Not every joint venture in the UAE is a company. Where two or more people contribute capital or labour to a project and share the profit and loss, the Civil Transactions Law treats it as a partnership — Articles 602 to 654 of Federal Decree-Law No. 25 of 2025 — whether or not anyone intended to form one. Mudaraba, the capital-and-effort structure behind much Islamic finance, follows at Articles 655 to 670.
Article 640 is the provision that surprises partners: profit is divided in the agreed proportion regardless of the work each partner performed, and an unequal split is permissible even where equal work was stipulated. The bargain governs, not the contribution.
Contents
1. When a partnership exists, and which law governs it
Article 603(1) defines a partnership as a contract by which two or more persons undertake to contribute to a project by providing a share of capital or labour, for the purpose of investing in it and sharing any profit or loss.
Labour alone is enough. A party who contributes no money but works on the venture for a share of the profit can be a partner, with the duties and exposure that follow.
Article 602 and Article 606 — the subordination rules
Article 602: the Chapter does not prejudice the provisions of special laws.
Article 606 then sorts partnerships by activity and form:
- 606(1) — a partnership is civil if its activity is non-commercial.
- 606(2) — it is commercial if its activity is commercial, or if it takes one of the forms of commercial companies even where its activity is non-commercial; such companies are subject to the Commercial Companies Law.
So the first question in any partnership dispute is which regime applies. A venture that adopted a company form is governed by the Commercial Companies Law regardless of what it does, while an undocumented profit-sharing arrangement over a non-commercial activity sits in this Chapter. Many real arrangements are the latter precisely because nobody formalised them.
Article 648 adds a specific rule for professional partnerships: they practise through the licensed partners, and may use the assistance of other licensed persons on the terms there set out.
2. Article 640 — the agreed split governs
"Profit shall be divided among the partners in the proportion agreed upon in the partnership contract, regardless of the type or amount of work performed by each partner. It is permissible to agree on an unequal distribution of profit even if equal work was stipulated. The profit is earned even if an impediment prevents…"
Two things follow, and they are the opposite of the intuition most partners bring to a dispute:
- Doing more work does not earn a larger share. A partner who carried the venture while others did little has no claim to a greater proportion on that basis alone; the contract governs.
- An unequal split is enforceable even where the contract contemplated equal effort. The two are simply different terms.
The practical consequence is that the profit-sharing clause is the single most important term in a UAE partnership, and effort-based rebalancing has to be drafted — through performance-linked distributions, a management fee ahead of profit share, or a reset mechanism — because the Law will not imply it.
Where no proportion was agreed at all, the arrangement falls back on the Chapter's default rules, which is one of several reasons an undocumented venture is a poor place to be when it fails.
3. Partnership property and partners' creditors
Article 620: a partner may not withhold for himself any of the partnership's funds; if he does, he is liable for every damage the partnership sustains as a result.
That is a direct liability to the partnership, measured by the damage caused rather than limited to the sum withheld. In a venture where one partner controls the bank account — which is most of them — it is the provision to plead.
Article 621: a partner's personal creditors may not, during the existence of the partnership, satisfy their rights from the partnership's funds.
Partnership assets are therefore insulated from the partners' individual creditors while the partnership subsists. For a creditor of an individual partner that is an important limit: the route is to the partner's interest and to distributions, not to the venture's assets. For the venture, it is a reason to keep partnership funds genuinely separate — the protection depends on the assets being identifiable as the partnership's.
4. Mudaraba: Articles 655 to 670
Article 655 defines mudaraba as a contract by which the owner of capital delivers property to a person who works with it — the mudarib — in return for a common shared portion of the profit.
The structural point is that the capital provider contributes money and the mudarib contributes effort, and the return to the mudarib is a share of profit rather than a fee. That is what distinguishes it from a loan or a services contract, and it is why the structure is used in Islamic finance.
Capital — Article 656
- 656(1) — the capital may consist of a debt owed to the owner of capital by the mudarib. A existing debt can be converted into mudaraba capital.
- 656(2) — where the contribution is property other than cash, the capital is the value of what was provided at the time of contracting, or per a valid valuation.
The valuation date matters: value at contracting, not at realisation. Contributing an appreciating asset therefore fixes the capital at the lower figure unless the parties agree otherwise.
Restricted and absolute mudaraba — Article 660
- 660(1) — where the contract is restricted as to time, place, type of work or otherwise, the mudarib must abide by those restrictions.
- 660(2) — where it is absolute, the mudarib is authorised to act in accordance with prevailing custom.
An absolute mudaraba is therefore not an unlimited mandate: custom supplies the boundary. A capital provider who wants narrower authority should impose it expressly, because the alternative benchmark is market practice rather than the provider's expectations.
Termination — Articles 666 and 667
A mudaraba terminates on expiry of its term where fixed, or on completion of the work for which it was established (666). Where the term is indefinite, either party may withdraw at any time, subject to the conditions in Article 667 — so an open-ended mudaraba is inherently terminable, and a capital provider relying on continuity should fix a term.
5. Checklists
Before entering a joint venture
- Establish which regime applies. Article 606 sends commercial activities and company forms to the Commercial Companies Law; this Chapter governs the rest, subject to Article 602.
- Remember that contributing labour alone can make someone a partner under Article 603(1), with the duties and exposure that follow.
- Draft the profit-sharing clause as the central term. Article 640 enforces the agreed proportion regardless of work performed, so effort-based rebalancing must be built in expressly.
- Keep partnership funds separate and identifiable — Article 621's protection against partners' personal creditors depends on it.
When a partnership goes wrong
- If a partner has withheld partnership funds, plead Article 620: liability extends to every damage sustained, not merely the amount withheld.
- If you are a creditor of an individual partner, Article 621 blocks recovery from partnership assets while the partnership subsists; proceed against the partner's interest and distributions.
- Do not expect a court to rebalance profit for unequal effort — Article 640 forecloses it.
Mudaraba
- Fix a term. Under Article 667 an indefinite mudaraba is withdrawable by either party at any time.
- Decide whether the mandate is restricted or absolute, and say so. Under Article 660(2) an absolute mudaraba is bounded by prevailing custom, not by the provider's expectations.
- Where capital is contributed in kind, note that Article 656(2) values it at the time of contracting.
- If converting an existing debt into capital, Article 656(1) permits it — record the conversion.
Transitional
- Article 4(1) preserves non-retroactivity: a partnership formed and performed before 1 June 2026 is governed on the substance by Federal Law No. 5 of 1985.
Primary sources
Every provision quoted above is taken from the instruments below. Links go to the official consolidated text, not to secondary commentary.
- Federal Decree-Law No. 25 of 2025 issuing the Civil Transactions Law — partnership 602–654, mudaraba 655–670; 606 civil vs commercial, 620–621 assets, 640 profit
- UAE Ministry of Economy — the Commercial Companies Law regime, which governs commercial partnerships under Art 606(2)
- UAE Ministry of Justice — laws and legislation — consolidated Arabic text, which governs over any English rendering
Questions we are asked
Can a joint venture be a partnership in the UAE without being registered as a company?
Yes. Article 603(1) of Federal Decree-Law No. 25 of 2025 defines a partnership as a contract by which two or more persons undertake to contribute to a project by providing a share of capital or labour, for the purpose of investing in it and sharing any profit or loss. Contributing labour alone is enough. Article 606 then sorts the arrangement: it is commercial, and subject to the Commercial Companies Law, if its activity is commercial or it takes one of the forms of commercial companies; otherwise it is civil and this Chapter governs.
Can a partner claim a larger share of profit for doing more work?
Not on that basis. Article 640 provides that profit is divided among the partners in the proportion agreed in the partnership contract, regardless of the type or amount of work performed by each partner, and that an unequal distribution may be agreed even where equal work was stipulated. The profit-sharing clause therefore governs, and any effort-based rebalancing has to be drafted — through performance-linked distributions, a management fee ahead of profit share, or a reset mechanism.
Can a partner's personal creditors take partnership assets?
Not while the partnership exists. Article 621 provides that a partner's personal creditors may not, during the existence of the partnership, satisfy their rights from the partnership's funds. The route for such a creditor is to the partner's interest and to distributions rather than to the venture's assets. The protection depends on the assets being identifiable as the partnership's, which is a reason to keep partnership funds genuinely separate.
What happens if a partner takes partnership money?
Article 620 provides that a partner may not withhold for himself any of the partnership's funds, and that if he does he is liable for every damage sustained by the partnership as a result. The liability is measured by the damage caused rather than capped at the sum withheld, which matters in a venture where one partner controls the bank account.
What is a mudaraba and how is it different from a loan?
Article 655 defines mudaraba as a contract by which the owner of capital delivers property to a person who works with it — the mudarib — in return for a common shared portion of the profit. The capital provider contributes money, the mudarib contributes effort, and the mudarib's return is a share of profit rather than a fee or interest. That profit-sharing character is what distinguishes it from a loan or a services contract and why the structure is used in Islamic finance.
Can a mudaraba be terminated at any time?
If it has no fixed term, yes. Article 666 provides that a mudaraba terminates on expiry of its term where it is for a fixed duration, or on completion of the work for which it was established. Article 667 provides that where the contract is for an indefinite term, either party may withdraw at any time, subject to the conditions it sets out. A capital provider relying on continuity should therefore fix a term rather than leave the arrangement open-ended.
Related guides in the library
Published 2026-10-03. General information only — not legal advice. Contact us for matter-specific advice.