Shareholder/Memorandum Provisions under the new UAE Commercial Companies Law (as amended by Federal Decree-Law No. 20 of 2025)

Introduction

Federal Decree-Law No. 20 of 2025 amending the Commercial Companies Law (CCL) has introduced significant clarifications and enhancements to the regulatory framework governing Limited Liability Companies (LLCs) and Private Joint Stock Companies (PJSCs).

A key aspect of these amendments is the explicit statutory recognition of sophisticated shareholder arrangements within a company’s constitutive documents, the Memorandum of Association (MOA) or Articles of Association (AOA). This note analyzes two critical provisions now expressly permitted under the amended law.

Legal Context and Significance of Amendment 20 of 2025

Prior to the amendment, the permissibility of complex shareholder pact provisions within the MOA/AOA was often uncertain, leading parties to rely on separate, private shareholder agreements which, while enforceable contractually, lacked direct binding effect on the company itself or future shareholders without proper notice.

Amendment Law No. 20 of 2025 resolves this by explicitly authorizing the inclusion of such provisions directly in the company’s public constitutional documents. This grants them heightened enforceability, ensures transparency for all stakeholders and regulators, and integrates key governance and transfer mechanisms into the company’s foundational structure.

Analysis of the Two Expressly Permitted Provisions

Drag-Along and Tag-Along Rights

The law now explicitly allows for:

• Drag-Along Right: A provision permitting one or more partners/shareholders to require the remaining owners to sell their shares or interests to a third party upon the occurrence of pre-agreed conditions (e.g., an offer from a bona fide purchaser for 100% of the company). This protects a majority seller’s ability to conclude a full sale of the company, ensuring a third-party buyer can acquire 100% ownership without holdout problems.
• Tag-Along Right: A right enabling any partner/shareholder to join an existing sale transaction conducted by another selling party on the same terms. This protects minority holders by allowing them to participate in a sale and exit on equivalent terms if a majority shareholder sells their stake.

Legal Implications:

• These clauses must define the triggering conditions, notice procedures, and mechanics of the sale with precision.
• By being in the MOA/AOA, they bind all current and future shareholders, eliminating disputes over whether a shareholder had notice of the terms.
• They balance the interests of majority and minority stakeholders, facilitating smoother exits and investments.

Pre-Emptive Rights and Inheritance Mechanism for Deceased’s Shares

The law authorizes a comprehensive provision to manage the shares/interests of a deceased partner/shareholder. The sanctioned mechanism includes:

• Right of First Refusal: Granting the remaining partners/shareholders or the Company itself a preferential right to purchase the deceased’s shares. The price is to be agreed upon with the heirs.
• Dispute Resolution and Valuation: In case of disagreement on price, the competent court shall determine the fair value. The court must do so through the appointment of one or more experts possessing the requisite technical and financial expertise related to the company’s business or the specific share/interest.

Legal Implications:

• This provision provides crucial certainty for family businesses and professional partnerships, ensuring shares do not pass to external parties without offering an internal exit first.
• It protects the heirs by ensuring a fair valuation process under judicial oversight if agreement cannot be reached, moving away from potentially arbitrary formulaic pricing.
• The emphasis on appointing technically and financially qualified experts ensures the valuation reflects the true commercial and operational nature of the holding, not just its accounting book value.

Conclusion and Recommendations

Amendment 20 of 2025 represents a modernization of the CCL, aligning it with international best practices for corporate governance and shareholder relations. The explicit endorsement of drag-along/tag-along rights and structured inheritance mechanisms within the MOA/AOA provides companies with powerful tools to:

• Enhance Investor Confidence by providing clear exit and entry pathways.
• Ensure Business Continuity by preventing unwanted external ownership following a shareholder’s death.
• Reduce Future Litigation by establishing clear, upfront rules for contentious scenarios.

Companies, especially LLCs and PJSCs with multiple shareholders or family-owned elements, should review their constitutive documents to consider incorporating these provisions. Drafting must be precise, clearly defining triggers, procedures, and timelines to fully leverage the legal certainty provided by the amended law. Legal counsel should be engaged to tailor these statutory templates to the specific needs and capital structure of the company.