Shareholders' agreements in the UAE


Shareholders' agreements, agreements which govern the relationship between shareholders of a company, can be vital to ensure the smooth running of a business.

Shareholders' agreements set out the arrangement reached by shareholders on how the day to day business operations of the company will run, how profits will be split and how certain decisions will be made, thus allowing a mechanism for protecting shareholder interests. 

In the UAE, there are no formal requirements for shareholders' agreements and under Federal Law No. 5 of 1985 (Civil Code), contracts may be formed in written or oral form. However, in order to avoid any dispute in relation to what has been agreed between the parties, we would strongly recommend properly documenting a shareholders' agreement in written form.

Protecting minority shareholders: key considerations 

 We note that UAE Commercial Companies Law (Federal Law No. 2 of 2015) (the Commercial Companies Law) provides some protections to minority shareholders, such as the right for minority shareholders to receive the annual audited accounts of the company and the right for minority shareholders to inspect the company's books and records.

Federal Law Decree No.26 of 2020 (the Amended Companies Law) introduces further protections for minority shareholders, such as lowering the share ownership threshold which enables shareholders to request a general meeting to be held to 10% and permitting shareholders owning at least 5% of the shares in a company to add items to the agenda of an Annual General Meeting.

However, when establishing an onshore entity, a foreign investor in the UAE may be interested in more extensive minority protections to ensure that it is able to properly monitor the operations of the business, and a well-drafted shareholders' agreement can help facilitate this.

A shareholders' agreement can be used to establish special majorities for certain decisions that would ordinarily be able to be passed by the majority shareholder. This will involve setting up special majorities in excess of the statutory requirements. Such decisions in respect of which a special majority is set up may include (but are not limited to):

  •  making amendments to the company's memorandum and articles of association (Memorandum and Articles);
  • the payment of dividends;
  • capital expenditure in excess of a stipulated amount; and
  • entering into third party bank financing.

A shareholders' agreement can also be used to address any concerns in relation to the management of the day to day business of a company, including:

  • stipulating requirements for periodic meetings of managers/shareholders; and
  • stipulating quorums required for meetings to ensure that the foreign investor has sufficient presence at each meeting.

In the UAE, pre-emption rights are enshrined in law. Additionally, by way of a well-drafted shareholders' agreement, the shareholders can include additional transfer rights. For example, a 'tag along' provision can be included which is a right entitling, usually a minority, shareholder to participate in a sale by the other, usually majority, shareholder at the same time and the same price being attained by the selling shareholder. The shareholders' agreement can also be used to stipulate which events will require a shareholder to sell or offer to sell its shares, such as death or bankruptcy.

Protecting majority shareholders: key considerations

Conversely, an investor may be interested in majority protections under a shareholders' agreement. This can be in the form of a 'drag along' provision which is a right entitling, usually the majority shareholder, to force or drag the other, usually minority shareholders, to participate in a sale to a third party on the terms negotiated by the majority shareholder where an offer is made to purchase all the shares in the entity.

A majority shareholder may also wish to incorporate step in rights to allow them voting control of meetings of the board of directors or shareholders, and provisions guaranteeing majority representation on the board of directors.

The examples set out above are not a full list of matters that can be addressed in a shareholders' agreement and the Trowers and Hamlins International Corporate team would be happy to advise and assist on the key provisions to be added to a shareholders' agreement in each particular matter.

Aligning Shareholders' Agreements with the Memorandum and Articles

 Under the Commercial Companies Law, if there is a discrepancy between the Memorandum of Association and the Shareholders' Agreement, the Memorandum of Association will prevail. It is therefore important to, where possible, try and align the two documents to avoid any later potential claim that the protective measures drafted in the shareholders' agreement are defunct.

In our next article in this series, we aim to look at how businesses can protect their confidential information, ideas and know-how through non-disclosure agreements.


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