Business Associations Sample Question No. 2
Al Mansour Limited Liability Company (AM LLC) is a Qatari limited liability company located in Doha with 20 partners. AM LLC followed the incorporation procedures under Article 231 of the Qatar Commercial Companies Law (QCCL) in December 2021. All cash and in-kind shares were fully paid (QR 250,000 each), and AM LLC opened its doors in January 2022. Each partner has an equal number of shares.
AM LLC resells marble purchased from abroad for use in Qatar commercial properties, such as fine hotels. Marble is generally ranked as commercial-grade, mid-grade, and high-grade with the differences in grade being based on thickness, color variation, and porousness. Given the demand in Qatar for marble, particularly in the lead up to the 2022 FIFA World Cup, AM LLC charged a substantial mark-up for marble.
Yousef Abeer is the AM LLC manager. Before assuming his AM LLC duties, Yousef was manager of a company in India named Mumbai Marble, Private Ltd Company (MM). Yousef still had a consulting arrangement with MM when leaving Mumbai in December 2021 to join AM LLC and had not disclosed this fact to AM LLC. Under the arrangement, MM was committed to re-hiring Yousef as manager in 2024.
Thanks to Yousef’s connections with Indian marble suppliers, shortly after AM LLC was launched, AM LLC signed a contract with MM to purchase a large volume of marble from MM for US $10 million. AM LLC paid the US $10 million thanks to a bank loan and MM delivered the marble to AM LLC in Doha as promised. The general assembly was not asked to approve the contract.
Yousef refused a 2% commission fee (US $200,000) from MM for the AM LLC-MM deal as he saw the contract as the first step of building AM LLC-MM ties, which would ultimately benefit him when he returned to MM in 2024. Yousef considered this a private matter, and he didn’t disclose the offer of payment nor his anticipated return to MM to anyone at AM LLC. Of note, everyone at AM LLC was thrilled that Yousef secured the marble at a good price on short notice.
After the marble arrived in Doha it was treated by structural engineers hired by AM LLC and then sold in packages to two new hotels that were finalizing their lobbies for the World Cup. AM LLC made a 50% profit (US $5 million) on its sale of the marble to the hotels.
In spring 2022, both hotels complained about discoloration in the marble. They demanded that AM LLC refund them the purchase price of the marble. This development led to a meeting of some AM LLC partners who hired an expert to test the marble. The expert quickly determined that the marble was commercial-grade and worth only US $ 1 million.
An AM LLC partner asked Yousef to produce records of the contract and any information about his relationship with MM, but Yousef refused. The AM LLC general assembly met and voted to terminate Yousef as manager. They also requested that he pay US $14 million to AM LLC. Of course, Yousef didn’t have the funds; he was able to return to Mumbai and is now happily employed at MM.
In the meantime, Golden Granite Limited Liability Company (GG LLC), a company organized under Qatari law and situated in Doha, reached out to AM LLC to purchase it for QR 2 million.
(1) Identify all legal issues that arise due to this situation and relevant facts, as well as unknown facts that could affect resolution of this situation.
(2) What should AM LLC have done to avoid this situation?