Private Equity in the UAE: Investment Structures and Exits

How private equity investors in the UAE choose fund structures and investment vehicles, secure governance rights and plan their exits.

By Nour Attorneys / 22 August 2026

Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant

Private Equity in the UAE: Investment Structures and Exit Strategies

Private equity investment in the United Arab Emirates (UAE) has grown significantly as the country continues to develop as a global business hub. Regulatory reforms and an increasingly sophisticated investor base looking to invest in high-potential sectors are driving this growth. For private equity firms active in this market, understanding the legal rules behind investment structures and exits is essential to closing deals that maximise value while managing the risks found in complex transactions.

This article explains private equity investment structures and exits in the UAE. It covers the legal framework for fund formation, investment vehicles, deal structuring, governance rights and exit strategies. With a clear, well-planned approach to each stage, investors and their advisers can work through the specifics of the UAE market with confidence.

We first look at the structural choices available for private equity funds, including onshore and offshore vehicles, and how they affect governance and taxation. We then consider the contractual arrangements used to secure control and protect minority interests, given the uneven bargaining power typical of private equity deals. Finally, we turn to exit strategies, including trade sales, secondary buyouts and IPOs, and how to plan these exits to reduce disputes and improve returns.

Related Services: Explore our investment legal services and our investment and commercial dispute services for practical legal support in this area.

Private Equity Fund Structures in the UAE

The UAE's varied legal landscape offers several options for forming a private equity fund, each with its own regulatory, tax and operational considerations. Private equity investors often choose structures designed to improve capital efficiency, allocate risk and preserve governance control.

Onshore Fund Structures

Onshore fund structures typically involve establishing entities under the UAE's Federal Law or specific free zone regulations, such as those of the Dubai International Financial Centre (DIFC) or Abu Dhabi Global Market (ADGM). These financial free zones operate as separate legal jurisdictions based on English common law, providing a neutral and investor-friendly legal environment.

For instance, the DIFC's Collective Investment Funds Law allows private equity funds to be set up with flexible governance frameworks and enhanced investor protections. These are important for managing information gaps and control risks. Under DIFC regulations, funds can be structured as limited partnerships, limited liability companies or contractual funds, each offering a different degree of investor protection and operational flexibility.

The ability to appoint independent directors and establish advisory committees also helps build checks and balances into fund governance. This reduces the potential for conflict between general partners and limited partners.

Similarly, ADGM provides a comprehensive regulatory framework for private equity funds through its Financial Services Regulatory Authority (FSRA). Funds established there benefit from modern insolvency regimes, clear fiduciary duties and sophisticated dispute resolution mechanisms. They can also grant investor rights that closely mirror international standards. This is particularly attractive to global private equity sponsors seeking to reduce risks linked to unfamiliar local case law.

Offshore Fund Structures

Alternatively, offshore structures, such as entities formed in the Jebel Ali Free Zone (JAFZA) or Ras Al Khaimah International Corporate Centre (RAK ICC), are frequently used to create tax-efficient vehicles with simplified compliance requirements. These vehicles are particularly attractive to international investors seeking to avoid double taxation and repatriation hurdles.

Offshore companies in these jurisdictions can be formed as limited liability companies or international business companies (IBCs) with flexible share capital and ownership structures. However, the lack of strict local substance requirements in certain offshore jurisdictions may create compliance challenges under evolving international tax standards, such as the OECD's Base Erosion and Profit Shifting (BEPS) framework.

Private equity investors must therefore structure their offshore vehicles carefully to maintain substance. This reduces the risk of scrutiny from tax authorities in multiple jurisdictions.

The choice between offshore and onshore structures must be assessed in light of the ultimate investment targets, regulatory compliance and exit objectives. For example, while offshore entities might offer tax neutrality, they may face challenges in owning real estate or operating commercial activities on the UAE mainland, where local ownership rules apply.

Recent Reforms Affecting Fund Structures

Setting up these fund structures also requires careful attention to UAE foreign ownership laws, which have traditionally restricted foreign direct investment in certain sectors. Recent reforms have relaxed some ownership restrictions, allowing 100% foreign ownership in designated business activities outside free zones. This widens the structuring options available to private equity funds.

For example, the UAE's Cabinet Resolution No. 59 of 2020 permits full foreign ownership in a broad range of commercial activities, including manufacturing, services and industrial sectors, outside free zones. This significant policy shift allows private equity investors to consider onshore LLCs without the need for a local sponsor, reducing control risks and enabling more direct governance.

Despite these relaxations, certain strategic sectors such as oil and gas, telecommunications and defence remain restricted. In these sectors, private equity firms need joint ventures or other more complex ownership models to comply with sector-specific regulatory regimes.

Investment Vehicles and Deal Structuring

Selecting the right investment vehicle is central to a private equity transaction that balances control, risk and return. Common vehicles include limited liability companies (LLCs), joint stock companies (JSCs) and special purpose vehicles (SPVs), each governed by specific UAE corporate laws.

Limited Liability Companies (LLCs)

LLCs are widely used because of their flexible shareholding and management structures. Since Federal Decree-Law No. 26 of 2020, 100% foreign ownership of a mainland LLC is permitted for most activities, subject to the strategic-impact list and the relevant DED's activity schedule, so investors can hold control directly.

Shareholder agreements remain important for setting governance rights, veto powers and tag-along or drag-along provisions that protect against potential hostile moves by minority partners.

Where ownership restrictions still apply to a particular activity, private equity firms may use local partner or local service agent arrangements alongside contractual governance rights. Nominee arrangements carry legal and reputational risks. Even so, carefully drafted shareholder agreements with robust dispute resolution provisions can reduce the risk of disputes arising from such relationships.

The recent regulatory changes allowing 100% foreign ownership in select sectors have also changed how LLCs are structured. Private equity investors can now hold controlling stakes directly, which simplifies governance and exit processes.

Joint Stock Companies (JSCs)

Joint stock companies, particularly public joint stock companies (PJSCs), offer a route for larger-scale investments and often pave the way for an eventual public offering. JSCs give investors greater liquidity and governance transparency but involve stricter regulatory oversight and capital requirements.

JSCs are subject to the UAE Federal Commercial Companies Law (Federal Decree-Law No. 32 of 2021), which sets detailed rules on shareholder rights, board composition and disclosure obligations. Private equity investors must structure their investments to comply with these provisions while preserving control, often through preferential share classes or shareholder agreements conferring enhanced voting rights.

The structure of a JSC investment must also anticipate the requirements of the Securities and Commodities Authority (SCA) if an IPO is planned as an exit strategy. Early corporate governance reforms can head off regulatory challenges during the transition from private to public ownership.

Special Purpose Vehicles (SPVs)

SPVs are designed to isolate risks and simplify complex deal structures. They are frequently used for cross-border investments or to ring-fence assets. Through layered contractual rights, SPVs allow private equity sponsors to build in protections against adverse operational or financial decisions by portfolio companies.

SPVs often take the form of offshore companies or onshore entities in free zones, depending on the nature of the investment. For example, an SPV may be established in ADGM to hold equity in a portfolio company operating on the UAE mainland. This structure lets the private equity firm put in place contractual governance arrangements that address local ownership restrictions and risks stemming from management decisions.

SPVs also support structured financing arrangements, including subscription facilities and preferred equity tranches, designed to optimise risk-return profiles while maintaining operational control.

Contractual Protections in Deal Structuring

Negotiating governance rights is integral to deal structuring. These rights include board composition, information rights and exit consent thresholds. Private equity investors negotiate them to create a balance of power, reduce information gaps and prevent conflicts. Shareholders' agreements and subscription agreements codify these rights and obligations, ensuring they are enforceable under UAE law.

For example, tag-along rights protect minority investors by allowing them to join a sale on the same terms as majority shareholders, removing the risk of being left behind with a new owner. Drag-along clauses enable majority holders to compel minority participation in a sale, which supports exit liquidity while safeguarding fair treatment.

Protective provisions may also include pre-emption rights and rights of first refusal. These must be carefully drafted to comply with UAE corporate law and avoid invalidity. Drafting them precisely requires a detailed understanding of statutory requirements and how UAE courts interpret them.

Governance Rights and Investor Protections

Governance rights are critical to maintaining investor influence and protecting value in private equity transactions. In the UAE, these rights must be drafted with due regard to the statutory corporate governance framework and local market practice.

Board Representation and Control

Board representation is a fundamental governance tool that gives private equity investors oversight and a say in strategic direction. UAE corporate law permits shareholders to appoint directors proportionate to their shareholding. In practice, however, negotiated rights often give minority investors disproportionate board influence to manage control risks.

For example, investors may secure rights to appoint independent directors or veto key board decisions. Such arrangements are particularly important in joint ventures where the private equity firm is a minority shareholder but wants protection against decisions by the majority owner.

The enforceability of these rights depends on effective contractual drafting and alignment with the company's constitutional documents. Investors must draft these rights to withstand the scrutiny of UAE courts, which may sometimes view shareholder agreements with scepticism if they conflict with mandatory provisions of corporate law.

Information and Inspection Rights

Information rights are secured through contractual provisions granting regular access to financial statements, operational reports and inspection rights. These rights reduce the information gap between controlling and minority shareholders.

For instance, quarterly financial reporting obligations, audit committee participation and access to management meetings can be codified to ensure transparency. Investors often negotiate the right to conduct independent audits or investigations if warranted, providing a way to address misconduct by management or majority shareholders.

Protective Provisions and Veto Rights

Protective provisions include veto rights over major corporate actions, such as capital increases, asset disposals or changes in business scope. They are used to guard against unilateral action by majority shareholders or management. The enforceability of such provisions under UAE law depends on precise drafting and alignment with mandatory statutory requirements.

For example, requiring investor consent for changes to the company's memorandum or articles of association is a common way to preserve control. Similarly, veto rights over dividend distributions or new borrowing can be key to protecting investment value.

However, investors must draft these rights cautiously, as excessive control clauses may be challenged as ultra vires or invalid under UAE corporate legislation. Balancing enforceability with protective intent is a legal challenge that calls for experienced advice.

Exit Consent and Tag-Along/Drag-Along Rights

Exit consent rights and tag-along and drag-along clauses are designed to support orderly exits and protect minority investors during sale processes. These mechanisms balance flexibility over exit timing against protection from forced participation in disadvantageous transactions.

For example, tag-along rights allow minority shareholders to opt into a sale initiated by majority investors, offsetting their weaker bargaining position. Drag-along rights enable majority shareholders to compel minority shareholders to sell, ensuring clean exits and avoiding holdout risks that could jeopardise deal completion.

These clauses require careful drafting to ensure compatibility with UAE corporate law and to reduce the risk of judicial invalidation or enforcement difficulties.

Private Equity Exit Strategies in the UAE

Exit planning is a critical part of private equity investing and should begin early to achieve the best realisation of investment value. In the UAE, exit strategies are shaped by market liquidity, the regulatory environment and sector-specific dynamics.

Trade Sales

Trade sales remain the predominant exit route. Here, portfolio companies are sold to strategic or financial buyers. Trade sales require meticulous due diligence and contract negotiation to manage risks such as indemnity claims and post-closing disputes.

Warranties and indemnities in sale and purchase agreements allocate risk and provide remedies, helping to make the exit both clean and value-maximising. In the UAE context, warranty claims are often limited by statutory caps and timeframes, so precise drafting is needed to ensure adequate protection.

The drafting of earn-out clauses or deferred consideration mechanisms also requires careful legal design to address information gaps and potential disputes with sellers after closing.

Secondary Buyouts

Secondary buyouts, in which private equity firms sell to other financial sponsors, are increasingly common in the UAE market. These transactions require sophisticated deal structuring to set up governance and transfer mechanisms that preserve investment continuity while providing liquidity.

Secondary buyouts also involve information gaps between sellers and buyers. Enhanced disclosure protocols and contractual safeguards, such as representations and warranties insurance, can reduce these risks and support smoother transitions.

Secondary buyouts may use SPVs or layered holding companies to optimise tax and regulatory compliance. This underlines the importance of a transaction structure that aligns with the strategic exit objectives.

Initial Public Offerings (IPOs)

Initial public offerings (IPOs) are a strategic exit option, particularly for larger portfolio companies. However, the UAE capital markets impose rigorous disclosure and regulatory compliance obligations. Private equity investors therefore need to carry out structural and governance reforms within portfolio companies before listing.

For example, companies must enhance financial reporting standards, implement transparent board structures with independent directors and comply with the Securities and Commodities Authority's (SCA) listing rules. This process is demanding and requires precise legal and financial planning to align company structures with public market expectations.

Pre-IPO corporate restructuring, including share class rationalisation and cleanup of off-balance sheet liabilities, is often necessary to address potential regulatory and investor concerns. Lock-up agreements and orderly marketing processes must also be planned to manage market perception and valuation.

Alternative Exit Mechanisms

Other exit mechanisms include dividend recapitalisations and share buybacks, which serve as partial liquidity events. These alternatives must be structured within the constraints of UAE corporate law and capital preservation rules to avoid statutory non-compliance and shareholder disputes.

In a dividend recapitalisation, the company takes on debt to pay dividends to shareholders, returning part of the capital without a full exit. However, UAE laws impose strict limits on dividend distributions linked to profitability and solvency tests, so careful legal structuring is needed to ensure compliance.

Share buybacks allow companies to repurchase shares from investors, providing liquidity while maintaining operational continuity. These transactions require adherence to regulatory approvals, fair valuation standards and shareholder consent thresholds, which must be handled carefully to avoid shareholder litigation or regulatory penalties.

Regulatory and Tax Implications

The UAE regulatory environment plays a central role in shaping private equity investment structures and exits. The legal framework is designed to build investor confidence while safeguarding national economic objectives, which calls for careful strategic planning.

Regulatory Compliance and Foreign Ownership

Foreign ownership laws, licensing requirements and sector-specific regulations place structural constraints on investment vehicles and deal execution. Legal expertise is essential to work within these constraints, design compliant transaction structures and reduce the risk of regulatory breaches.

For example, certain sectors remain restricted or require local strategic partners, which leads private equity firms to use joint ventures or alternative ownership models. Licensing requirements vary between mainland and free zone jurisdictions, affecting operational flexibility and investor protections.

Anti-money laundering (AML) and counter-terrorism financing (CTF) regulations also impose due diligence and reporting obligations. These add layers of compliance that must be factored into transaction timing and structure.

Tax Considerations

Tax considerations are equally critical. Corporate tax applies under Federal Decree-Law No. 47 of 2022 at 0% on taxable income up to AED 375,000 and 9% above that, and there is no standalone capital gains tax, so the environment remains comparatively favourable for private equity investments. The corporate tax and Value Added Tax (VAT) regimes have nonetheless introduced new complexities.

Investments made through offshore and free zone entities must be structured carefully to optimise tax efficiency while complying with substance requirements and anti-avoidance rules. For example, the UAE's Economic Substance Regulations required entities engaged in certain activities to demonstrate adequate economic presence for financial years ending on or before 31 December 2022, and substance remains relevant to free zone corporate tax benefits.

Double tax treaties signed by the UAE with multiple jurisdictions also influence the design of investment structures and exit strategies. Private equity investors must build frameworks that make use of treaty benefits while managing the risks that arise from conflicting tax laws in cross-border transactions.

The introduction of corporate tax from June 2023 onward demands more thorough planning, particularly for portfolio companies generating significant taxable income. Private equity firms should design tax-efficient exit structures to mitigate additional tax burdens.

Practical Examples and Compliance Guidance

Case Study: Using a DIFC Fund for Regional Investment

A private equity firm seeking to invest in GCC mid-market companies chose to establish a fund under the DIFC Collective Investment Funds Law. It set up a limited partnership structure with a general partner and multiple limited partners. To manage control risks, it created a governance committee with veto powers over key decisions.

The fund used SPVs in ADGM to hold investments in UAE mainland companies, ensuring compliance with foreign ownership regulations. Structured shareholders' agreements included tag-along and drag-along rights, enabling orderly exits in line with the fund's time horizon.

Throughout, the legal team drafted contractual provisions to address potential dispute scenarios, including exit consent requirements and dispute resolution mechanisms specifying DIFC courts and arbitration. This approach shows how the careful use of UAE free zone legal frameworks can reduce risks and improve investment returns.

Compliance Checklist for Private Equity Transactions in the UAE

Assess Foreign Ownership Restrictions: Verify sector-specific rules and recent reforms to determine permissible ownership levels.
Select the Appropriate Fund Vehicle: Consider onshore vs. offshore structures based on investment targets, taxation and regulatory compliance.
Secure Governance Rights: Draft shareholder agreements incorporating veto rights, board representation and information rights aligned with UAE law.
Plan Exit Mechanisms Early: Structure tag-along and drag-along provisions and prepare for trade sales, secondary buyouts or IPOs with regulatory compliance in mind.
Address Tax and Substance Requirements: Ensure entities meet applicable substance requirements under the corporate tax regime and use double tax treaties effectively.
Obtain Licences and Regulatory Approvals: Obtain the necessary licences and approvals to avoid operational disruptions.
Include Dispute Resolution Clauses: Provide for arbitration or DIFC/ADGM court jurisdiction to resolve disputes efficiently.

Conclusion

Private equity investment in the UAE calls for legal solutions tailored to the country's particular structural, regulatory and market conditions. Understanding how investment structures, governance rights and exit mechanisms interact is essential to managing the risks inherent in private equity transactions.

By choosing the right onshore and offshore fund structures, carefully structuring investment vehicles and contractual governance frameworks, and planning exit strategies that reflect regulatory and tax realities, investors can maximise value creation and achieve successful outcomes in the UAE private equity market.

Nour Attorneys is ready to provide comprehensive legal solutions that address these complexities with precision and discipline.

Disclaimer

This article is for informational purposes only and does not constitute legal advice.

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