The importance of a shareholders’ agreement often becomes most apparent when shareholders no longer agree as readily as they did when the company was established. Questions concerning control, funding, dividends, new investors, share transfers and exits can expose gaps that were not obvious at incorporation.
For businesses considering a shareholders agreement UAE, the objective is therefore broader than recording ownership percentages. The agreement should establish how important commercial decisions will be made, which protections apply when ownership changes, and what process follows if shareholders reach an impasse.
This matters in a business environment where privately owned companies and SMEs represent a substantial part of economic activity. According to the UAE Ministry of Economy and Tourism, SMEs now account for nearly 95% of companies operating in the UAE, with approximately 1.33 million SMEs operating in the country, provide more than 85% of private sector jobs, and contribute 63% of GDP. These figures underline the scale of businesses in which ownership, management and shareholder relationships can have direct commercial significance.
Why a Shareholders’ Agreement Needs to Go Beyond Ownership
A company’s share register can show who owns the business. It does not necessarily explain how the shareholders expect the business to operate.
Consider a company owned 60:40. The majority shareholder may assume that its ownership gives it control over all significant decisions. The 40% shareholder may have invested on the understanding that certain decisions — taking on substantial debt, issuing new shares or selling major assets — cannot proceed without its consent.
That distinction needs to be addressed in the legal and governance framework rather than left to assumptions.
For mainland UAE companies, Federal Decree Law No. 32 of 2021 on Commercial Companies provides the principal federal company law framework, although the precise rules depend on the company’s legal form. Companies established in financial free zones can operate under different corporate regimes. The company’s jurisdiction therefore needs to be established before drafting a shareholders agreement.
Which Clauses Deserve Particular Attention?
The provisions required will depend on the business, but several areas commonly determine how effectively a shareholders’ agreement operates when commercial interests begin to diverge.
| Clause | Commercial Question It Addresses | Why It Matters |
| Governance and voting | Who can make which decisions? | Defines the balance between management authority and shareholder control |
| Reserved matters | Which decisions need enhanced approval? | Can protect shareholders against fundamental changes being made unilaterally |
| Pre emption rights | Who gets the first opportunity when shares are issued or transferred? | Can help manage dilution and changes in ownership |
| Share transfer restrictions | Can a shareholder sell freely to an outsider? | Helps control who can become an owner |
| Tag along rights | What happens to minority shareholders when a controlling shareholder sells? | Can provide an agreed route for minority shareholders to participate in qualifying sales |
| Drag along rights | Can a qualifying majority complete a whole company sale? | Can address situations where a minority holding could otherwise affect an agreed exit |
| Deadlock provisions | What happens when an important decision cannot be approved? | Establishes a process before disagreement becomes entrenched |
| Valuation and exit | How will shares be valued when a shareholder exits? | Reduces uncertainty around pricing and exit mechanics |
| Dispute resolution | Where and how will disputes be resolved? | Establishes the agreed legal route for disputes |
These provisions should not simply be copied from a precedent. The percentages, triggers, notice periods, valuation methods and procedural steps need to reflect the company’s actual ownership and management arrangements.
Control Should Be Defined Before It Is Contested
One of the first issues in a UAE shareholders agreement is the division between ordinary management and decisions that require shareholder approval.
Directors or managers need sufficient authority to operate the company without repeatedly seeking shareholder consent. At the same time, shareholders may want certain decisions designated as reserved matters.
Depending on the company, these could include:
- issuing new shares or altering share capital;
- taking on borrowing above an agreed threshold;
- approving significant acquisitions or disposals;
- entering transactions outside the ordinary course of business;
- changing the company’s principal activities; or
- appointing or removing specified senior management.
The approval threshold requires particular care. Requiring unanimity for too many decisions can create paralysis. Setting the threshold too low can weaken the commercial protection expected by a significant minority investor.
Effective corporate governance UAE drafting therefore requires the voting structure to reflect both operational efficiency and negotiated shareholder rights UAE.
Share Transfers Need More Than a Simple Restriction
Ownership changes are often where shareholder agreements become commercially important.
A shareholder may want to exit, but the remaining owners may not want shares transferred to a competitor, unknown investor or unsuitable third party. The agreement can establish share transfer restrictions, pre-emption rights or, depending on the structure, a right of first refusal.
The legal framework also matters. Under the UAE Commercial Companies Law, specific statutory rules govern transfers for particular company forms. For example, the law contains transfer procedures for interests in limited liability companies and separate rules concerning transfers of shares in private joint stock companies. Contractual provisions therefore need to work with the applicable statutory and registration requirements rather than being drafted as if the shareholders’ agreement operates independently from company law.
A workable transfer clause should address more than whether a transfer is permitted. It may need to determine:
- how notice of the proposed transfer is given;
- who receives the first opportunity to purchase;
- how the price is established;
- how long shareholders have to exercise their rights; and
- what happens if the existing shareholders decline to buy.
Those mechanics can determine whether the provision operates effectively when an actual sale arises.
Drag Along and Tag Along Rights Need Precise Triggers
A potential company sale can create opposite concerns for majority and minority shareholders.
Suppose shareholders holding 80% of a company receive an offer for 100% of the business. A buyer may be unwilling to proceed unless it can acquire all shares. A properly drafted drag along provision can establish circumstances in which qualifying majority shareholders may require other shareholders to participate in the transaction, subject to the agreement and applicable law.
Now reverse the situation. A controlling shareholder agrees to sell its stake to a third party, leaving the minority shareholder invested alongside a new controlling owner it did not select. Tag along rights can provide qualifying minority shareholders with an agreed opportunity to participate in the sale.
The headline rights are relatively easy to describe. The harder drafting questions concern the threshold that activates them, notice requirements, price and terms, warranties expected from selling shareholders and how different share classes are treated.
Deadlock Provisions Matter Before a Deadlock Exists
Some companies are structurally more exposed to shareholder deadlock, particularly 50:50 ventures or businesses where significant reserved matters require unanimous approval.
The problem is not simply disagreement. It is what happens when disagreement prevents the company from making a necessary decision.
A deadlock resolution framework might begin with escalation to designated senior representatives and then move to negotiation or mediation. Depending on the ownership structure and commercial objectives, a carefully designed buy out or exit mechanism may also be considered.
There is no universal deadlock clause. A forced buy out mechanism, for instance, can have very different consequences where one shareholder has substantially greater financial resources than the other. The economic effect of the clause should therefore be examined alongside its legal wording.
The Shareholders’ Agreement Cannot Be Read in Isolation
A common drafting risk is focusing exclusively on the contract while overlooking the company’s constitutional and regulatory framework.
For mainland companies, applicable provisions of UAE federal company law and the company’s memorandum or other constitutional documentation need to be considered. The UAE Commercial Companies Law contains statutory requirements relating to company management, shareholder decisions and transfers, among other matters.
The position also changes across jurisdictions. ADGM, for example, operates its own Companies Regulations and publishes model articles for companies incorporated within the financial free zone. ADGM also amended elements of its commercial legislation during 2026, demonstrating the importance of identifying the applicable jurisdiction and ensuring that corporate documents are prepared and reviewed against the current legislative framework .
A shareholders agreement in UAE should therefore be checked against:
- the company’s place of incorporation;
- its legal form;
- applicable legislation and regulations;
- its memorandum/articles or equivalent constitutional documents; and
- regulatory or registration requirements applying to the relevant transaction.
This is particularly relevant for governance rights and transfer of shares UAE provisions. A contractual agreement between shareholders should not simply be assumed to override mandatory law or the company’s constitutional framework.
A Strong Agreement Is Built Around Future Decisions
The most useful question when preparing a shareholders’ agreement is not simply, “Which clauses should be included?”
It is: Which decisions could become difficult if the shareholders’ interests change?
For one company, the greatest risk may be a 50:50 deadlock. For another, it could be dilution following a future investment round. A family owned company may be more concerned with ownership transfers, while an investor backed business may place greater emphasis on reserved matters, information rights and exit mechanics.
That commercial analysis should determine the drafting.
The UAE’s wider economic development makes formal governance increasingly relevant. UAE Ministry of Economy and Tourism data shows that the country’s real GDP reached AED 1.776 trillion in 2024, while non-oil activities accounted for 75.5% of the economy. In a diversified and expanding private sector, ownership structures can evolve as businesses raise capital, bring in strategic investors, restructure or prepare for an eventual exit.
A carefully prepared shareholders’ agreement in the UAE can establish the contractual framework for those changes before shareholders are required to negotiate them during a disagreement.
This article provides general legal information and does not constitute legal advice. The appropriate shareholder agreement clauses will depend on the company’s jurisdiction, legal form, constitutional documents, ownership arrangements and commercial objectives.
Davidson & Co advises businesses, investors and shareholders on UAE corporate and commercial matters, including the drafting, review and amendment of shareholders’ agreements. Legal advice based on the company’s particular structure can help determine how governance, shareholder protection, transfers, exits and dispute mechanisms should be documented.
