Shareholder Agreement Specifications For an LLC in Dubai

Limited Liability Company also known as LLC is one of the popular business types in Emirate of Dubai. LLC is a preferred choice of several entrepreneurs because it provides a good balance between operational flexibility, and market reach. Legal protection for LLC companies is also very impressive. Federal Decree-Law No. 32 of 2021, which is on commercial companies, creates a supportive solution for investors across the world to establish LLC companies in UAE. To establish companies in Dubai, has been always very favorable option for the investors across the world. One of the major developments is the reform that allows to have 100% ownership in LLC companies. Previously an LLC in Dubai required a UAE national. He used t to hold at least 51% shares, and foreign investor maximum up to 49% shares.

A shareholder agreement is not always required for LLC Company, but it is also recommended by experts to have shareholder agreement, to govern internal operations, and outline responsibilities of its members. While the Memorandum of Association (MOA) provides a foundational document to govern a company. This agreement offers the necessary provisions.

Because it is necessary to seek maximum benefits from tax policies. Therefore, shareholder agreement can offer a greater level of flexibility and support among shareholders. Therefore, it is necessary to draft a shareholders’ agreement for a Dubai based LLC company.

The roles, responsibilities, and exit strategies are always categorically mentioned in the shareholder agreement. It is important to have a well-crafted agreement at the start of the business relationship. It is a legal document used as a contract among various shareholders within a company. It outlines the roles, obligations, decision-making, and profit distribution. As we, aid before that this is not a legal requirement as per the UAE company law, but it prevents future misunderstandings and disputes.

A well-prepared shareholder agreement must contain some key factors and important areas. It begins with identifying the ownership structure, every shareholder should be listed, and the percentages of shares should also be mentioned specifically.

Secondly, it must clearly define the major decisions made. It includes selling the company, an increase in capital, and a change of business model.

Thirdly, the transfer of shares is also mentioned in it. It should state whether shareholders are permitted to sell shares or not. It also explains about the selling of share under what terms and conditions.

Additionally, the shareholders’ agreement must contain the policy of dividends along with a dispute resolution mechanism. It also talks about the confidentiality clauses and the procedures for shareholder exit or death.

Moreover, the clauses should be in line with the local and federal laws. To avoid contradictions,  MOA it is integral.

The UAE’s Commercial Companies Law offers extensive guidelines for LLCs. This makes private agreements more powerful and enforceable. There are different emirate-level rules and federal rules that affect the drafting of shareholders’ agreements.

This directly impacts the decision-making powers and sharing of transfer policies. It also affects the profit sharing terms and ownership structure in some sectors. Experienced lawyers are always helpful for companies in corporate structuring.

Minority shareholder often feels insecure and overruled by the majority shareholders. A well-structured shareholder agreement addresses these insecurities. Here the need of competent and professional lawyers are generated. It is done by properly defining the special veto power rights, and access to the information.

Moreover, it includes the clauses to prevent the majority shareholders from sidelining minorities. It must be mentioning that significant changes with subject to special approvals or consensus. Such protections are also needed for business growth. It will attract more investors in business.

This gives confidence and more participation to the minority shareholders in LLC. It offers them more influence over the decision-making, business strategy, financial decisions, and future capital raises.

• In the absence of a formal contract, it is common to have disagreements or disputes. They can drive to be costly. Some of the most common problems are disagreement over profit distribution, and conflict over vision of growth. In such cases, shareholders will have less protection of their interests. It is restricted to the provisions of the Commercial Companies Law or the company’s Memorandum of Association. This way, disputes can easily be raised.
• Even if there is a dispute, then litigation or lawsuit is alternative option. However, it might adversely affect the business, profitability, business operations and drain the company’s time. Besides, it might exhaust the company’s resources, savings, and reserves.
• By deciding to draft a Shareholders’ Agreement for a Dubai LLC, the founders can encourage transparent and fair governance. Absence can be a reason of poor administration and accountability.

These are the custom written contracts. Every zone has its own set of regulatory authorities and rules. The shareholders’ agreements should be a reflection of the specific rules and regulations.

For example, for companies in DMCC and DIFC, they might have to follow English Common Law. On the other hand, JAFZA or Dubai South might follow a different set of laws. What works in a free zone can be not necessarily function in the other.

Besides, they aid investors in deciding upon the best location for the company on the basis of legal and financial specifications.

A well-drafted shareholders’ agreement will provide a proper mechanism to resolve disagreements and disputes. Primarily, the dispute resolution methods are agreed upon in advance. Arbitration or litigation are the various options available. It all has to be clearly mentioned in the shareholder agreements.

The parties must agree to the process before the problem arises. This will prevent the confusion and division of opinion. It also avoids emotional responses during emergencies and predicaments.

Several Dubai-based businesses opt for arbitration as the most suitable option. It is supported via institutions such as DIAC (Dubai International Arbitration Centre).

Arbitration is quicker and expedites the resolution procedure. Besides, it maintains confidentiality and is time-saving. It is less costly as compared to court trials. Knowledgeable Dubai attorneys offer arbitration services.

They assist in drafting the clauses accordingly. Besides, Dubai law firms ensure the choice of jurisdiction as per the law.

New law has removed the condition of mandatory minimum share capital requirement.

One person can be owner of LLC company as per new laws. Minimum of two shareholders and a maximum of fifty are allowed if there are more than one shareholder. LLC company can appoint up to five managers. The roles should be defined in company’s Memorandum of Association.

Our experienced lawyers in Dubai draft shareholder agreements tailored to LLC requirements. Contact us for legal consultation and support.