Guide to Company Formation in the UAE: Steps and Legal Requirements

UAE Arbitration Law No. 6 of 2018 establishes the statutory framework that determines how parties choose the governing law, seat, and arbitral institution for commercial contracts, directly shaping dispute-resolution clauses in onshore UAE and free-zone jurisdictions such as DIFC and ADGM.

Related Services: Explore our Commercial Disputes and Commercial Litigation services for practical legal support in this area.

WHAT DOES UAE ARBITRATION LAW 6/2018 ACTUALLY REGULATE?

The Arbitration Law sets out the procedural and substantive rules that apply when parties agree to arbitrate their disputes. Its key provisions include:

• Party autonomy - Parties may freely choose the law governing the substantive contract, the arbitration rules, the seat of arbitration, and the language of the proceedings (Articles 4-7).
• Recognition and enforcement - Arbitral awards made in the UAE are recognized and enforced as if they were judgments of the UAE courts, subject to limited grounds for refusal (Articles 34-36).
• Interim measures - Parties may seek interim relief from the arbitral tribunal or, where necessary, from the onshore courts (Articles 17-19).
• Expert determination - The law acknowledges expert determination as a binding mechanism for specific issues such as completion accounts or stock valuations, provided the parties agree to it (Articles 20-22).
• Court assistance - Onshore courts retain jurisdiction over certain procedural steps, including the registration of security interests, the enforcement of arbitral awards concerning real property, and the setting aside of awards on limited public-policy grounds (Articles 23-25).

These provisions are reflected in the firm's contract playbooks (NA-APA-012, NA-SPA-014, NA-CNV-012, NA-IPA-013) which consistently elect UAE federal law as the governing law, DIFC-seated arbitration (DIAC/ADGM) as the preferred forum, and retain onshore courts for registration-related steps and expert determination where appropriate.

HOW SHOULD A GOVERNING LAW CLAUSE BE DRAFTED TO COMPLY WITH THE ARBITRATION LAW?

A governing law clause should clearly state that the substantive rights and obligations of the parties are governed by UAE federal law, unless the parties expressly elect another jurisdiction (e.g., DIFC or ADGM law for free-zone entities). The clause must be unambiguous to avoid disputes over interpretation. Example language drawn from the firm's playbooks:

> "This Agreement shall be governed by and construed in accordance with the laws of the United Arab Emirates (Federal Laws)."

When the contract involves a free-zone holding company, the playbook NA-CNV-012 suggests aligning the governing law with the law of the issuing entity (UAE federal law) while allowing DIFC/ADGM law to apply to the holding company's internal affairs. This approach respects the Arbitration Law's recognition of party autonomy while ensuring that any dispute over the contract's substantive provisions falls under a single, predictable legal regime.

WHAT FORUM SELECTION OPTIONS ARE AVAILABLE UNDER THE ARBITRATION LAW?

Parties may choose among several arbitral institutions and seats, each with distinct advantages:

The firm's playbooks consistently favour DIFC-seated arbitration (DIAC/ADGM) for M&A, share purchase, and asset purchase agreements, while retaining onshore courts for the notarial transfer of shares, registration of security interests, and expert determination on completion accounts. This hybrid approach leverages the strengths of each forum while complying with the Arbitration Law's provisions on court assistance and enforcement.

HOW DOES THE ARBITRATION LAW TREAT EXPERT DETERMINATION?

Expert determination is recognized as a binding dispute-resolution mechanism for specific technical or accounting issues, provided the parties agree to it in writing. The Arbitration Law does not prescribe detailed procedural rules for expert determination, leaving the parties to design the process (e.g., selection of expert, timelines, confidentiality). However, the law ensures that an expert determination award can be enforced similarly to an arbitral award, subject to limited grounds for challenge.

In practice, the firm's playbooks (NA-APA-012, NA-SPA-014, NA-CNV-012) incorporate expert determination clauses for:

• Completion accounts in share purchase agreements - to resolve disagreements over post-closing adjustments.
• Stock valuation in asset purchase agreements - to determine the value of inventory or intellectual property at closing.
• Valuation of earn-out payments - where future performance metrics require specialist assessment.

These clauses typically state that the expert's decision is final and binding, and that any challenge must be brought before the onshore courts on grounds of fraud, manifest error, or lack of jurisdiction-mirroring the limited grounds for setting aside an arbitral award under Articles 34-36 of the Arbitration Law.

WHAT ARE THE CONSEQUENCES OF CHOOSING ONSHORE COURTS AS THE FALLBACK FORUM?

The Arbitration Law permits parties to agree that, if arbitration fails or is unavailable, the dispute will be resolved by the onshore courts. This fallback is expressly contemplated in the firm's playbooks (see the "Fallback" provisions). Choosing onshore courts as a fallback has several implications:

• Language - Proceedings will be conducted in Arabic, although English translations may be submitted; parties often arrange for certified legal translation to ensure clarity.
• Procedure - The UAE Civil Procedure Code governs the process, which may involve longer timelines compared to arbitral proceedings.
• Enforcement - Judgments of onshore courts are directly enforceable within the UAE without the need for recognition proceedings, which can be advantageous for domestic assets.
• Limitation - Certain matters, such as the registration of security interests or the transfer of title to real property, must be handled by onshore courts regardless of the arbitration agreement, as the Arbitration Law reserves these steps to the relevant authorities.

The firm advises clients to use the fallback only when expressly instructed by counsel, as initiating negotiations with an onshore-court fallback may weaken the parties' leverage to secure arbitration.

HOW DOES THE ARBITRATION LAW INTERACT WITH DIFC COURTS AND ADGM COURTS?

DIFC and ADGM courts operate under their own civil and commercial laws, which are based on common law principles. The Arbitration Law acknowledges that parties may elect DIFC or ADGM law as the governing law of their contract, and they may also choose DIFC or ADGM courts as the forum for dispute resolution. However, for enforcement of arbitral awards, the Arbitration Law provides a conduit: awards made under the Arbitration Law can be recognized and enforced by DIFC courts (as "DIFC courts conduit for enforcement") and similarly by ADGM courts, provided the award does not violate public policy.

The firm's playbooks reflect this interplay:

• NA-APA-012 - Governing law: UAE federal law; Forum: Arbitration (DIAC/ADGM) or DIFC courts; Onshore courts retained for asset registration steps.
• NA-SPA-014 - Governing law: UAE federal law; Forum: Arbitration seated in DIFC or ADGM (DIAC/ICC), English language; Expert determination for completion accounts; Onshore courts retained for notarial transfer steps and interim relief.
• NA-CNV-012 - Governing law: Law of the issuing entity (UAE federal; DIFC/ADGM law for free-zone holdcos); Forum: Arbitration (DIAC/ADGM) or DIFC courts; Onshore courts for MoA/registration steps.
• NA-IPA-013 - Governing law: UAE federal law; Forum: Onshore courts or arbitration (DIAC); IP registrations and infringement actions follow the law of the country of registration; MoE/criminal routes preserved.

These selections ensure that parties benefit from the procedural efficiencies of DIFC/ADGM forums while maintaining the substantive application of UAE federal law where required.

WHAT PRACTICAL STEPS SHOULD PARTIES TAKE TO ENSURE THEIR ARBITRATION CLAUSE IS ENFORCEABLE?

To maximize the likelihood that an arbitration clause will be upheld under the Arbitration Law, parties should:

1. Explicitly state the governing law - Use clear language such as "This Agreement shall be governed by the laws of the United Arab Emirates (Federal Laws)."
2. Specify the seat of arbitration - Indicate whether the arbitration is to be seated in the DIFC, ADGM, or another emirate, and reference the relevant arbitral institution (DIAC, ADGM Arbitration Centre, etc.).
3. Choose the language - Typically English for international contracts; include a clause confirming that the proceedings will be conducted in English.
4. Address interim relief - Clarify that parties may seek interim measures from the arbitral tribunal or, if necessary, from the onshore courts.
5. Include expert determination provisions - Where applicable, define the scope, appointment process, and binding nature of the expert's decision.
6. Provide a fallback - State that, in the event arbitration is unavailable or ineffective, the parties submit to the exclusive jurisdiction of the onshore courts of the relevant emirate.
7. Avoid contradictory clauses - Ensure that the governing law and forum selection clauses do not conflict with mandatory provisions of the Arbitration Law (e.g., attempting to oust the court's jurisdiction over registration steps).
8. Review with counsel - Have the clause vetted by a lawyer familiar with UAE arbitration practice to confirm compliance with Articles 4-7 and related provisions.

Following these steps aligns with the firm's contract playbooks and reduces the risk of a court finding the arbitration clause invalid or unenforceable.

FREQUENTLY ASKED QUESTIONS

What is the effect of choosing DIFC law as the governing law in a contract that also provides for arbitration under the Arbitration Law?
Choosing DIFC law as the governing law means that substantive rights and obligations are interpreted according to the DIFC's own legislation (e.g., DIFC Contract Law, DIFC Employment Law). The Arbitration Law still applies to the arbitration procedure because it governs the arbitration process irrespective of the substantive law, provided the seat of arbitration is in the DIFC or the parties have agreed to DIFC-seated arbitration. The DIFC courts can then provide interim measures and enforcement of the award, while the substantive dispute is resolved under DIFC law.

Can a party unilaterally change the governing law after a dispute has arisen?
No. Under the Arbitration Law and general principles of contract law, the governing law is determined at the time the contract is formed. A unilateral change after a dispute arises would constitute a modification of the contract and requires mutual consent. If the parties cannot agree, the original governing law remains effective unless a court or tribunal finds that the contract has been validly amended.

Is it mandatory to include an arbitration clause in every commercial contract in the UAE?
No. The Arbitration Law does not impose a mandatory arbitration requirement. Parties are free to litigate in the onshore courts, use DIFC/ADGM courts, or pursue alternative dispute-resolution methods such as mediation or expert determination. However, many commercial parties prefer arbitration for its confidentiality, enforceability, and flexibility, especially in cross-border transactions.

How does the Arbitration Law treat awards made in foreign jurisdictions?
The Arbitration Law provides for the recognition and enforcement of foreign arbitral awards under the UAE's accession to the New York Convention. An award made outside the UAE can be enforced in the UAE if it meets the Convention's criteria (e.g., the award is final and binding, the parties had a valid arbitration agreement, and enforcement would not contravene UAE public policy). The process involves filing an application with the relevant onshore court, which will review the award for compliance with the Convention before granting enforcement.

What role does the expert determination play in a share purchase agreement, and can its decision be challenged?
Expert determination in a share purchase agreement typically resolves disputes over completion accounts, earn-out calculations, or working-capital adjustments. The expert's decision is binding on the parties unless there is evidence of fraud, manifest error, or a lack of jurisdiction. A party may challenge the determination in the onshore courts, but the scope of review is narrow-similar to the limited grounds for setting aside an arbitral award under Articles 34-36 of the Arbitration Law.

Are there any restrictions on arbitrating employment disputes under the Arbitration Law?
Employment disputes involving UAE-national employees are generally subject to the jurisdiction of the UAE Labour Courts, and parties cannot oust that jurisdiction by agreement. However, for expatriate employees or where the employment contract expressly permits arbitration (e.g., in free-zone entities), the Arbitration Law allows arbitration of employment-related claims, provided the agreement does not violate mandatory provisions of the UAE Labour Law.

How much does it typically cost to draft a governing law and dispute-resolution clause with a law firm in Dubai?
The firm does not disclose specific fees, but drafting a well-crafted clause typically involves a brief consultation, review of the contract's commercial context, and tailoring of the language to the client's needs. Costs vary based on the complexity of the transaction, the number of jurisdictions involved, and whether additional mechanisms such as expert determination or multi-tiered dispute resolution are included. Clients are encouraged to request a quote based on their specific transaction.

CONCLUSION

UAE Arbitration Law No. 6 of 2018 offers a robust, party-autonomous framework for shaping governing law and dispute-resolution clauses in commercial contracts. By electing UAE federal law as the substantive law, selecting DIFC- or ADGM-seated arbitration (DIAC/ADGM) as the preferred forum, retaining onshore courts for registration-specific steps and expert determination, and providing a clear fallback to onshore litigation, parties can achieve a balanced dispute-resolution mechanism that is both internationally enforceable and locally practical. The firm's contract playbooks embody these principles, offering red-lined, risk-adjusted templates that reflect the latest legal developments and judicial practice. Businesses and individuals in Dubai seeking to protect their interests should ensure their contracts incorporate these elements, reviewed by counsel familiar with the Arbitration Law's nuances, to secure predictable outcomes and efficient enforcement should a dispute arise.

If your matter involves a comprehensive guide to establishing a company in the United Arab Emirates: steps and legal requirements, you are welcome to request a consultation with Nour Attorneys. Our team can assess your position under the law currently in force and outline the options available to you. Request a consultation

This article is provided for general informational purposes only and does not constitute legal advice. Reading this article or contacting Nour Attorneys through this website does not create an attorney-client relationship; such a relationship arises only after a conflicts-of-interest check and a signed engagement agreement. Do not send confidential information through this website; information submitted before engagement is not protected by legal privilege. Past results do not guarantee future outcomes. The firm's lawyers practice in the jurisdictions stated in their individual profiles; this article addresses the law of the United Arab Emirates only.