TRW & Co · Corporate and M&A
Shareholders' Agreements in the UAE: Key Clauses That Work
A shareholders agreement UAE investors and founders rely on governs control, deadlock, exits and succession, but onshore it only works if it lines up with the memorandum of association. Since October 2025, LLCs can issue share classes and include drag, tag and succession terms in their constitution. Here are the clauses that matter and how to make them enforceable.
Key pointOnshore, the memorandum of association governs dealings with the company and third parties, so any right that must be executed against an unwilling shareholder, such as a drag-along or leaver call, should appear in the memorandum and the notarial paperwork as well as the shareholders' agreement.
At a glance
Constitution comes first
Onshore authorities, notaries and courts look first to the memorandum of association; rights recorded only in a side agreement are usually enforceable only between shareholders.
Share classes now allowed
Since late 2025, onshore LLCs may issue share classes with different voting, redemption and distribution rights if the memorandum allows and classes are registered.
Drag and tag recognised
LLCs and private joint stock companies may include drag-along and tag-along rights in their constitution, though LLC pre-emption still applies unless validly waived.
Good-faith negotiations
The new Civil Transactions Law, in force from 1 June 2026, imposes good-faith negotiation and a non-excludable duty to disclose information material to consent.
Common-law option
Many groups hold UAE businesses through a DIFC or ADGM company so the shareholders' agreement operates under common-law rules and courts.
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Shareholders agreement UAE: the short answer
A shareholders agreement UAE founders and investors sign is a private contract that sits behind the company's public constitution. It governs what the memorandum of association cannot or should not say: who decides what, how deadlock is broken, how and when shareholders can exit, and what happens if one of them dies, defaults or competes.
The critical point onshore is hierarchy. The memorandum of association is the document the licensing authority, notaries and courts look at first. If the shareholders' agreement says one thing and the memorandum says another, the memorandum will usually govern dealings with the company and third parties, leaving the disappointed party with a contract claim against the other shareholder. Good drafting therefore puts the essential rights in both documents.
The 2025 amendments to the Commercial Companies Law changed the toolkit. LLCs can now issue classes of shares with different rights, and LLCs and private joint stock companies can write drag-along, tag-along and succession mechanics into their constitutional documents. This guide covers the clauses that matter and how to make them stick. For transaction support, see our shareholder agreements practice page.
The legal framework and where the agreement sits
Onshore companies are governed by Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended by Federal Decree-Law No. 20 of 2025, which took effect in late 2025. The federal regulator is the Ministry of Economy and Tourism, with registration handled by each emirate's licensing authority. The CCL sets mandatory rules on matters such as general assembly quorums for certain decisions, pre-emption on LLC share transfers and managers' liability. A shareholders' agreement cannot override mandatory law, but it can add obligations between the parties.
The agreement itself is a contract governed by the Civil Transactions Law. A new Civil Transactions Law (Federal Decree-Law No. 25 of 2025) came into force on 1 June 2026. Among other things, it requires negotiations to be conducted in good faith and imposes a pre-contractual duty to disclose information material to the other party's consent that cannot be excluded by agreement. That is directly relevant when an incoming investor negotiates with founders.
Free zones have their own companies regulations, which often recognise shareholders' agreements more readily. The DIFC and ADGM are common-law jurisdictions where shareholders' agreements work much as they do in London or Singapore, which is why many groups place their holding company there, using the ADGM Registration Authority or the DIFC Registrar of Companies. See our page on mainland company structures for the onshore architecture.
| Point | Onshore LLC | Non-financial free zone | DIFC / ADGM |
|---|---|---|---|
| Relationship with constitution | Memorandum governs dealings with the company and third parties; align both | Depends on zone; many allow articles to incorporate SHA terms | Articles and SHA work together on common-law principles |
| Share classes | Permitted since the 2025 amendments if the memorandum allows and classes are recorded | Commonly permitted under zone regulations | Well established |
| Drag and tag | May be included in the memorandum; pre-emption still applies unless waived | Usually permitted | Standard |
| Share pledges / security | Possible but procedurally heavier | Varies by zone | Established practice |
| Disputes | Onshore courts unless arbitration agreed | Onshore courts unless arbitration agreed | DIFC Courts / ADGM Courts or arbitration |
Key clauses and how to draft them
The clauses below appear in almost every shareholders agreement UAE deals produce. What changes from deal to deal is the balance between founder control and investor protection.
Reserved matters
Reserved matters are decisions that need the consent of a specified majority or of a particular investor: changing the business, issuing shares, taking on debt above an agreed level, approving the budget, appointing auditors, related-party transactions and selling key assets. Keep the list focused. An over-long list turns every operational choice into a negotiation and invites deadlock.
Onshore, mirror the most important reserved matters in the memorandum as general assembly matters requiring the agreed majority, so that a decision taken in breach is challengeable against the company and not only against the other shareholder.
Board, managers and information rights
Specify who appoints and removes managers or directors, quorum rules that require an investor nominee, and information rights such as monthly management accounts and annual audited accounts. Remember that the manager's statutory duties run to the company, not to the shareholder who appointed them; see directors' and managers' duties in the UAE.
Deadlock
Fifty-fifty joint ventures need a route out of stalemate: escalation to senior executives, mediation, then a buy-sell mechanism such as a Russian roulette or Texas shoot-out clause, or a put and call option at fair value. The 2025 amendments add a statutory backstop: where shareholders cannot agree on board appointments, the emirate's licensing authority may appoint independent, non-shareholder directors for a limited period. Most parties will prefer to solve deadlock themselves rather than leave it to the regulator.
Transfer restrictions, drag and tag
LLC shareholders have statutory pre-emption rights on transfers to third parties. Drag-along (forcing minorities to sell alongside a majority) and tag-along (letting minorities join a sale) can now be included in the constitutional documents of LLCs and private joint stock companies. Because pre-emption still applies in an LLC, the cleanest approach is an advance waiver of pre-emption for drag and tag sales, recorded in both the shareholders' agreement and the memorandum, with a power of attorney to sign transfer documents before the notary.
Founder vesting, leavers and restrictive covenants
Investors expect founders' shares to vest over time, with good-leaver and bad-leaver prices. Onshore, compulsory transfers are not expressly addressed by statute, so they remain contractual: draft clear call options, a valuation mechanism and an obligation to attend the notary. Non-compete and non-solicit covenants should be limited in time, territory and scope to remain enforceable.
Death and succession
Death of a shareholder is a real risk in founder-led and family companies. The amendments allow LLCs and private joint stock companies to set succession mechanics in the constitution, including a right for remaining shareholders to buy a deceased shareholder's shares at a price agreed with the heirs or, if disputed, set by the court. For families, align this with family business governance and wills.
Funding, anti-dilution and dividends
A shareholders agreement UAE investors sign should say who funds the company after completion and on what terms. Typical provisions cover further capital calls, shareholder loans, the consequences of failing to fund (dilution at a discount, or loss of board rights) and pre-emptive rights on new issues so existing shareholders can keep their percentage.
Venture and private equity investors also negotiate anti-dilution protection, usually by adjusting the conversion terms of a preferred class if shares are later issued at a lower price. Onshore, this now works more naturally through share classes recorded in the commercial register, but any adjustment still needs a capital increase or memorandum amendment to be implemented, so build in an obligation on every shareholder to vote for it.
Finally, set a dividend policy. Minority investors often want a minimum distribution once reserves and lender covenants allow; founders usually want flexibility to reinvest. Remember that distributions must come from genuine profits, and that the managers approving them carry personal exposure if they do not.
Draft for the notary, not just the courtroom. Onshore share transfers and memorandum amendments go through a notarial and licensing process that has traditionally expected every shareholder to participate. A drag-along right that cannot be executed because the minority refuses to attend is worth little. Build in irrevocable powers of attorney, pre-signed resolutions where permitted and clear consequences for non-cooperation.
Using share classes after the 2025 amendments
Since late 2025, an onshore LLC may issue classes of shares that differ in value, voting rights, redemption rights and priority in distributions, provided the memorandum permits it and each class and its rights are recorded in the commercial register. The Minister of Economy has described the UAE as among the first countries in the region to allow multiple quota classes for LLCs.
For a shareholders agreement UAE investors negotiate, this means preference shares, non-voting founder or employee classes and redeemable instruments can sit inside an onshore LLC rather than requiring a DIFC or ADGM holding company. Detailed implementing rules were expected from the Cabinet, so confirm the current registration practice with the relevant licensing authority before relying on a complex class structure. Our note on the UAE Commercial Companies Law amendments covers the wider changes.
How to put an agreement in place
- Agree the term sheet. Settle valuation, board seats, reserved matters, vesting and exit rights at a high level before lawyers draft. This avoids re-trading later.
- Choose the vehicle and forum. Decide whether the operating company stays onshore, sits in a free zone or is held through a DIFC or ADGM entity, and choose courts or arbitration accordingly.
- Draft the agreement and constitution together. Prepare the shareholders' agreement and the amended memorandum or articles in parallel so that reserved matters, classes, drag, tag and pre-emption waivers match.
- Disclosure and good faith. Under the new Civil Transactions Law, disclose material information during negotiations. Investors should still run due diligence and take warranties.
- Sign and register. Sign the agreement, pass the shareholder resolutions, update the memorandum through the notary or authority and record any share classes in the commercial register.
- Operate it. Diarise information deliveries, budget approvals and option windows. Agreements fail most often because nobody follows them after signing.
Illustrative scenario: a 50/50 joint venture
Illustrative only; generic parties. Two groups set up a Dubai mainland LLC to run a logistics business, each holding half. Their shareholders' agreement contains a detailed buy-sell clause triggered by deadlock, but the memorandum is the authority's standard form and says nothing about it.
Three years later, the parties fall out over expansion. One triggers the buy-sell clause and offers a price; the other neither accepts nor sells. The triggering party has a strong contractual claim, but the transfer cannot complete at the notary without the other side, and the memorandum gives no comfort. The dispute moves to court or arbitration, and value erodes while it runs.
Had the memorandum mirrored the mechanism, with an advance pre-emption waiver and a power of attorney, completion would have been far more straightforward. A shareholders agreement UAE businesses rely on should be built so that its key mechanisms can be executed without the defaulting party's cooperation.
Common mistakes
Leaving the memorandum on the standard template
Many onshore companies are incorporated on the licensing authority's template memorandum, with the real deal recorded only in a side agreement. That leaves reserved matters, drag, tag and leaver provisions enforceable only as contract claims between shareholders. Where possible, mirror the essential rights in the memorandum and record share classes in the commercial register. Where the authority will not accept bespoke wording, consider a free zone or DIFC/ADGM holding company.
Ignoring pre-emption
Statutory pre-emption on LLC transfers continues to apply after the 2025 amendments. A drag-along that does not deal with pre-emption invites a minority to block a sale by asserting its right to buy. Include a clear waiver for permitted transfers and drag and tag sales in both documents, and require each shareholder to sign whatever the notary needs.
Choosing a forum without thinking about enforcement
An agreement governed by English law with London arbitration may be sensible, but the award will need recognition in the UAE before enforcement onshore. DIFC or ADGM courts, or a UAE-seated arbitration, may be faster for UAE assets. Align the forum in the agreement and the memorandum to avoid parallel proceedings. See UAE-seated arbitration.
Unclear valuation mechanics
Leaver prices, deadlock buy-outs and succession clauses all depend on valuation. Specify the valuer, methodology, timing and what happens if the valuer cannot be agreed. Courts will otherwise appoint an expert, which is slower and less predictable.
Forgetting tax and regulatory overlays
Share classes, redemptions and preferred returns can have corporate tax consequences, and some sectors require regulatory consent to changes of control. Check these points before signing. See corporate tax.
Cross-border shareholders agreement UAE structures
Foreign investors from the UK, Singapore, India, Bangladesh or the GCC often want the agreement governed by a familiar law. That is generally possible as a contract matter, but the UAE company's constitution, transfer formalities and mandatory CCL rules still apply to an onshore company. Investors should also check home-country rules on outbound investment and reporting, and foreign exchange controls where they apply in the investor's jurisdiction.
Where several jurisdictions are involved, a common shareholders agreement UAE structure is a DIFC or ADGM holding company with the shareholders' agreement at that level and wholly owned operating subsidiaries onshore or in free zones. That puts the investor rights in a common-law system while keeping operating licences where the business is. See joint ventures and strategic alliances.
Checklist before you sign
- Is the company onshore, in a free zone or in the DIFC or ADGM, and does the agreement reflect that regime?
- Do the memorandum or articles mirror reserved matters, share classes, drag, tag and pre-emption waivers?
- Is there a workable deadlock mechanism and a valuation method?
- Are leaver, vesting and succession provisions executable without the defaulting party's cooperation?
- Are governing law and dispute forum aligned across all documents?
- Have tax, regulatory change-of-control and competition filings been checked?
- Has disclosure been handled consistently with the good-faith duties under the new Civil Transactions Law?
A well-drafted shareholders agreement UAE courts and notaries can actually enforce is cheaper than any shareholder dispute. If a dispute is already brewing, see shareholder disputes. To review or negotiate an agreement, contact TRW & Co.
Frequently asked questions
01Is a shareholders' agreement legally binding in the UAE?
Yes. It is a contract enforceable between the parties under the Civil Transactions Law, provided it does not conflict with mandatory provisions of the Commercial Companies Law or public order. The practical limitation onshore is that the memorandum of association governs the company's dealings with third parties and the authorities. If the two documents conflict, a party may have a damages claim against the other shareholder but may struggle to force the company or the notary to act on the agreement alone. Aligning both documents solves most of this.
02Does the memorandum of association override a shareholders' agreement?
As far as the company, the licensing authority and third parties are concerned, the memorandum is the governing document, and it must comply with the Commercial Companies Law. Between the shareholders themselves, the agreement remains binding as a contract. That is why advisers mirror key rights, such as reserved matters, transfer restrictions, drag and tag and share classes, in the memorandum, and use the agreement for detail and for matters that are better kept private.
03Can a UAE LLC have different classes of shares?
Yes. The 2025 amendments to the Commercial Companies Law, in force since late 2025, allow LLCs to issue classes of shares that differ in value, voting rights, redemption rights and distribution priority. The memorandum must allow it and each class and its rights must be recorded in the commercial register. Further implementing rules were expected from the Cabinet, so confirm current practice with the licensing authority before adopting a complex structure.
04Are drag-along and tag-along rights enforceable in a UAE mainland company?
They now have a statutory basis: LLCs and private joint stock companies can include them in their constitutional documents. In an LLC, however, statutory pre-emption rights still apply, so the drafting should include an advance waiver of pre-emption for drag and tag sales in both the agreement and the memorandum, plus powers of attorney so the transfer can be completed before the notary even if a minority shareholder does not cooperate.
05Which law should govern a UAE shareholders' agreement?
For an onshore company, UAE law is the natural choice because the company and its transfers are governed by UAE law anyway, and mixing systems creates gaps. Foreign law is possible as a contract matter, but mandatory UAE rules still apply. Where investors want English-style concepts and courts, a DIFC or ADGM holding company is often used, with the agreement governed by the law of that centre or English law and disputes going to the DIFC or ADGM Courts or arbitration.
06What should a shareholders' agreement say about a shareholder's death?
It should set out whether remaining shareholders or the company can buy the deceased shareholder's shares, at what price and on what timetable, and how heirs participate in the meantime. The 2025 amendments allow LLCs and private joint stock companies to include succession mechanics in their constitution, with price agreed with the heirs or, if disputed, determined by the court. Families should coordinate this with wills, any family charter and the rules on family businesses.
Sources and official materials
- Federal Decree-Law No. 32 of 2021 on Commercial Companies — Onshore company law, as amended by Federal Decree-Law No. 20 of 2025
- UAE Government issues Federal Decree-Law promulgating the Civil Transactions Law — Contract law framework, including good faith in negotiations
- Ministry of Economy and Tourism — Federal companies regulator
- ADGM Registration Authority — ADGM company formation and constitutional documents
- DIFC Courts — Common-law forum for DIFC shareholder disputes
General information only, current as at 27 October 2026. It is not legal advice and does not create a lawyer–client relationship. UAE law differs between the onshore jurisdiction, the DIFC, ADGM and the free zones, and changes frequently; check current official sources and take advice on the facts of your matter.
