Shareholders Agreement Dubai: Strategic Legal Framework for Business Stability
Reserved matters, transfers, deadlock and exit — and where the drafting changes
What a shareholders agreement covers that the constitutional documents leave out: reserved matters, board appointments and quorum, deadlock and buy-out mechanisms, pre-emption, tag and drag rights, and good and bad leaver terms. Also what changed for older agreements once the 51% ownership requirement was removed.
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
Two people set up a Dubai company on a handshake and a fifty-fifty split. Three years in, one wants to sell to a competitor and the other refuses to work with the buyer. Nothing in the constitutional documents says what happens next: no obligation to offer the shares internally first, no formula for valuing them, no buy-out mechanism, no way to break a deadlock at board level. Both are locked into a company neither can run and neither can leave.
That is the gap a shareholders agreement fills. It is not a formality that follows incorporation. It is where the commercial understanding between the owners — who decides what, who can sell to whom, at what price, and what happens when they fall out — is written down while everyone is still on good terms.
What it does that the constitutional documents do not
A company's memorandum or articles set out how the company is constituted, and they tend to follow the form the relevant registry works with. They are the company's document. A shareholders agreement is a private contract between the shareholders themselves, and it can go into detail the constitutional documents leave out: capital contributions and what happens if a shareholder cannot meet a call, board appointment rights, which decisions need a supermajority, information rights, restrictions on competing, and how someone exits.
The relationship between the two documents matters. Where they conflict, it is the constitutional document that governs the company's dealings, and the shareholders agreement gives the parties contractual remedies against each other rather than a right to override the company's constitution. In practice, that means the two must be drafted to work together. A veto that exists only in the shareholders agreement, while the articles let a decision pass on a simple majority, is a claim in damages after the fact rather than a block on the decision.
Our contract drafting team prepares shareholders agreements alongside the constitutional documents for exactly this reason.
Control is not the same as a shareholding
The clause set that does the real work is the one governing who decides what.
Reserved matters. A list of decisions that cannot be taken without a defined majority or without the consent of a named shareholder — issuing new shares, taking on debt above a threshold, disposing of a material asset, changing the business, entering related-party transactions, appointing or removing senior management. This is the mechanism by which a shareholder with a minority stake keeps a hand on the things that matter, and equally the mechanism by which a majority holder finds itself blocked. A shareholder with 60% of the shares can be stopped from selling the company's main asset if the reserved matters list says so. Both sides need to read the list understanding that.
The board. Who appoints directors, how many each shareholder gets, whether the chair has a casting vote, quorum requirements, and what happens if a shareholder's appointee resigns or is not replaced. Quorum provisions are a common source of trouble: a quorum requiring a director from each shareholder gives an unhappy party a way to paralyse the board simply by not attending, unless the clause deals with adjourned meetings.
Deadlock. Fifty-fifty companies and companies with reserved matters both need a route out of a genuine impasse. The usual mechanisms are escalation to the shareholders' principals, then a buy-out mechanism — a shoot-out provision under which one party names a price and the other elects to buy or sell at it, or a valuation by an independent expert on a defined basis. The point is less which mechanism is chosen than that one exists and that the valuation basis is spelled out. "Fair value" without saying who determines it and on what assumptions is not a mechanism.
Getting shares in and out
Transfer provisions are where shareholders agreements earn their keep, because the identity of a co-owner is the thing the parties actually care about.
Pre-emption rights require a shareholder wanting to sell to offer the shares to the others first, on the terms offered by the third party. Tag-along rights let a minority shareholder join a sale by the majority on the same terms, so it is not left as a minority partner of a stranger. Drag-along rights let a majority selling the whole company require the minority to sell too, which is what a buyer looking for 100% will insist on. Lock-in periods, restrictions on transfers to competitors, and rules for transfers within a shareholder's own group all sit alongside these.
Compulsory transfer provisions handle the events nobody wants to discuss at signature: a shareholder's death or incapacity, insolvency, a change of control of a corporate shareholder, or a founder-employee leaving. Good leaver and bad leaver definitions, and the different prices attaching to each, are worth negotiating carefully — they are the provisions most often litigated, and the arguments are almost always about which category the departing shareholder falls into.
Where the company is set up changes the drafting
Onshore companies are governed by the Commercial Companies Law, Federal Decree-Law No. 32 of 2021, which replaced the 2015 law. It sets out mandatory rules on company forms, share capital and management that a shareholders agreement cannot contract out of, while leaving the shareholders substantial room to agree matters between themselves.
One consequence of a change in the law is still working its way through older documents. Federal Decree-Law No. 26 of 2020 removed the requirement for 51% UAE-national ownership of mainland companies, and most mainland activities can now be wholly foreign-owned, subject to a list of activities of strategic impact. Agreements written under the old regime often contain side arrangements built around a nominee local partner — declarations of trust, powers of attorney, security over shares, profit-sharing that did not match the registered shareholding. Where the restriction no longer applies to the business in question, those arrangements can often be unwound and the register made to reflect the real position, rather than preserving a structure whose purpose has gone. This is separate from the local service agent a foreign company appoints for a branch, which is a different arrangement and remains lawful.
The DIFC and ADGM are common-law jurisdictions with their own companies legislation, courts and regulators. Shareholders agreements there are drafted much as they would be elsewhere in the common-law world, and the familiar mechanisms — options, warranties, indemnities, equitable remedies — behave as practitioners expect. That is a real reason investors choose those jurisdictions for joint ventures, and our joint venture practice advises on the choice.
Disputes and governing law
The dispute clause should be settled with the same care as the commercial terms. Decide the governing law and the forum, make sure they are consistent with where the company is registered and where its assets sit, and check that the choice made in the shareholders agreement does not contradict the constitutional documents. A dispute that begins with an argument about which forum should hear it is the foreseeable result of two clauses drafted by different people at different times.
When to write one
Before the company starts trading, if possible. Once there is a disagreement, every clause reads as an attempt by one side to gain ground, and the shareholder who would have to give something up has no reason to sign. The moments that make a review worthwhile are incorporation, a new investor, a founder leaving, and any point at which the register no longer reflects what the owners agreed.
Nour Attorneys drafts and negotiates shareholders and joint venture agreements for onshore, free zone, DIFC and ADGM companies, and acts in shareholder disputes.
Disclaimer: this article is for general information only and does not constitute legal advice. Readers should take advice on their own circumstances before acting on anything set out here.
