Extra hurdles to overcome when entering into a JV in the UAE rather than in the UK
English Law Focus
Richard Catling Partner,Corporate Commercial
Anna RobinsonSenior Knowledge Lawyer (Consultant),Corporate Commercial
For investors who are experienced in investing in founder-led businesses but are used to operating in the UK or other common law jurisdictions there are some surprises when entering into similar arrangements in the UAE. This article highlights a few issues to grapple with in order to successfully manage these issues in the UAE. Our lawyers at Al Tamimi have experience in advising on transactions in both the UK and the UAE and can successfully guide international investors in the differences and how best to deal with them.
The majority of joint venture agreements/ shareholder agreements contain some form of mandatory share transfer provisions whether this be a tag right, drag right, leaver or compulsory transfer upon default. In the UK the share transfer process is very straightforward, simply requiring the signing and dating of stock transfer form (paying of stamp duty if any) and the updating of the register of members. Therefore, parties can protect themselves in advance by obtaining pre-signed share transfer form or in the event that a party defaults on a mandatory transfer clause, a court can make an order of specific performance forcing the share transfer.
In the UAE (excluding the Abu Dhabi Global Market (the “ADGM”) and Dubai International Financial Centre (the “DIFC”) further detailed below), the share transfer process is more complicated requiring parties to either physically attend or book an online meeting with either a notary or the relevant regulator and sign the relevant share transfer documents physically or via DocuSign. Therefore, there is no option to obtain pre-signed share transfer documentation. In addition, the remedy of specific performance (even if granted by a court outside of the UAE courts) is extremely difficult to enforce in the UAE and it is far more likely that a party will end up with the remedy of damages than the transfer of shares.
As a result the parties need to consider whether to proceed with entry into a shareholders’ agreement in respect of the shares of an onshore company or restructure the proposed joint venture agreement, for example by adding a holding company located in a common law jurisdiction such as the ADGM or the DIFC so that any mandatory share transfer provisions that apply to the subscription of shares are likely to be enforceable. When this structure is proposed the parties need to consider the additional costs of an extra company, tax considerations and practicalities of restructuring.
The UAE is made up of the onshore jurisdictions in each Emirate and a number of freezones. In order for a person to have signing authority in the free zones (other than ADGM and DIFC) and ‘onshore’ jurisdictions in the UAE specific authority has to be granted to such person by the shareholders of the company.
In the UK, subject to any restrictions contained in the articles of association, it is a generally accepted principle that a director of a company has the power to bind the company and therefore signing authorities vis a vis third parties are generally not given much consideration.
The UAE is made up of the onshore jurisdictions in each Emirate and a number of freezones. In order for a person to have signing authority in the free zones (other than ADGM and DIFC) and ‘onshore’ jurisdictions in the UAE specific authority has to be granted to such person by the shareholders of the company. This can be in the form of a shareholders’ resolution, powers in the memorandum of association or a power of attorney. Where a shareholder is based outside of the UAE this authority will need to be notarised, legalised and attested. This leads to the question of how to limit the powers of individuals who are managing the company on a day to basis, eg. require a second signing authority, shareholder resolution or board resolution in order for a certain transaction to be undertaken (eg. matters over a certain value) – adding such restrictions into the main document granting the signing powers means that any third party will need to see the additional documents required for the relevant authority. The additional documents will also need to be notarised, legalised and attested which, depending on the jurisdiction of the shareholders, can take weeks to months to obtain. In practice this period may be too long for the needs of the business being operated. The only alternative is to grant blanket authorities in the base authority document meaning that any restrictions on the signing authority can only be between the parties and would not bind any third party.
The difficulties with enforcing mandatory share transfer provisions and extra costs that can be incurred to obtain the certainty of enforcement make structuring a joint venture transaction in the UAE more complicated than in the UK. In addition, the constraints relating to how to amend/restrict or grant signing authorities also require consideration based on the primary concerns of the contracting parties. Therefore, seeking legal advice as to how to overcome the hurdles (to the extent possible) or otherwise have as much contractual protection as is available against these risks is important. Having advisors who understand the issues and how they differ to what you may be used to if you are used to operating in common law jurisdictions is of vital importance.
For further information,please contact Richard Catling and Anna Robinson.
Published in May 2025
