealed contract with the creditors’ knowledge of the enterprise. It can be inferred that if the enterprise is leased or invested by another person other than the license holder, the actions carried out by the lessee or investor in the name of the sole proprietorship or private enterprise are attributed to this lessee or investor, not the license holder, provided that the creditor dealing with the enterprise is aware of this.