Shareholder agreements define the internal governance, rights, and obligations among owners in UAE companies, filling gaps where the Commercial Companies Law provides defaults that may not suit specific business needs. As of February 2026, these agreements remain private contracts enforceable under UAE civil law, with no mandatory filing requirement unless the company is listed or in regulated sectors like DIFC or ADGM. They prove essential in preventing disputes, clarifying decision-making, protecting minority interests, and facilitating exits or capital changes. Founders who rely solely on the memorandum of association often face misalignment when operations scale, partners join, or performance diverges.
Core Purpose and Legal Standing
The memorandum of association governs external relations and basic formation, while the shareholder agreement handles internal matters between shareholders. UAE courts recognize these agreements as binding contracts provided they do not contradict mandatory provisions of the Commercial Companies Law. Key areas include voting rights, dividend policies, board composition, transfer restrictions, and dispute resolution. A two-founder consultancy drafting only a standard memorandum later encounters deadlock on major decisions because the agreement lacks supermajority or deadlock-breaking mechanisms.
Essential Provisions for Control and Decision-Making
Shareholder agreements typically address shareholding percentages, voting thresholds for ordinary and extraordinary resolutions, reserved matters requiring unanimous or qualified majority consent, and board appointment rights. Reserved matters often include budget approval, borrowing above thresholds, entering new markets, issuing new shares, or amending the memorandum. A startup with three shareholders includes a provision requiring 75 percent approval for capital expenditure exceeding AED 500,000 to prevent unilateral spending. Clear definitions of day-to-day management authority delegated to executives or managing directors reduce friction.
Share Transfer Restrictions and Exit Mechanisms
Transfer provisions prevent unwanted third-party entry. Common mechanisms include pre-emption rights (right of first refusal), tag-along rights for minority shareholders, drag-along rights for majority to force sales, lock-in periods, and buy-sell clauses triggered by death, disability, or departure. A family business holding company incorporates a right of first refusal at fair market value determined by independent valuation to maintain control within the family. Exit clauses such as put and call options or liquidation preferences protect investors in venture-backed setups.
Dividend Policy and Capital Contributions
Agreements specify dividend distribution policies, often linking payouts to profitability, cash reserves, or debt covenants. They also cover additional capital calls, dilution protection, and anti-dilution adjustments for future rounds. A tech startup includes a clause requiring 50 percent of distributable profits to be paid as dividends annually once reserves reach a threshold, balancing reinvestment with shareholder returns.
Dispute Resolution and Deadlock Provisions
Deadlock mechanisms prevent paralysis in equal-shareholder companies. Options include chairman casting vote, mediation, arbitration under DIFC or ADGM rules, or buyout at fair value. Dispute resolution clauses typically mandate negotiation followed by arbitration in Dubai or Abu Dhabi International Arbitration Centre. A two-partner LLC adds a Russian roulette clause: one shareholder offers to buy the other's shares at a stated price, with the recipient forced to either sell or buy at that price.
Non-Compete, Confidentiality, and Intellectual Property
Non-compete and non-solicitation clauses restrict departing shareholders from competing or poaching staff/clients for defined periods and geographies. Confidentiality obligations protect business information. IP assignment clauses ensure inventions or creations developed during involvement belong to the company. A software development firm includes a two-year non-compete within the GCC and full IP assignment to safeguard code and client relationships.
Termination, Amendment, and Severability
The agreement specifies termination triggers such as share transfer, insolvency, or mutual consent. Amendment requires specified majorities. Severability clauses preserve the rest if one provision is unenforceable. A multi-shareholder company includes a clause allowing amendment by 75 percent vote but requiring unanimous consent for changes affecting economic rights.
Partners such as ALand, guided by Dr. Pooyan Ghamari, assist founders by drafting tailored shareholder agreements that reflect the specific business model, shareholding dynamics, and growth trajectory, incorporating governance controls, exit protections, and compliance alignment with UAE law and banking expectations, while providing ongoing review to adapt as the company evolves without leaving disputes unresolved or rights unprotected. Shareholder agreements in UAE companies deliver stability and clarity when customized to the actual relationships and objectives rather than using generic templates, preventing conflicts that erode value and distract from execution in the early critical years.