The Strategic Guide to Shareholders Agreement in the UAE
A shareholders agreement binds only the people who signed it, so anything meant to work against the company or a third party has to sit in the constitution.
Where a shareholders agreement contradicts the memorandum filed with the licensing authority, the registry reads the memorandum, and the shareholder who relied on the side agreement is left claiming damages rather than undoing the transfer. It separates what belongs in the constitution from what belongs in a private document, and says why agreements built around the old 51% rule need rewriting.
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
A shareholders agreement is a private contract about how a company will be run. In the UAE, the useful question is not what the agreement says but what happens when it disagrees with the company's registered constitution, because that is where most shareholder disputes are actually lost.
Related: Our shareholders agreement dubai drafting service covers mainland and free zone companies.
For mainland companies, Federal Decree-Law No. 32 of 2021 on commercial companies, in force since 2 January 2022, sets out the corporate forms, the memorandum of association, the majorities required for particular decisions, and the rules on transferring shares. The memorandum is filed with the licensing authority. A shareholders agreement is not filed and does not bind the registrar. It binds the people who signed it, and only them.
That distinction has consequences. If the agreement says a share transfer requires unanimous consent but the memorandum says otherwise, a transfer registered in accordance with the memorandum is effective; the aggrieved shareholder is left with a damages claim against the transferor rather than a way to undo the transfer. Anything the shareholders want to be effective against the company and third parties belongs in the constitution. The side agreement is for the commercial understandings that have no place on a public register.
What changed when the ownership rule went
A great many UAE shareholders agreements exist because of a rule that no longer applies. Federal Decree-Law No. 26 of 2020, effective 1 June 2021, ended the 51% national shareholding requirement for mainland limited liability companies. What survives it is a list of activities of strategic impact; outside that list, the register can show the foreign investor as the owner it actually is.
That changes what a shareholders agreement in this market is for. An agreement written to make the register say one thing and the economics another was always pulling against the constitution rather than working with it, and the investor relying on it held a contract claim where he believed he held shares. If the activity is now open to full foreign ownership, the cleaner course is to move the shares so the register carries the truth, and then to write a fresh agreement about how the business will actually be run. Where a national shareholder stays on for genuine commercial reasons, the agreement can finally do the job it is meant to do: allocate control, money and exit between real partners.
Related: We offer a standalone shareholders agreement review for existing structures.
The provisions that earn their place
A serviceable agreement is shorter than most and answers a small number of questions properly.
- Who decides what. A list of reserved matters requiring approval beyond a simple majority, distinguishing board decisions from shareholder decisions. It should be checked against the statutory majorities, because a contractual threshold below the one the law requires achieves nothing.
- How money comes out. Dividend policy, management fees, shareholder loans and their ranking. Disputes about drawings are more common than disputes about strategy.
- Further funding. Whether shareholders are obliged to fund, what happens if one will not, and whether the non-funding shareholder is diluted.
- Transfers. Pre-emption rights, tag-along protection for minorities and drag-along rights so a majority can deliver a whole company to a buyer.
- Deadlock. In a two-shareholder company this is the clause that will be used. A casting vote, an escalation to named individuals, a buy-out mechanism or an expert valuation, in a defined order, with a defined timetable.
- Exit and valuation. How a departing shareholder's stake is valued, by whom, and on what basis. Leaving valuation to be agreed later means litigating it.
- Information. What accounts and management information the minority receives and when.
Related: Read our shareholders agreements for startups guidance.
Getting the dispute clause right
Two points regularly cause trouble in UAE shareholders agreements.
The first is authority to arbitrate. Under UAE law an arbitration agreement must be entered into by someone with specific authority to bind the party to arbitration; general management authority is not always enough. Where a corporate shareholder signs, the signing authority should be checked and evidenced at the time, not reconstructed years later when the other side challenges the tribunal's jurisdiction.
The second is naming an institution that still exists. Arbitration seated onshore is governed by Federal Law No. 6 of 2018, as amended in 2023. Shareholders agreements are signed once and then left alone for years, which is why so many of them still point at bodies that have changed underneath them. Dubai Decree No. 34 of 2021 closed the DIFC-LCIA and sent its cases to the Dubai International Arbitration Centre, though the DIFC itself is still available as a seat, and the Abu Dhabi centre now operates as arbitrateAD following its restructuring from 2024. An agreement naming the DIFC-LCIA or ADCCAC needs the clause replaced before a fallout between shareholders makes the point for it.
Related: Our shareholders agreement drafting page explains our approach.
DIFC and ADGM: the constitution can carry more weight
Companies in the DIFC and ADGM are incorporated under the centre's own companies statute and answer to the centre's own judges, who work in the common-law tradition. The practical advantage for shareholders is that provisions of the kind normally exiled to a side agreement can often be written into the articles of association themselves, so that they bind the company and successors in title rather than only the original signatories. Transfer restrictions, class rights and pre-emption sit comfortably in a set of DIFC or ADGM articles.
That does not make the shareholders agreement redundant. Commercially sensitive matters, such as who gets what fee and what the founders have promised each other, still belong in a private document. But the split between constitution and contract is a live drafting choice in the centres, whereas on the mainland the constitution's contents are more prescribed.
Where these agreements fail
Rarely on drafting quality. They fail because the memorandum was never amended to match, because the shareholders stopped holding meetings and passing resolutions so there is no record of what was decided, because a shareholder transferred to a family member who never signed a deed of adherence, or because the valuation mechanism turned out to depend on an accountant nobody could agree on. The agreement should be reviewed whenever shareholders, funding or activity change, and the register and constitution checked against it at the same time.
Related: For related documents, see our franchise agreement service and our startup shareholder documents resources.
Related Services: Explore our shareholders agreements and Shareholders Agreement services for practical legal support in this area.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.
Nour Attorneys Team
