Why shareholder’s agreements are important in UAE

A shareholder’s agreement, simply put, is a legal document detailing the terms of engagement between different stakeholders in a company setup Dubai. It is a written document that records the exact ownership stake each partner enjoys within a company setup, along with incumbent obligations.  Even non-business-related components, such as management rights, licensing intellectual property, etc. are commonly included in the shareholders’ agreement. 

Shareholders’ Agreements Provisions

Shareholders’ agreements usually include some of the following provisions:

• Directors and management structure within a company setup
• Buying/ selling provisions
• A shareholder’s agreement may grant titles and management roles to one or more of the stakeholders in a company being setup in the UAE i.e.  to be a director on a board, or decide the composition of the board.
• Roles and obligations of each shareholder.
• Financing requirements, quorum requirements and veto rights.
• Restrictions on transfer of shares (right of first refusal, right of first offer).
• Forced transfer of shares and curtailing of further issuance of shares.
• Terms to protect minority shareholders.
• Determining and allocating special rights to certain shareholders

Registration and Notarisation

Under the UAE law, the memorandum of association (MOA) of a business setup in Dubai has to be registered and notarised. Shareholders' agreements are extremely common in the UAE, especially in part to a long-standing requirement under the Commercial Companies Law of the United Arab Emirates (Federal Law No. 8 of 1984, now referred to as Companies Law), that dictates that every limited company (LLC) incorporated within the UAE must have one or more national shareholders, with a minimum 51% holding.  LLC shareholding agreements (not ‘side agreements’) should also be written and notarised, if possible, so that in the event of a dispute between different stakeholders in a business setup in the UAE, they can be called into action. 

Advantages of Entering into a Shareholder’s Agreement

Although the officially-registered MOA’s governing a business hold, there are many additional advantages of having a shareholders’ agreement. Shareholders’ agreements regulate the structure of the business setup in Dubai in more detail, and grant partners flexibility and privacy in documenting their understandings.

• Privacy: A shareholders’ agreement remains a private document between the parties involved in a company setup in the UAE and can be more detailed with clauses and caveats which cannot be included in the MOA document. It can include confidentiality restrictions and is as such, tailored to meet the shareholders’ needs with things like remunerations and profit shares etc. By contrast, the MOA is a public document that is made available for inspection by members of the public in the Companies Registration Office.  
• Binding Effect: The MOA can only bind a shareholder in his capacity as a shareholder.  By contrast, shareholders’ agreements may be used to give rights and impose obligations on shareholders; e.g., binding a person in his capacity as director or as a creditor or agent.  
• Flexibility: A shareholders’ agreement generally provides more flexibility with respect to changing arrangements between shareholders. It is, hence, easier to amend the shareholders’ agreement than to change the constitutional documents of a business setup in Dubai.

Enlisting the help of professionals when undertaking shareholding agreements helps a business setup in Dubai plan their organisational structure in a better way. Book an appointment with one of our trusted consultants at Decisive Zone and get expert help on how to draw an equitable and secure shareholders agreement.