Draft Shareholders Agreement in the UAE
A shareholders agreement establishes how shareholders will exercise their rights, participate in important company decisions, transfer their ownership interests, and manage circumstances that may affect their continuing relationship.
Although a company’s Memorandum of Association or other constitutional documents establish its formal corporate structure, shareholders may require additional arrangements addressing matters such as reserved decisions, future funding, information rights, transfers, exits, and dispute procedures.
These agreements become particularly important where shareholders contribute different amounts of capital, participate in management to different degrees, or have different expectations concerning the future direction of the business.
Abdulrahman Alshaali Advocates & Legal Consultants assists founders, investors, companies, and existing shareholders with preparing and reviewing shareholders agreements under UAE law.
Shareholders Agreements Under UAE Law
Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended, provides the principal federal framework governing commercial companies within its scope in the UAE.
The law regulates matters including ownership interests, company management, shareholder and partner rights, general assembly procedures, transfers, capital, and company restructuring.
A shareholders agreement must therefore operate consistently with the company’s legal form and constitutional documents.
Federal Decree-Law No. 20 of 2025 introduced amendments affecting UAE company structures and shareholder arrangements, including additional flexibility concerning ownership rights and certain transfer-related mechanisms.
These developments make it particularly important to coordinate contractual shareholder arrangements with the company’s Memorandum of Association and registered corporate records.
A shareholders agreement should not be treated as an independent document capable of overriding mandatory provisions of UAE company law.
Companies incorporated in the Dubai International Financial Centre, Abu Dhabi Global Market, or other free zones may be subject to different company regulations and constitutional requirements.
The applicable corporate framework should therefore be identified before drafting begins.
Shareholders Agreement and Memorandum of Association
A shareholders agreement and a Memorandum of Association serve related but different purposes.
The MOA is part of the company’s formal constitutional documentation and contains provisions required by the applicable corporate framework.
A shareholders agreement is generally used to document additional arrangements between shareholders concerning their relationship and the operation of the business.
For example, shareholders may agree that certain significant transactions require additional approval even where ordinary management decisions can be made by the company’s manager.
The agreement may also address future investment, ownership transfers, confidentiality, and exit arrangements.
However, where an agreed right must be reflected in the company’s constitutional documents or registered ownership records to operate effectively, the parties should complete the necessary corporate procedures.
A private agreement should not be assumed to amend the company’s official records automatically.
The documents should therefore be prepared together rather than allowing the shareholders agreement and MOA to create inconsistent arrangements.
Identifying the Shareholders and Ownership Structure
The agreement should record the current ownership position accurately.
This may include:
- The identity of each shareholder.
- The percentage or number of ownership interests held.
- Existing classes of ownership interests, where applicable.
- Capital contributions.
- Current management participation.
- Existing rights affecting ownership transfers.
The parties should verify these details against the company’s official documents.
For example, an agreement may state that an investor owns 30% of a company while the registered corporate records continue to show a different percentage.
Such inconsistency can create significant problems when shareholders attempt to exercise voting, transfer, or financial rights.
Where a new shareholder is joining the company as part of an investment transaction, the agreement should also identify the corporate steps through which that person becomes an owner.
A Draft Investment Agreement may address the initial investment and completion process, while the shareholders agreement governs the relationship after the investment is completed.
Different Classes of Ownership Interests
Not every shareholder must necessarily have identical economic and governance rights where the applicable company structure legally permits differentiated ownership classes.
The 2025 amendments to the Commercial Companies Law introduced greater flexibility concerning different classes of ownership interests in LLCs, subject to applicable requirements.
Depending on the legally available structure, different classes may involve distinctions concerning matters such as:
- Voting rights.
- Profit entitlements.
- Capital recovery.
- Transfer rights.
- Other defined shareholder rights.
These arrangements should be reflected through the legally appropriate corporate documentation.
A shareholders agreement alone should not purport to create an ownership class that does not correspond with the company’s constitutional and registered structure.
For example, an investor may negotiate enhanced financial rights without participating substantially in operational management.
The parties should determine how those rights will be implemented under the applicable company framework rather than relying solely on contractual terminology imported from another jurisdiction.
Reserved Matters Requiring Shareholder Approval
A shareholders agreement may identify important decisions that require approval beyond ordinary management authority.
These are often referred to as reserved matters.
Depending on the business, they may include:
- Issuing new ownership interests.
- Significant borrowing.
- Sale of major business assets.
- Changing the company’s principal activities.
- Entering substantial related-party transactions.
- Acquiring another business.
- Disposing of important intellectual property.
- Approving major capital expenditure.
- Amending constitutional documents.
- Commencing a substantial restructuring.
The purpose is generally to ensure that decisions capable of materially changing the business receive the agreed level of shareholder consideration.
The agreement should not reserve every operational decision unnecessarily.
If routine business activities require repeated shareholder approval, the governance structure may become impractical.
Reserved matters should therefore focus on decisions that genuinely justify additional shareholder involvement.
The contractual approval procedure must also operate consistently with statutory voting requirements and the powers of the company’s formal corporate bodies.
Management and Board Participation
Shareholders may wish to establish how management appointments will be made and whether particular shareholders have rights to nominate individuals to management positions.
The available structure depends on the company type.
For example, shareholders in an LLC may agree on arrangements concerning the appointment of managers, subject to the Commercial Companies Law and the company’s constitutional documents.
The agreement may establish:
- Nomination rights.
- Management responsibilities.
- Reporting requirements.
- Procedures for replacement.
- Approval requirements for specified management decisions.
Where a shareholder has a contractual nomination right, the parties should still complete any formal corporate appointment procedure required by law.
A private agreement cannot replace an official appointment where corporate approval or registration is required.
The documentation should also distinguish the shareholder’s ownership rights from the individual’s separate position as a manager or employee.
A person may cease to hold a management role while retaining ownership interests in the company.
Shareholder Voting Arrangements
The agreement should establish how shareholders intend to participate in decisions, subject to mandatory corporate requirements.
Different matters may require different approval thresholds.
For example, routine shareholder matters may be decided through an ordinary voting threshold while fundamental changes may require enhanced approval.
The agreement should identify:
- Which decisions require shareholder approval.
- The applicable threshold.
- Whether specified shareholders have additional consent rights.
- How meetings or written decisions are documented.
The parties must ensure that contractual voting arrangements do not conflict with statutory rules governing the company.
Where a decision legally requires a particular corporate resolution, the shareholders should follow that process even if their private agreement also requires additional approval.
The purpose of the shareholders agreement is to supplement the corporate framework rather than substitute informal approval for legally required procedures.
Information and Reporting Rights
A shareholder who does not participate in daily management may require regular access to information about the company’s performance.
The agreement may establish reporting arrangements such as:
- Monthly or quarterly management accounts.
- Annual financial statements.
- Approved budgets.
- Cash-flow reports.
- Information concerning substantial liabilities.
- Updates regarding material disputes.
- Information concerning major contracts.
These contractual rights should complement any statutory information rights available to shareholders.
For example, an investor who has provided substantial capital but does not manage the company may require quarterly reporting to assess its financial position.
The agreement should identify the information required without imposing unnecessarily burdensome reporting obligations on the company.
Where sensitive information is provided, the shareholders may also be subject to confidentiality restrictions concerning its use and disclosure.
Future Funding Requirements
A company may need additional capital after the shareholders agreement is signed.
The agreement should consider how future funding will be addressed.
Potential mechanisms may include:
- Additional shareholder contributions.
- New equity investment.
- Shareholder loans.
- Third-party financing.
- A combination of funding sources.
For example, shareholders may agree initially to contribute AED 3 million to establish the business.
Two years later, the company may require another AED 2 million to expand.
One shareholder may wish to provide additional capital while another may be unwilling or unable to do so.
The agreement should establish how the funding proposal will be considered and what happens if shareholders participate in different proportions.
Any arrangement affecting ownership percentages must be coordinated with the corporate procedures required to issue or transfer ownership interests.
A draft loan agreement may also be appropriate where shareholder funding is structured as debt rather than equity.
Pre-Emption and Future Ownership Issuances
Existing shareholders may be concerned that issuing new ownership interests to another investor will reduce their percentage ownership.
The agreement may therefore address rights concerning future issuances, subject to the company’s legal structure and applicable statutory requirements.
A pre-emption arrangement may allow existing shareholders an opportunity to participate in a proposed issuance before interests are offered to another person.
For example, a shareholder owning 30% of a company may wish to participate proportionately in a future capital increase in order to maintain that percentage.
The agreement should establish how any contractual participation right operates.
Relevant provisions may address:
- Notification of a proposed issuance.
- The price or valuation basis.
- The period for accepting the offer.
- Treatment of interests not taken up.
- Applicable exceptions.
These provisions should balance shareholder protection against the company’s ability to raise additional capital efficiently.
Restrictions on Share Transfers
Shareholders may wish to control who can become an owner of the company.
The agreement may therefore regulate transfers of ownership interests.
Potential provisions can address:
- Transfers to existing shareholders.
- Transfers to third parties.
- Transfers to affiliated entities.
- Required shareholder approvals.
- Pre-emption rights.
- Permitted transfers.
- Completion procedures.
The applicable company law and constitutional requirements must also be considered.
A contractual transfer should not be treated as complete merely because the shareholders agreement permits it.
Where registration, amendment of constitutional documents, or other formalities are required, those procedures must also be completed.
For example, a shareholder may negotiate a sale of its ownership interest to an external investor.
The agreement should establish the contractual process, but the transaction must still comply with the legal requirements governing the company.
Right of First Refusal and Right of First Offer
Shareholders may use different contractual mechanisms to regulate proposed sales.
A right of first refusal generally gives specified shareholders an opportunity to acquire an interest after a third-party offer has been received, according to the agreed terms.
A right of first offer may require the selling shareholder to offer the interest to specified shareholders before approaching external buyers.
The agreement should distinguish these mechanisms clearly.
For example, a provision stating only that “existing shareholders have priority” may create uncertainty about:
- When the right arises.
- How the price is determined.
- How long shareholders have to respond.
- Whether the seller can subsequently offer better terms to a third party.
The drafting should establish a workable procedure.
The chosen mechanism should also operate consistently with any statutory transfer rights applicable to the company.
Tag-Along Rights
A minority shareholder may be concerned that a controlling shareholder could sell its ownership to a third party while leaving the minority shareholder invested alongside a new majority owner.
A tag-along mechanism may allow specified minority shareholders to participate in the sale under agreed conditions.
Federal Decree-Law No. 20 of 2025 introduced express recognition of certain transfer-related arrangements for specified UAE company structures, subject to applicable requirements.
A properly structured agreement may therefore address rights allowing shareholders to participate in a proposed sale where the legally relevant conditions are satisfied.
For example, a majority shareholder may receive an offer to sell 70% of the company.
A tag-along provision may give a minority shareholder the opportunity to require the buyer to acquire a corresponding portion of the minority shareholder’s interests on the agreed basis.
The provision should define when the right applies and how the transaction will be completed.
Drag-Along Rights
A drag-along mechanism is generally intended to facilitate the sale of the entire company where specified shareholders approve a transaction.
Under an agreed structure, qualifying selling shareholders may be able to require other shareholders to participate in the sale.
This can prevent a minority shareholder from blocking a transaction that otherwise satisfies the agreed conditions.
The 2025 amendments to UAE company legislation provide a framework relevant to certain contractual sale participation mechanisms, subject to applicable requirements.
The agreement should define matters such as:
- The threshold triggering the right.
- The type of transaction covered.
- Required notice.
- The treatment of all shareholders.
- The terms on which ownership interests are sold.
- Completion procedures.
A drag-along provision should not simply be copied from a foreign shareholder agreement.
It should be structured according to the applicable UAE company framework and coordinated with the company’s constitutional documents.
Shareholder Exit and Valuation
A shareholder may wish to leave the company even where no external buyer is immediately available.
The agreement may therefore establish valuation procedures for specified exit circumstances.
These could arise following:
- A voluntary exit.
- Death or incapacity.
- A defined contractual event.
- A serious shareholder breach.
- A deadlock resolution mechanism.
- Another agreed exit situation.
The valuation mechanism should be sufficiently clear.
For example, the agreement may require an independent professional valuation based on an agreed methodology.
The drafting may address:
- The valuation date.
- Appointment of the valuer.
- Information available for valuation.
- Treatment of company debt.
- Costs of the valuation.
- Whether discounts or premiums apply where legally and commercially appropriate.
A fixed price inserted into the agreement at the beginning of the relationship may quickly become outdated.
A defined valuation procedure can therefore be more practical for a growing company.
What Happens If a Shareholder Dies?
The death of a shareholder can affect both ownership and the continuing relationship between the surviving owners.
The consequences depend on the company’s legal form, applicable succession law, constitutional documents, and any legally valid shareholder arrangements.
The shareholders agreement should not assume that ownership automatically transfers to another shareholder merely because the parties prefer that result.
The agreement may instead establish legally appropriate procedures addressing what happens when a shareholder dies.
For example, it may contemplate a permitted acquisition mechanism or valuation arrangement subject to applicable corporate and succession requirements.
Where shareholders have substantial ownership interests, succession planning should also be coordinated with wills and other estate-planning arrangements.
A shareholders agreement cannot substitute for every legal step required to deal with inheritance.
Shareholder Employment and Management Roles
A shareholder may also be an employee, director, or manager of the company.
These roles should be distinguished.
For example, a founder may own 35% of the company and also work as its chief executive.
If the employment relationship ends, the founder does not necessarily lose the ownership interest automatically.
Similarly, selling shares does not necessarily terminate an employment contract unless the relevant documents provide for and legally support that outcome.
The shareholders agreement may address what happens to ownership rights if an individual ceases to participate in management.
Separate employment documentation should address salary, duties, leave, and other employment conditions.
Where appropriate, a Draft Employment Agreement or draft employment contract should therefore operate alongside the shareholders agreement rather than being replaced by it.
Confidentiality and Shareholder Information
Shareholders may receive commercially sensitive information because of their ownership position.
This may include:
- Financial records.
- Customer information.
- Pricing data.
- Business plans.
- Intellectual property.
- Future investment proposals.
- Acquisition discussions.
The agreement may restrict shareholders from using this information outside the company or disclosing it without authorisation.
For example, a shareholder involved in another business should not automatically use confidential customer information obtained through the company for an unrelated commercial purpose.
Where confidentiality concerns are extensive, a Draft Confidentiality Agreement or draft nda agreement may provide additional protection.
Confidentiality provisions should also address legally required disclosures and information provided to professional advisers where appropriate.
The restrictions should remain consistent with any statutory information rights available to shareholders.
Shareholder Non-Compete and Conflict Arrangements
Shareholders who actively participate in the company may also operate other businesses.
The shareholders agreement may therefore address conflicts of interest and, where legally appropriate, specified competitive activities.
For example, a founding shareholder who has access to the company’s confidential strategy may propose establishing another business targeting the same customers.
The agreement may require disclosure of relevant conflicts and establish procedures for considering related-party transactions.
Where restrictions on competition are contemplated, they should be drafted according to the relationship, legitimate commercial interests, duration, geographical scope, and applicable law.
A Non-Compete Agreement Draft may require separate consideration where restrictions are substantial.
The agreement should distinguish protection of confidential information from a broader prohibition on competitive activity.
Resolving Shareholder Deadlock
Deadlock can occur where shareholders cannot obtain the approval required for an important company decision.
This is especially significant where ownership is divided equally.
For example, two shareholders each holding 50% may disagree about whether the company should borrow funds for expansion.
If the applicable decision requires both to agree, the business may be unable to proceed.
The shareholders agreement may establish a staged process for addressing specified deadlocks.
Depending on the company and legal structure, this may involve:
- Further management discussions.
- Escalation to senior representatives.
- Mediation or another agreed process.
- A legally appropriate ownership exit mechanism.
The agreement should define what constitutes a deadlock rather than allowing every ordinary disagreement to trigger an exit procedure.
The mechanism must also operate consistently with mandatory corporate requirements.
A deadlock clause should provide a practical route for resolving serious governance difficulties without destabilising the business unnecessarily.
A Practical Example: New Investor Without Clear Approval Rights
Consider a UAE company owned by two founders.
A new investor acquires 30% of the company and provides substantial funding for expansion.
The parties agree informally that the investor will be consulted before the company takes major loans or issues additional ownership interests.
However, those arrangements are not documented clearly.
One year later, the founders approve new financing and begin discussions with another investor.
The existing investor argues that the transaction cannot proceed without its consent.
The founders respond that the investor holds only 30% and has no formal approval right.
A properly prepared shareholders agreement could have identified specific reserved matters requiring the investor’s approval.
It could also have addressed future ownership issuances and the investor’s participation rights.
The agreement would still need to operate consistently with the company’s constitutional documents and applicable UAE corporate law.
This example demonstrates why governance expectations should be documented when the investment is completed rather than left as informal understandings.
Documents Required to Draft a Shareholders Agreement
The documentation required depends on the company and proposed shareholder arrangements.
Relevant materials may include:
- Trade licence.
- Memorandum of Association.
- Current ownership records.
- Existing shareholder or partner agreements.
- Investment agreements.
- Details of existing ownership classes.
- Management appointment documents.
- Corporate resolutions.
- Financial statements.
- Existing loans or shareholder funding arrangements.
- Business plan.
- Details of proposed reserved matters.
- Existing transfer restrictions.
- Information concerning planned future investment.
Where the agreement forms part of a new investment transaction, the investment and shareholder documents should be prepared consistently.
The company’s constitutional documents should also be reviewed to identify provisions requiring amendment.
Shareholders Agreement Drafting Assistance from Abdulrahman Alshaali Advocates & Legal Consultants
A shareholders agreement should reflect the company’s legal structure and establish practical arrangements for governance, funding, transfers, and shareholder exits.
Abdulrahman Alshaali Advocates & Legal Consultants assists founders, investors, shareholders, and companies with preparing and reviewing shareholders agreements under UAE law.
Our services may include examining ownership structures, developing reserved matters, documenting investor rights, preparing transfer provisions, addressing future funding, and coordinating shareholder arrangements with constitutional documents.
Where a new investor is entering the company, a Draft Investment Agreement may also be required to govern the investment process.
Where businesses are collaborating through a separate commercial venture, a Draft Joint Venture Agreement may provide a more appropriate structure.
Clients seeking assistance with wider contractual documentation can explore our contract drafting services.
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Request Assistance with Your Draft Shareholders Agreement
Whether you are establishing a new company, bringing an investor into an existing business, restructuring ownership, or documenting governance arrangements between current shareholders, the agreement should correspond with the company’s constitutional documents and applicable corporate law.
Abdulrahman Alshaali Advocates & Legal Consultants assists clients with preparing and reviewing shareholders agreements under UAE law.
Contact our team to discuss your ownership structure, governance requirements, and shareholder arrangements.
Frequently Asked Questions
Can a Shareholders Agreement Be Signed After the Company Has Already Been Established?
Yes. Existing shareholders may enter into a shareholders agreement after incorporation.
However, the company’s current MOA, ownership records, and existing corporate arrangements should be reviewed first.
Where the new agreement requires changes to constitutional or registered information, the relevant corporate amendment procedures should also be completed.
Does a New Shareholder Automatically Become a Party to an Existing Shareholders Agreement?
Not necessarily.
The agreement should establish a procedure for new shareholders to become bound, commonly through an appropriate accession or adherence document where legally suitable.
The ownership transfer or issuance process should therefore be coordinated with the contractual process for joining the shareholders agreement.
Can a Minority Shareholder Have Approval Rights Over Certain Decisions?
The shareholders may agree on specified contractual approval rights, subject to the company’s legal structure and mandatory corporate requirements.
These rights are commonly focused on significant matters rather than routine operations.
The agreement should clearly identify which decisions require the minority shareholder’s approval and ensure the arrangement is coordinated with the company’s formal decision-making procedures.
Can a Shareholders Agreement Remain Confidential?
A private shareholders agreement may contain commercially sensitive arrangements between the parties.
However, provisions that must be reflected in constitutional documents or submitted to a competent authority may require separate formal documentation or disclosure.
The shareholders should therefore distinguish private contractual arrangements from information that must appear in official corporate records.
Sources
Federal Decree-Law No. 32 of 2021 on Commercial Companies.
