2025 Amendments to UAE Commercial Companies Law: Drag-Along Rights, Multiple Share Classes, Non-Profit Companies & Re-Domiciliation

Introduction

Federal Decree Law No. 20 of 2025 introduces targeted amendments to the UAE Commercial Companies Law aimed at modernising the corporate framework and addressing practical issues that have emerged since the enactment of Federal Decree Law No. 32 of 2021. The amendments enhance clarity on the application of the law to free zone and foreign entities, strengthen shareholder protections, introduce new corporate structures, and increase flexibility in capital structuring and corporate mobility. Collectively, these reforms reflect the UAE’s continued effort to align its corporate regime with international commercial standards while supporting investment, business continuity, and structural efficiency.

1. Free Zones and Mainland: Clearer Rules

Articles 3 and 5 of Federal Decree Law No. 32 of 2021 on Commercial Companies have been amended to clarify the law’s application to foreign companies and free zone entities operating within the UAE. The amended provisions now expressly apply to branches and representative offices of free zone and financial free zone companies when they conduct commercial activities on the mainland. The amendments also confirm that free zone companies may establish branches or representative offices within the UAE subject to compliance with the Commercial Companies Law, removing the earlier uncertainty arising from reliance on future Cabinet decisions.

Importantly, the focus has shifted from the place of incorporation to the location where business activities are carried out. As a result, companies operating through mainland entities, free zone structures, or foreign branches must continuously assess their onshore activities, as even limited mainland operations may trigger compliance obligations. In addition, amendments to Article 9 clarify that all companies established in the UAE, including free zone and financial free zone entities, hold UAE nationality for purposes of private international law and cross-border recognition.

2. Non-Profit Companies

The introduction of non-profit companies under Article 8 of Federal Decree-Law No. 32 of 2021 on Commercial Companies marks a significant expansion of the federal corporate framework. While retaining the concept of a company as an economic enterprise, the amended provision allows companies to be formed for social, charitable, cultural, educational, or sustainability purposes, provided that profits are not distributed to shareholders and any surplus is reinvested in furtherance of the company’s stated objectives. This amendment addresses the absence of a federal non-profit company structure under the previous regime, where such activities were generally carried out through associations, Emirate-level public benefit entities, or foundations established in financial free zones. The amended article also contemplates the issuance of Cabinet regulations governing permitted purposes, governance, licensing, and reporting requirements, which will determine the practical operation of non-profit companies going forward.

3. Drag-Along and Tag-Along in LLCs

Among the most commercially significant amendments introduced are those made to Article 14 of Federal Decree-Law No. 32 of 2021 on Commercial Companies, which now expressly permit key shareholder exit and succession arrangements to be incorporated into the Memorandum of Association or Articles of Association of limited liability companies and private joint stock companies. This marks an important shift in UAE corporate law by elevating commonly used contractual mechanisms to the level of binding constitutional provisions, thereby enhancing certainty and enforceability.

Under the amended framework, companies may include drag-along rights, enabling a shareholder to compel other shareholders to participate in a sale, and tag-along rights, allowing shareholders to join a sale initiated by another shareholder on the same terms. The amendments also permit provisions governing the acquisition of a deceased shareholder’s shares, providing a statutory basis for succession planning. Previously, these mechanisms were typically confined to shareholders’ agreements, which raised enforceability concerns, particularly in relation to heirs or other non-signatory parties. By expressly allowing their inclusion in constitutional documents, the amendments strengthen exit planning and ownership continuity, particularly for family-owned businesses, closely held LLCs, and joint venture structures.

4. Different Share Classes in LLCs

Under the earlier Commercial Companies Law framework, limited liability companies were subject to a rigid equality rule, whereby all shares carried the same rights and obligations. This approach restricted the ability of LLCs to accommodate differentiated ownership or investment arrangements and frequently pushed founders and investors toward offshore or financial free zone structures to achieve preferred economic or control rights. The recent amendments represent a shift away from this model by allowing LLCs to issue multiple classes of shares, subject to implementing resolutions to be issued by the Council of Ministers.

Although the principle of equal treatment among shares remains the default position until such resolutions are issued, the amendment reflects a clear legislative intent to introduce greater flexibility into the mainland LLC regime. Once operationalised, the ability to create different share classes is expected to facilitate more sophisticated investment structures, enabling LLCs to incorporate customised voting rights, dividend preferences, and liquidation entitlements within their constitutional documents. This development brings the UAE mainland LLC framework closer to prevailing international practices in venture capital, private equity, and joint venture transactions.

5. Re-Domiciliation: Move Your Company

Article 15 bis, inserted by Federal Decree Law No. 20 of 2025, establishes a statutory mechanism allowing a company to transfer its registration in the Commercial Register from one competent authority to another while retaining its legal personality. Such transfer requires approval by a special resolution of the General Assembly or an absolute majority of the partners and is subject to specified conditions, including the technical capability of the relevant commercial registers, the absence of legal restrictions on the company’s register, approval from the competent authorities involved, and publication of the transfer decision. In the case of joint stock companies, additional regulatory approval is required.

The provision expressly permits transfers between free zone and mainland authorities, subject to compliance with the controls imposed by the receiving authority and the requirements of the Commercial Companies Law. Transfers involving financial free zones are to be governed by controls to be issued by the Cabinet in coordination with the relevant authorities, reinforcing regulatory oversight while enabling corporate mobility.

Conclusion

The 2025 amendments to the UAE Commercial Companies Law mark a targeted yet significant development in the country’s corporate law framework. By clarifying the application of the law across jurisdictions, introducing non-profit companies, enhancing shareholder exit mechanisms, permitting differentiated share classes, and enabling corporate re-domiciliation, the reforms strengthen flexibility while maintaining regulatory discipline. Companies operating in or considering entry into the UAE should review their existing structures and constitutional documents to identify opportunities arising from these amendments as implementing regulations are introduced.