Joint Venture Agreements in the UAE: Structuring, Governance, and Deadlock

Joint ventures remain one of the most common deal structures in the UAE. Even after 100% foreign ownership became available in most mainland sectors, businesses continue to form JVs to access local market knowledge, meet licensing requirements in regulated industries, share project risk, or pool complementary capabilities across construction, energy, technology, healthcare, and real estate.

The problem is that JVs also produce more disputes per capita than almost any other corporate arrangement. Two parties with different risk appetites, different time horizons, and different ideas about how to run a business are bound by a single entity. When alignment breaks down, the JV either paralyses or destroys value. The difference between a JV that survives commercial pressure and one that ends in litigation comes down to three things: how the vehicle is structured, how governance is designed, and whether the parties agreed on a workable exit before they needed one.

The 2025 amendments to the UAE Commercial Companies Law (Federal Decree-Law No. 20 of 2025, amending Federal Decree-Law No. 32 of 2021) have materially changed what is possible in JV structuring. Drag-along and tag-along rights now have statutory recognition. Multiple share classes are available in mainland LLCs for the first time. Succession mechanisms can be embedded in constitutional documents. These are tools that JV parties previously had to structure through offshore holding companies or rely on private shareholder agreements that carried enforcement risk.

This article covers how to structure, govern, and protect a joint venture in the UAE under the current legal framework. It is written for business owners, investors, and in-house counsel who are entering, restructuring, or trying to exit a JV.

Choosing the right vehicle

The first decision in any equity JV is the corporate vehicle. The choice determines governance flexibility, shareholder rights, transfer mechanics, tax treatment, and the cost of getting in and getting out.

Mainland LLC

The LLC is the default vehicle for most UAE joint ventures. It accommodates 2 to 50 shareholders, has no prescribed minimum share capital for most activities (though some DEDs impose thresholds for specific licences), and offers operational flexibility for domestic market activities.

Since the 2025 CCL amendments, the LLC has become significantly more attractive for JV structuring:

Multiple share classes. LLCs may now issue different classes of shares with distinct voting rights, economic entitlements, redemption features, and liquidation preferences. This means a JV partner contributing capital can hold shares with priority distribution rights, while the operating partner holds shares with enhanced voting rights. Previously, achieving this separation required an offshore holding structure.

Drag-along and tag-along rights. These can now be embedded in the memorandum of association (MOA), giving them statutory backing rather than relying solely on a private shareholders' agreement. However, in an LLC, drag-along rights remain subject to the pre-emption regime under Article 80 of the CCL. This means the other shareholders must first be offered the shares before a third-party sale can complete. In practice, the shareholders' agreement should include an express waiver of pre-emption rights to make drag-along mechanics workable.

Succession provisions. The MOA can now include rules for share transfer on a shareholder's death, including a right of first refusal for surviving shareholders and the option for the company itself to acquire the deceased's shares. Valuation is set by agreement with the heirs or, if disputed, by court-appointed experts.

The pre-emption problem. Despite these improvements, the statutory pre-emption right remains a friction point for LLC-based JVs. When a shareholder wants to transfer shares to a third party, all other shareholders must be notified and given 30 days to exercise their pre-emption right at the agreed price (or, if disputed, a price set by experts). This slows exits and can create valuation disputes. JV agreements should address this by including waiver mechanisms and pre-agreed transfer procedures that comply with the statutory framework while preserving commercial flexibility.

For a broader analysis of how the 2025 amendments affect corporate structuring, see our article on shareholder agreement pitfalls in UAE LLCs.

Private Joint Stock Company (PrJSC)

A PrJSC requires a minimum of two shareholders and AED 5 million in fully paid-up share capital. It is more formal than an LLC but offers features that matter for larger JVs:

• Shares are numbered and registered, making transfers cleaner
• No statutory pre-emption right on share transfers (unless the articles provide otherwise)
• Can raise capital through private placements under forthcoming SCA rules (a 2025 CCL amendment)
• Subject to a one-year founder lock-up (which can now be waived by the Ministry of Economy in certain cases)
• Better suited for JVs that may eventually seek public listing or institutional investment

The PrJSC is the preferred vehicle for JVs with significant capital requirements, complex ownership structures, or plans for third-party capital raising. The AED 5 million minimum capital is a barrier for smaller ventures, but for construction, energy, healthcare, and infrastructure JVs, it is proportionate to the deal size.

DIFC or ADGM company

For JVs involving financial services, holding structures, or parties who want common law governance, a DIFC or ADGM entity offers a different legal environment entirely. Both financial free zones operate outside the CCL under their own company laws, based on English common law.

Advantages for JV structuring include flexible share classes, no pre-emption restrictions (unless the articles provide otherwise), well-established minority protection remedies, and access to the DIFC Courts or ADGM Courts for dispute resolution.

The trade-off is that DIFC and ADGM entities cannot directly conduct most onshore business activities. If the JV needs to operate in the UAE domestic market (retail, construction, manufacturing, services), a mainland entity is typically required, either as the operating company or sitting below a DIFC/ADGM holding company. For guidance on setting up in the DIFC, including entity types and licensing requirements, see our DIFC business setup guide.

Contractual JV (unincorporated)

Not every JV requires a new entity. A contractual JV is an agreement between parties to collaborate on a specific project without forming a separate company. Each party retains its own legal identity and liability profile.

Contractual JVs are common in construction (consortium bidding), technology (development partnerships), and professional services. Under UAE corporate tax law (Federal Decree-Law No. 47 of 2022), an unincorporated partnership can elect to be treated as a taxable entity, which may offer tax planning advantages.

The risk is that without a separate entity, there is no limited liability shield. Whether one party can bind the other to third-party obligations depends on the agency provisions in the JV agreement.

Vehicle selection at a glance

Governance: where most JVs go wrong

Vehicle selection is the structure. Governance is the operating system. Most JV disputes are not about fraud or breach of contract. They are about two partners who disagree on a business decision and discover that their agreement does not clearly resolve the disagreement.

Board composition and management

In an LLC, the company is managed by one or more managers appointed in the MOA or by shareholder resolution. There is no mandatory board structure, which gives JV parties flexibility but also creates risk if the management framework is not defined.

The JV agreement should specify:

• Board size and composition. A 50:50 JV typically has an even number of board seats, with each party nominating an equal number. Some JVs include an independent chair with a casting vote. Others deliberately avoid a casting vote, preferring deadlock mechanisms instead.
• Who chairs the board. The chair often has procedural powers (setting agendas, calling meetings) that can be used strategically. Rotating the chair annually is common but creates inconsistency. A permanent independent chair avoids this but adds cost and requires both parties to agree on the appointee.
• Management team appointments. The CEO, CFO, and other key positions should be allocated between the parties in the JV agreement. Typically, one party nominates the CEO and the other nominates the CFO, ensuring both parties have operational visibility. Termination and replacement of key managers should require mutual consent or specified procedures.
• Quorum requirements. If a quorum requires at least one nominee from each party, either party can block board meetings by not attending. This is a tactic used in JV disputes and should be addressed with provisions allowing meetings to proceed after a specified number of failed attempts.

Reserved matters: the control framework

Reserved matters are decisions that cannot be made by the board or management alone and require the consent of both JV parties (or a supermajority at shareholder level). This is the most important governance tool in any JV agreement.

The list of reserved matters defines the boundary between operational management (delegated to the board/CEO) and strategic decisions (requiring JV partner approval). Getting this list wrong is the single most common drafting failure in UAE JV agreements.

Too many reserved matters paralyses the business. If every hiring decision, every contract above AED 100,000, and every budget line item requires both partners' approval, the JV cannot operate efficiently. Day-to-day management becomes a negotiation.

Too few reserved matters allows one party (typically the one controlling the board or the CEO position) to make material decisions without the other's input. The minority or non-operating partner loses visibility and control.

A well-calibrated reserved matters list for a UAE JV typically includes:

• Approval of the annual business plan and budget (and material deviations)
• Capital expenditure above a defined threshold
• Borrowing or granting security above a defined threshold
• Related party transactions
• Appointment and removal of auditors
• Changes to the MOA or constitutional documents
• Issuance of new shares or admission of new shareholders
• Dividends and distributions
• Material contracts (above a threshold or with specific counterparties)
• Commencement or settlement of litigation or arbitration above a threshold
• Change of business activity or entry into new markets
• Winding up, liquidation, or any insolvency filing

The thresholds should be calibrated to the JV's size. A reserved matters threshold of AED 500,000 for capital expenditure makes sense for a mid-size services JV. It would be unworkable for a construction joint venture with a project value of AED 200 million.

Information rights and financial reporting

The non-operating partner's ability to monitor the JV depends entirely on information rights. The JV agreement should specify monthly management accounts (within 15-20 days of month-end), quarterly board reporting, annual audited financial statements, the right to inspect books and records, and the right to appoint or alternate the auditor. Without these provisions, the non-operating partner is reliant on goodwill. In our experience, information disputes are often the first sign that a JV relationship is deteriorating.

Deadlock: planning for the disagreement you cannot resolve

Deadlock occurs when the JV parties cannot agree on a reserved matter and the business cannot move forward. It is the defining risk of any 50:50 JV and a material risk in any JV where minority veto rights exist.

The CCL does not prescribe a mandatory deadlock resolution mechanism. If the JV agreement is silent on deadlock, the only options are negotiation, court proceedings to dissolve the company (a slow and destructive process), or one party simply refusing to participate until the other capitulates. None of these protect the JV's value.

A well-drafted deadlock clause follows a tiered structure:

Tier 1: Escalation

The dispute is escalated from the board to the senior executives (typically the CEO or a designated senior officer) of each JV parent. This gives the principals an opportunity to resolve the issue at a commercial level before legal mechanisms are triggered. A typical escalation period is 15 to 30 days.

Tier 2: Mediation or independent determination

If escalation fails, some JV agreements refer the matter to mediation or an independent expert. Mediation works when the parties still want to preserve the relationship. Independent expert determination works for specific factual or valuation disputes (for example, whether a budget overrun was caused by one party's management decisions).

Tier 3: Buy-sell mechanisms

If the dispute cannot be resolved through escalation or mediation, the JV agreement triggers a buy-sell mechanism that results in one party acquiring the other's shares. The three most common mechanisms are:

Russian roulette. One party serves a notice offering to buy the other's shares at a stated price. The receiving party must either accept the offer (and sell) or reverse it (and buy the offering party's shares at the same price). Because the offering party does not know whether it will end up as buyer or seller, the mechanism incentivises a fair price.

The risk: Russian roulette favours the party with deeper pockets. If one partner is cash-rich and the other is not, the cash-rich party can trigger the mechanism at a price the other cannot afford to match, effectively forcing a sale at a potentially below-market price. For this reason, Russian roulette works best in JVs where both parties have comparable financial resources.

Texas shoot-out. Both parties submit sealed bids to purchase the other's shares. The highest bidder wins and must buy the other's shares at the bid price. This produces a market-tested price but may result in a premium that exceeds the JV's intrinsic value if both parties are determined to retain the business.

Put/call options. One party has a "put" option (the right to sell its shares to the other at a pre-agreed price or formula) and/or a "call" option (the right to buy the other's shares). The price is typically set by reference to fair market value determined by an independent valuer, or a pre-agreed formula (EBITDA multiple, NAV, or book value). Put/call mechanisms are more predictable than auction-based mechanisms but require agreement on the valuation methodology upfront.

Tier 4: Winding up

If no buy-sell mechanism resolves the deadlock, the ultimate fallback is a winding up of the JV company. Under Articles 324 to 338 of the CCL, liquidation follows a prescribed process including appointment of a liquidator, settlement of debts, and distribution of remaining assets. This destroys going-concern value and is the outcome both parties should be trying to avoid.

Which mechanism to choose

The right deadlock mechanism depends on the JV's characteristics:

Exit: getting out of a UAE JV

Every JV should be designed with exit in mind. The parties who cannot agree on how to leave will eventually pay lawyers to figure it out for them, at a much higher cost and with a much worse outcome.

Pre-emption and transfer restrictions

In LLC-based JVs, the statutory pre-emption right under Article 80 of the CCL applies to transfers to third parties. The JV agreement should address how pre-emption interacts with permitted transfers (intra-group transfers to affiliates), tag-along and drag-along rights, and deadlock buy-sell mechanisms. A blanket waiver of pre-emption rights for these specified scenarios is common practice, but must be carefully drafted to comply with the CCL framework.

Valuation

The JV agreement should specify the valuation methodology for all exit scenarios: deadlock, default, change of control, and voluntary exit. Common approaches include:

• Independent valuer. Each party appoints one valuer, and if they disagree, a third valuer is appointed (or the two valuers appoint a third). The third valuer's determination is final and binding.
• Formula-based. A pre-agreed multiple of EBITDA, revenue, or net asset value. This is faster and cheaper than an independent valuation but may not reflect the JV's true value at the time of exit, particularly if market conditions have changed.
• Expert determination. A single expert (typically from one of the Big Four accounting firms or an agreed valuation specialist) determines fair market value. Faster and cheaper than arbitration but with limited rights of appeal.

Whichever method is chosen, the agreement should address: who pays for the valuation, what information the valuer can access, what "fair market value" means (going concern? liquidation value? with or without a minority discount?), and whether the valuation is binding or merely a starting point for negotiation.

Change of control

A change of control clause protects JV partners from finding themselves in a JV with a party they did not choose. If one JV partner is acquired by a competitor or an unacceptable third party, the other partner should have the right to buy the departing party's shares or terminate the JV.

The definition of "change of control" needs careful drafting. Does it cover direct ownership changes only, or also indirect changes (a change in the ultimate parent)? Does it apply to changes resulting from internal group reorganisations? What about gradual dilution through multiple transactions? For acquirers conducting due diligence on a target that holds JV interests, the JV agreement's change of control provisions are a critical risk item.

Tax treatment of JV exits

Under the UAE Corporate Tax Law, gains on the disposal of shares in a UAE entity are generally taxable at 9% unless the participation exemption applies. The exemption (under Article 23) requires, among other conditions, a minimum 5% shareholding and that the JV company is not an "excluded" entity. For group restructurings, Articles 26 and 27 provide business restructuring relief and group relief that may allow tax-neutral transfers.

The corporate tax implications of a JV exit should be modelled before the exit structure is agreed. Transfer pricing rules (Ministerial Decision No. 97 of 2023) also apply to transactions between the JV entity and its shareholders, particularly management fees, service charges, and IP licensing. For guidance on transfer pricing documentation requirements, see our transfer pricing guide.

Competition law: the overlooked JV risk

The formation of a JV may trigger merger notification requirements under Federal Decree-Law No. 36 of 2023 (the Competition Law). Pre-notification and prior approval from the Ministry of Economy's Competition Committee is required for transactions, including joint ventures, that may lead to an "economic concentration." The notification thresholds are based on market share (combined share exceeding 40% in the relevant market) and turnover. Failure to notify can result in penalties, and the transaction can be unwound.

Many JV parties overlook this because they do not consider their JV to be a "merger." But the Competition Law's definition of economic concentration is broad enough to capture equity JVs where the parties gain joint control over a business activity.

Common JV mistakes in the UAE

Relying on the MOA alone. The MOA is a public document filed with the DED. Many JV parties are reluctant to include detailed governance, deadlock, and exit provisions in a document that competitors, customers, and employees can access. A separate shareholders' agreement is essential to contain the commercial terms. However, under UAE law, the MOA takes precedence over the shareholders' agreement if there is a conflict. Both documents must be aligned.

Ignoring the 30 June 2026 compliance deadline. Companies must update their constitutional documents to comply with the 2025 CCL amendments by 30 June 2026. This is one of several key regulatory changes affecting UAE companies in 2026. For existing JVs, it is an opportunity (and obligation) to embed drag-along, tag-along, succession, and share class provisions in the MOA. For an overview of what the 2025 CCL amendments require, see our CCL amendments guide.

No deadlock mechanism. The single most destructive omission. A 50:50 JV without a deadlock clause is a bet that the parties will always agree. That bet always loses eventually.

Mismatched expectations on distributions. One party wants to reinvest profits for growth. The other wants quarterly dividends. If the dividend policy is not agreed upfront and specified in the JV agreement, this becomes a perennial source of conflict.

Poorly defined scope. The JV agreement should clearly define the JV's business activity, territory, and exclusivity. If the JV operates in construction in Dubai, can one partner compete in Abu Dhabi? Can the JV expand into a new sector without consent? Vague scope provisions generate disputes.

No non-compete or non-solicitation. JV partners who do not agree on non-compete restrictions risk having their partner compete with the JV using knowledge, relationships, and staff gained through the partnership.

Structuring the agreement: what should be where

When to get advice

JV structuring is not a document production exercise. The governance framework, deadlock mechanism, and exit provisions must be designed around the specific commercial relationship, industry, risk profile, and power dynamics of the parties involved.

At Kayrouz & Associates, our corporate and commercial team structures, negotiates, and documents joint ventures across the UAE. We advise on vehicle selection, governance design, reserved matters calibration, deadlock mechanisms, exit provisions, competition law notifications, and corporate tax structuring. We also handle JV disputes, including deadlock resolution, minority oppression claims, and forced exits, through our litigation and dispute resolution practice.

If you are entering a new JV, restructuring an existing one, or facing a governance dispute with your JV partner, contact our team for advice specific to your situation. For JVs that include arbitration as the dispute resolution mechanism, our arbitration clause checklist covers the drafting points that prevent jurisdictional disputes from arising before the substantive dispute is even addressed.

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