Earlier there used to be no segregation between the personal assets of the person and his non-personal corporate assets. To elaborate, suppose a partner in a company holds shares for Dh1 million, and on top of which he saves Dh10 million in a bank.

In case something goes wrong with the company, the partner is fully liable and his money in the saving account will be in jeopardy and could be taken to cover the company's financial woes.

Due to this, many business entities and individuals were affected and suffered great financial loses in addition to other personal set-backs. This situation led to the adoption of the concept of "limited liability" which marks a cornerstone in the business and company laws.

According to the concept, which has been established in a famous case (Simons vs Simons), the liability of the partner shall only be limited up to his equity shareholding, thus protecting his other assets from being taken to cover the liability of the company.

This legal principle clearly segregates between certain specific money used as equity shareholding and any other money owned by the same partner. The partner shall become liable only in relation to that certain specific money invested in the company, and his other money, if any, shall be free and shall not be used for any purpose whatsoever to meet the liabilities of the company.

The type of limited liability companies has been widely used worldwide and is one of the types allowed according to the company law in this country. A partner, or a company, may opt not to go for limited liability and accordingly this makes their legal liability unlimited and all their assets can be made at the disposal of third parties claiming liabilities against the company.

It goes without saying that there are pros and cons for each type. From a business perspective, a limited liability company could not attract certain projects wherein it is preferred to have business with entities of unlimited liability so as not to face or encounter any difficulties to get the required compensation in case of failure or nonfulfilment of contractual obligations.

This leads us to say that unlimited liability companies (ie. joint stock companies) will be in a better shape and competitive position in relation to strategic or major projects wherein they are mostly (if not in all cases) given priority.

The number of the partners in limited liability companies shall not exceed certain numbers, and this could be taken as a negative point because this limitation closes the door for new blood to join forces and invest additional money and ideas in the company.

Overexceeding the limited number of partners constitutes clear violation to the law, and the competent authority is empowered to dissolve the company due to this violation.

A. Warsama Ghalib is legal advisor to the Central Bank. The opinions expressed above are his own.