Draft Investment Agreement in the UAE

An investment agreement establishes the terms on which an investor provides capital to a business or project and defines the rights and obligations associated with that investment. It may address the amount being invested, the ownership interest received in return, conditions that must be satisfied before funding, investor protections, management rights, and future exit arrangements.

Investment transactions in the UAE can take different forms. An investor may subscribe for newly issued ownership interests, acquire existing interests from another owner, provide funding through a separate financing arrangement, or combine several mechanisms within one transaction.

The legal structure should therefore be identified before the agreement is drafted. An agreement describing a payment simply as an “investment” may create uncertainty if it does not establish whether the investor is becoming an owner, providing a loan, or participating through another legally recognised arrangement.

Abdulrahman Alshaali Advocates & Legal Consultants assists investors, founders, shareholders, and companies with preparing and reviewing investment agreements under UAE law.

Investment Agreements Under UAE Law

Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended, establishes the principal federal framework governing commercial companies within its scope in the UAE.

The law regulates company formation, ownership interests, capital, management, transfers, and other corporate matters relevant to many private investment transactions.

Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law provides the general contractual framework governing the obligations agreed between the parties.

An investment agreement must therefore work together with the corporate structure of the company receiving the investment.

For example, an investor cannot assume that a contractual promise to receive an ownership percentage is sufficient by itself if the transaction also requires corporate approvals, amendments to constitutional documents, or registration with the competent authority.

Companies established in the Dubai International Financial Centre, Abu Dhabi Global Market, or other free zones may be governed by separate corporate regulations.

The applicable framework should be identified before the investment documentation is finalised.

Identifying the Investment Structure

The parties should establish exactly how the investment will be made.

Common structures may include:

• Subscription for newly issued ownership interests.
• Purchase of existing interests from a current owner.
• Shareholder or investor financing.
• Investment linked to specified project rights.
• A combination of equity and financing arrangements.

Each structure can create different legal and financial consequences.

For example, if an investor pays AED 2 million directly to an existing shareholder for part of that shareholder’s ownership interest, the funds may not enter the company itself.

By contrast, a subscription for newly issued ownership interests may result in capital being provided to the company, subject to the applicable corporate requirements.

The agreement should identify the recipient of the investment funds and what the investor receives in return.

Where the arrangement combines equity investment with a separate loan, the two components should be distinguished clearly.

A draft loan agreement may be required for the financing element rather than attempting to treat the entire transaction as equity.

Establishing the Investment Amount and Payment Process

The investment agreement should specify the amount to be contributed and how payment will take place.

The parties should identify:

• The investment amount.
• The currency.
• The payment date.
• The account receiving the funds.
• Whether payment will occur in one amount or several stages.
• Conditions that must be satisfied before funds are released.

For example, an investor may agree to provide AED 5 million in two stages.

The first payment may become due when the transaction documents are executed, while the second may depend on the company obtaining a required licence or achieving another agreed milestone.

The agreement should explain whether the later payment is an unconditional commitment or remains subject to defined conditions.

If funds are to be held pending completion, the parties should document how that arrangement will operate rather than relying on informal assurances.

The payment process should correspond to the legal structure of the investment and the corporate steps required to complete it.

Determining the Investor’s Ownership Interest

Where the investor will receive an ownership interest, the agreement should clearly establish how that interest is calculated.

This normally requires consideration of the company’s valuation and its ownership structure before and after the investment.

For example, the parties may agree that a company is valued at AED 8 million before a new AED 2 million equity investment.

The resulting ownership percentage should be calculated according to the agreed transaction structure rather than assumed from the amount invested alone.

The parties should distinguish between pre-investment and post-investment valuation where those concepts are being used.

They should also establish whether any outstanding options, promised interests, or other ownership arrangements affect the calculation.

The investment agreement should correspond with the company’s constitutional documentation and official ownership records.

A contractual statement concerning ownership should not be left inconsistent with the corporate documents through which that ownership is legally established.

Conditions That Must Be Satisfied Before Completion

An investor may not wish to release funds until specified legal or commercial requirements have been satisfied.

These requirements can be documented as conditions to completion.

Depending on the transaction, conditions may include:

• Obtaining necessary corporate approvals.
• Completing legal or financial due diligence.
• Confirming the company’s ownership structure.
• Obtaining regulatory approvals.
• Amending constitutional documents.
• Executing related agreements.
• Resolving identified liabilities.
• Providing evidence concerning important company assets.

For example, an investor may agree to invest in a business provided that the company first renews an essential commercial licence.

If that licence is not renewed, the investor may not wish to complete the transaction.

The agreement should distinguish genuine pre-completion conditions from obligations that can be performed after completion.

It should also establish what happens if a condition cannot be satisfied by the agreed deadline.

This may involve extending the completion period, waiving a condition where legally permissible, or ending the proposed transaction.

Conducting Due Diligence Before Investing

Due diligence allows the investor to investigate the business before committing substantial capital.

The scope depends on the company and investment.

Relevant areas may include:

• Corporate ownership and constitutional documents.
• Financial statements and liabilities.
• Material customer and supplier contracts.
• Existing loans and security arrangements.
• Employment matters.
• Intellectual property.
• Litigation and disputes.
• Regulatory licences.
• Property arrangements.
• Tax and compliance matters relevant to the transaction.

For example, an investor may discover that a company depends heavily on one commercial contract that can be terminated shortly after the investment.

That information may affect the investor’s valuation or proposed protections.

Due diligence does not eliminate every investment risk.

Its purpose is to allow the investor to assess information that may materially affect the decision to invest and to identify matters that should be addressed in the transaction documents.

The investment agreement may also establish how identified issues must be resolved before or after completion.

Representations Concerning the Company

An investment agreement may contain representations concerning facts relevant to the investor’s decision.

These may address matters such as the company’s ownership, authority, financial information, material contracts, assets, or outstanding disputes.

The wording should reflect information that the relevant party can properly provide.

For example, founders may represent that the ownership structure disclosed to the investor is accurate and that no undisclosed rights have been granted to another person to acquire ownership interests.

A representation should not be included merely because it appears in a standard investment template.

The parties should consider whether the statement is appropriate to the transaction and which person is capable of confirming it.

The agreement should also establish the legal consequences of an inaccurate representation in accordance with applicable UAE law.

The existence of contractual representations does not replace appropriate due diligence where independent verification is commercially important.

Founder Commitments After the Investment

An investor may rely on founders or key owners continuing to operate the business after funding is provided.

The agreement may therefore establish specific post-investment commitments.

These may concern:

• Continuing involvement in management.
• Implementation of an agreed business plan.
• Reporting to investors.
• Obtaining specified licences.
• Maintaining important insurance.
• Protecting intellectual property.
• Restrictions on particular related-party transactions.

For example, an investor may fund a technology company largely because of the experience of its founders.

If the founders intend to leave immediately after receiving the investment, the commercial basis of the transaction may change substantially.

The agreement should address any genuinely important continuing obligations without attempting to control every ordinary management decision.

Where an individual’s continuing employment is essential, separate employment documentation may also be required.

Investor Information and Reporting Rights

An investor who does not participate in daily management may require regular information about the company’s financial and operational performance.

The agreement may establish reporting obligations appropriate to the size and nature of the investment.

These can include:

• Periodic financial statements.
• Annual budgets.
• Management reports.
• Information concerning substantial liabilities.
• Notice of material disputes.
• Updates on agreed business milestones.

The agreement should coordinate these rights with the statutory and constitutional rights associated with the investor’s ownership position.

For example, the parties may agree that quarterly management accounts will be provided even where the company’s ordinary corporate reporting requirements operate on a different timetable.

Information rights should be meaningful without creating unnecessary administrative burdens.

Confidentiality obligations may also be required where the investor receives commercially sensitive information.

Investor Participation in Important Decisions

Some investors seek rights concerning significant corporate decisions rather than involvement in everyday operations.

The parties may identify specified matters that require additional investor approval, subject to the company’s legal framework.

These may include:

• Issuing additional ownership interests.
• Taking substantial new borrowing.
• Selling significant business assets.
• Changing the company’s principal activities.
• Entering major related-party transactions.
• Amending constitutional documents.
• Approving certain acquisitions or disposals.

The purpose of these provisions is generally to protect the investor against fundamental changes to the business in which the investment was made.

They should not be drafted so broadly that ordinary business operations become impractical.

The parties must also ensure that contractual approval rights are coordinated with the statutory powers and voting procedures of the relevant company bodies.

Where the investor becomes a shareholder, a Draft Shareholders Agreement may provide the principal framework for continuing governance rights after completion.

Future Financing and Dilution

A growing company may require additional investment after the initial funding round.

If new ownership interests are issued, an existing investor’s percentage ownership may decrease.

This is commonly described as dilution.

The investment documentation should consider whether the investor has any rights concerning future funding rounds.

Depending on the legally available structure, these may include rights to participate in future issuances in order to maintain an ownership percentage.

For example, an investor holding 20% of a company may wish to participate proportionately if the company later issues new interests to another investor.

The agreement should establish whether such rights exist and how they operate.

Future financing provisions should also account for the company’s need to raise capital efficiently.

An investor protection that effectively prevents all future funding may create commercial difficulties for the business.

The appropriate balance depends on the investment structure and applicable company law.

Use of Investment Funds

Investors may want clarity about how the company intends to use the capital provided.

The agreement may identify the principal purposes of the investment.

For example, funds may be intended for:

• Opening new locations.
• Product development.
• Hiring employees.
• Purchasing equipment.
• Marketing and expansion.
• Repayment of specified liabilities.
• Working capital.

The agreement should distinguish a general business plan from a legally binding restriction where necessary.

A company may require reasonable flexibility to respond to changing commercial circumstances.

However, using funds for a purpose fundamentally different from the one presented to the investor may create serious concerns.

Where particular uses are prohibited or require approval, those restrictions should be stated clearly.

The agreement should also establish the level of reporting required concerning expenditure of the investment proceeds.

Protecting Intellectual Property Before Investment

For some companies, intellectual property is one of the principal assets supporting the investment valuation.

This is particularly common in technology, media, design, and brand-based businesses.

The investor may need to confirm whether important intellectual property is actually owned by the company.

For example, software may have been developed by a founder before the company was incorporated.

If the rights were never formally transferred to the company, the business may not own an asset that the investor assumed formed part of the transaction.

The parties should identify relevant intellectual property during due diligence and determine whether additional transfers or licences are required.

The investment agreement may make completion conditional on specified rights being properly documented.

Where confidential technical information is disclosed during the investment process, a draft nda agreement may also be appropriate before due diligence begins.

Founder and Investor Exit Arrangements

An investment agreement should consider how the parties may eventually realise or transfer their ownership interests.

An exit may occur through:

• A sale to another investor.
• A sale of the entire company.
• A transfer between existing owners.
• A corporate restructuring.
• Another legally permissible transaction.

The parties may wish to establish procedures concerning future transfers.

Federal Decree-Law No. 20 of 2025 introduced additional provisions concerning certain contractual arrangements relating to ownership transfers in LLCs and private joint stock companies, subject to the applicable statutory requirements.

Depending on the company and arrangement, documentation may address rights allowing specified owners to participate in a sale or requiring participation in a transaction under agreed conditions.

These rights should not be copied from foreign investment templates without considering the UAE corporate structure.

Transfer provisions should correspond with the company’s constitutional documents and any separate shareholder arrangements.

The parties should also consider any required approvals and registration procedures.

Investment Milestones and Staged Funding

Some investments are released in stages according to the company’s progress.

This can be useful where the investor wishes to link funding to defined business developments.

For example, an investor may agree to provide AED 3 million in three stages:

• AED 1 million at completion.
• AED 1 million after obtaining a particular regulatory approval.
• AED 1 million after achieving an agreed operational milestone.

The agreement should define each milestone objectively.

A vague condition such as “satisfactory progress” may create disagreement if the parties have different expectations.

The documentation should also establish who determines whether the milestone has been achieved and what evidence is required.

The parties should consider what happens if a milestone is delayed or never achieved.

The answer may affect the investor’s remaining funding commitment and the company’s ability to continue its business plan.

A Practical Example: Investment Before Ownership Is Properly Documented

Consider an investor agreeing to provide AED 2.5 million to a UAE company in exchange for a 25% ownership interest.

The parties sign a short document describing the investment and the investor transfers the entire amount.

However, the agreement does not establish the corporate steps required to issue or transfer the ownership interest.

The company continues operating, but its official ownership documentation is not updated promptly.

A dispute later arises about whether the investor acquired the agreed 25% interest or merely provided funding to the business.

A properly structured investment agreement could have established completion conditions requiring the relevant corporate approvals, constitutional amendments, and ownership documentation before or simultaneously with the release of funds.

It could also have identified the exact transaction through which the investor would acquire the ownership interest.

This example demonstrates why payment and corporate completion should be coordinated rather than treated as unrelated events.

Documents Required to Draft an Investment Agreement

The required documentation depends on the investment structure and company.

Relevant materials may include:

• Company trade licence.
• Memorandum of Association or other constitutional documents.
• Current ownership records.
• Financial statements.
• Business plans and financial projections.
• Details of existing loans and liabilities.
• Material customer and supplier agreements.
• Intellectual property records.
• Existing shareholder or partner agreements.
• Investor term sheets.
• Valuation information.
• Required corporate approvals.
• Relevant regulatory licences.

Where existing owners are transferring interests, documents concerning their ownership and transfer rights should also be reviewed.

If the transaction forms part of a wider funding round, the different investment documents should be coordinated so that they do not create inconsistent rights.

Investment Agreement Drafting Assistance from Abdulrahman Alshaali Advocates & Legal Consultants

An investment agreement should establish how capital enters the business, what the investor receives, and which legal and corporate steps must be completed.

Abdulrahman Alshaali Advocates & Legal Consultants assists investors, founders, shareholders, and companies with preparing and reviewing investment agreements under UAE law.

Our services may include reviewing investment structures, examining corporate documentation, developing completion conditions, documenting investor protections, and coordinating investment terms with existing ownership arrangements.

Where the investment creates an ongoing relationship between several owners, a Draft Shareholders Agreement may also be required.

A Draft Joint Venture Agreement may be more appropriate where two businesses are contributing resources to a collaborative commercial venture rather than making a conventional equity investment.

Clients seeking assistance with wider contractual documentation can explore our contract drafting services.

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Request Assistance with Your Draft Investment Agreement

Whether you are investing in an existing UAE business, bringing a new investor into your company, negotiating a funding round, or restructuring ownership as part of an investment transaction, the documentation should clearly establish the funding and ownership arrangements.

Abdulrahman Alshaali Advocates & Legal Consultants assists clients with preparing and reviewing investment agreements under UAE law.

Contact our team to discuss your proposed investment and the contractual and corporate documentation required.

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Frequently Asked Questions

Can an Investor Pay for an Ownership Interest in Several Instalments?

An investment may be structured through staged payments where the arrangement is legally appropriate and clearly documented.

The agreement should establish when each payment becomes due and whether ownership is issued or transferred immediately, progressively, or only after specified conditions are satisfied.

The corporate documentation must correspond with the agreed structure rather than leaving the investor’s ownership position uncertain.

Can a Foreign Investor Own 100% of a UAE Company?

Foreign ownership depends on the company’s activity, legal structure, place of incorporation, and any restrictions applicable to activities with strategic impact or specialised regulatory regimes.

Many UAE business activities permit full foreign ownership, but this should not be assumed for every company.

The relevant licensing and ownership requirements should be confirmed for the particular business before the investment is completed.

Can an Investor Require a Seat in the Company’s Management?

An investor may negotiate governance rights, but the legal method of implementing them depends on the company’s structure and applicable corporate requirements.

A contractual right to nominate or participate in management should be coordinated with the formal appointment procedures required for the relevant entity.

The investment agreement alone should not be assumed to complete an appointment that requires a corporate resolution or registration.

Can an Investor Withdraw the Investment If the Business Performs Poorly?

An equity investment does not ordinarily operate in the same way as a loan that becomes repayable simply because the investor wishes to exit.

The investor’s exit rights depend on the investment structure, contractual arrangements, applicable company law, and the availability of a permitted transfer or other exit mechanism.

If the parties intend to create repayment rights, those rights should be structured and documented appropriately rather than assumed from the use of the word “investment.”

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Sources

Federal Decree-Law No. 32 of 2021 on Commercial Companies.

UAE Legislation Platform – Official Legislation

Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law.

UAE Legislation Platform – Official Legislation