When One Shareholder Wants Out: How the UAE Companies Law Amendments Reshaped Control, Exit and Business Continuity

The exit of a shareholder, transfer of an ownership interest or sale of an entire company is no longer governed solely by ownership percentages and traditional arrangements between shareholders.

Federal Decree-Law No. 20 of 2025, amending Federal Decree-Law No. 32 of 2021 on Commercial Companies, introduced important changes affecting exit mechanisms, transfers of ownership interests, continuity of management and the structuring of relationships between shareholders and investors.

These changes matter because they address situations capable of altering the future of a business entirely.

An investor may seek to acquire 100% of a company while one minority shareholder refuses to sell. A controlling shareholder may decide to sell its interest, leaving minority shareholders in business with a new owner they did not choose. Management may become disrupted because the shareholders cannot agree on a replacement manager. The death of a shareholder may also create disagreement over the fate, valuation and transfer of that shareholder's interest.

In these circumstances, the legal question extends beyond the percentage of capital held by each shareholder.

The more important question is what rights the company's constitutional documents give each party when their interests cease to align, and whether exit, ownership transfer and management continuity were adequately structured before those matters became a dispute.

One of the most significant implications of the 2025 amendments is that the value of a company is protected not only by agreement between shareholders when their interests are aligned, but also by the quality of the rules governing their relationship when those interests diverge.

This becomes particularly important in acquisitions, private investments and transactions involving the entry or exit of investors.

A company's constitutional documents may operate without difficulty for years and only reveal their weaknesses when a strategic buyer arrives, a founder seeks to exit, an investor wants liquidity or the shareholders cease to agree on the future direction of the business.

At that stage, provisions dealing with share transfers, exit rights, valuation, succession and management may directly affect whether a commercial transaction can proceed or becomes the source of a shareholder dispute.

A major development introduced through the 2025 amendments is the ability to incorporate arrangements regulating shareholder or partner exits into the constitutional documents of limited liability companies and private joint stock companies, including mechanisms commonly known as Drag-Along and Tag-Along rights, subject to the applicable legal requirements.

The commercial importance of Drag-Along rights becomes apparent where an investor offers to acquire the entire company.

The majority shareholders may wish to accept an attractive offer, while the buyer requires 100% ownership and a minority shareholder refuses to sell. Without an appropriately structured exit mechanism, a relatively small ownership interest may become an obstacle to a substantial acquisition.

A Drag-Along arrangement can, where properly structured and applicable, provide an agreed mechanism under which another shareholder may be required to participate in the sale once the specified conditions are satisfied.

However, exit mechanisms are not solely about strengthening the position of the majority.

The opposite situation may arise where a controlling shareholder proposes to sell its interest to a new investor. A minority shareholder may then find itself remaining in a company whose controlling owner has fundamentally changed.

This is where Tag-Along rights become significant. Such arrangements can enable another shareholder to participate in the sale on the agreed terms, thereby addressing the minority shareholder's position when control of the company changes.

The question upon exit is therefore no longer simply who holds the majority?

It is also what rights were built into the company's structure before the proposed exit became a dispute?

This distinction can be particularly important in mergers and acquisitions, private equity transactions, strategic investments and founder exits.

The 2025 amendments also address another significant issue for closely held and family businesses: the treatment of the ownership interest or shares of a deceased partner or shareholder.

In such companies, the choice of business partners may have been based on personal trust, professional expertise or the particular role of each founder. A death may therefore have implications extending well beyond inheritance.

The amended framework provides mechanisms relating to the disposition of a deceased partner's or shareholder's ownership interest or shares, including priority for existing partners, shareholders or the company to acquire them in accordance with the applicable framework.

Valuation may then become a critical issue.

The book value of an ownership interest may differ substantially from its actual economic value. The company may possess assets, contractual relationships, cash flows, goodwill and commercial value that are not adequately reflected by its registered capital.

Where agreement on value cannot be reached, the amended framework provides for valuation through the competent court with the assistance of specialists in the relevant technical and financial aspects.

Succession planning should therefore be regarded as part of a company's legal governance rather than merely a family matter to be addressed after the death of a shareholder.

Management continuity presents another area of significant practical importance.

A manager's or board of managers' term may expire without reappointment or the appointment of a replacement, potentially while the shareholders are already in dispute.

The 2025 amendments introduced mechanisms intended to reduce the risk of an administrative vacuum and address the continuity of management in such circumstances, subject to the applicable statutory procedures and requirements.

This matters because, during a serious shareholder dispute, the most urgent commercial question may not be who will ultimately succeed in litigation.

It may be who can manage the company tomorrow?

Who can represent the company? How will existing obligations continue to be performed? How will the business maintain its operations while the shareholders remain unable to agree?

Corporate deadlock can therefore develop from an internal disagreement into a direct threat to the value and continuity of the business.

The amendments also provide greater flexibility in the ownership structures available to limited liability companies, including the possibility of different classes of ownership interests with different associated rights, subject to the applicable legal and regulatory framework.

This raises an important investment question.

Must the percentage of economic ownership always correspond exactly with the same degree of control or voting influence?

A founder may require additional capital to expand the business while seeking to preserve an agreed level of control. An investor, on the other hand, may be willing to provide funding only if particular economic, voting or other rights are attached to its investment.

The ability to structure different classes of ownership interests can therefore become an important corporate and investment tool where used within the applicable legal framework.

However, greater statutory flexibility does not mean that merely inserting expressions such as “Drag-Along” or “Tag-Along” into a private agreement will automatically produce the intended legal outcome.

The effectiveness of an exit provision may depend heavily on its drafting.

When can the right be triggered? What conditions must be satisfied? What is the scope of the Tag-Along right? How must notice be given? What terms must apply to participating shareholders? How will valuation disputes be addressed? How do these provisions interact with the Memorandum of Association, Articles of Association and applicable regulatory requirements?

These are not drafting formalities.

In a substantial acquisition, ambiguity in a single provision may lead to disagreement over enforceability or delay a transaction precisely when the parties' commercial interests have ceased to align.

For existing companies, one of the most practical consequences of the amendments is therefore the need to reconsider whether their current constitutional documents remain suitable for the business they have become.

A company established several years ago may now bear little resemblance to the business for which its original documents were drafted. Its value may have increased substantially. New investors may have entered. Its activities, management structure and financing requirements may have changed, while its provisions governing exit, ownership transfers and management remain substantially unchanged.

A legal review of an existing corporate structure should go beyond confirming the percentage owned by each shareholder.

The review should determine whether the company's current documents adequately address the events most likely to place shareholder interests in conflict and whether those arrangements remain appropriate for the company's present value, ownership structure and investment strategy.

• Review the company's Memorandum of Association, Articles of Association and any shareholders' agreement
• Identify how material corporate decisions are currently approved and who exercises effective control
• Review existing restrictions and procedures governing transfers of ownership interests or shares
• Assess whether appropriate Drag-Along and Tag-Along mechanisms should be incorporated
• Determine how a full acquisition offer would be handled if one or more shareholders refused to sell
• Review the protection available to minority shareholders if control of the company changes
• Examine how the ownership interest or shares of a deceased shareholder would be dealt with
• Establish an appropriate valuation mechanism before a valuation dispute arises
• Review the arrangements governing expiry, vacancy or replacement of management
• Consider whether the company's existing ownership structure remains appropriate for future investment
• Ensure consistency between constitutional documents, shareholders' agreements and applicable legal and regulatory requirements
• Review exit and succession arrangements before negotiations with a buyer or investor begin