Share Purchase Agreements In UAE M&A

Acquiring a company in the UAE through a share purchase agreement requires navigating two distinct legal systems. Mainland transactions follow civil law with mandatory notarization and statutory shareholder rights that cannot be contracted away. DIFC and ADGM deals operate under English common law with streamlined execution. Getting the structure wrong can result in unenforceable terms, blocked transfers, or protracted disputes.

This guide explains what differentiates UAE share purchases from international practice and how to structure agreements that close successfully.

The Legal Framework: Mainland vs Free Zone

Mainland UAE

The UAE Commercial Companies Law (Federal Decree-Law No. 32 of 2021) and the Civil Code govern all mainland share transfers. Three mandatory requirements apply regardless of what your SPA says:

Pre-emption rights are statutory. Every LLC shareholder has a 30-day right to purchase shares before they can transfer to a third party. This right exists by operation of law and cannot be waived in the SPA itself. You need written waivers from each existing shareholder before proceeding.

Notarization consummates the transfer. The English-language SPA creates binding contractual obligations between the parties, but legal title only transfers when an Arabic share transfer agreement is signed before a UAE notary public. All parties must attend in person or through notarized powers of attorney. The Department of Economic Development then updates the commercial licence and share register.

The MOA prevails over the SPA. If your SPA grants rights (board seats, veto powers, reserved matters) that are not reflected in the company's Memorandum of Association, those rights may not bind the company or future shareholders. Always include covenants requiring the seller to amend the constitutional documents to match the agreed terms.

DIFC and ADGM

The DIFC and ADGM operate as common law jurisdictions with their own company laws. Share transfers are simpler: no notarization, no statutory pre-emption (unless the articles provide for it), and registration with the free zone Registrar typically completes within one to three business days.

Parties can choose English law, DIFC/ADGM law, or UAE federal law to govern the SPA. Many international transactions choose English law for predictability, with DIFC court jurisdiction or DIAC arbitration for dispute resolution.

Price Mechanisms and Risk Allocation

UAE private M&A uses three principal pricing mechanisms:

Locked box. The purchase price is fixed by reference to a balance sheet at a specified date before signing. The seller gives no-leakage covenants protecting against value extraction between the locked box date and closing. Risk of business fluctuation after that date sits with the buyer. This approach works well when the gap between signing and closing is short and predictable.

Completion accounts. The price adjusts post-closing based on actual net assets or working capital at completion. An independent accountant typically resolves disputes over the adjustment calculation. This shares risk between the parties but can lead to post-closing disagreements if not properly documented.

Earn-outs. Part of the consideration is deferred and tied to future business performance. UAE courts enforce earn-out provisions, but they require precise metrics. Vague performance conditions may be deemed unenforceable. Sellers should negotiate protections against buyer conduct that could suppress the earn-out (such as allocating costs to the acquired business or integrating it in ways that obscure standalone performance).

Escrow arrangements are standard in UAE deals. Holding 10-15% of the purchase price with an escrow agent for 12-18 months provides security for warranty and indemnity claims. Given the challenges of enforcing judgments across borders, escrow is often the only practical remedy if warranty breaches emerge after closing.

Conditions Precedent

Most UAE share purchases require satisfaction of conditions before closing:

Regulatory approvals. Transfers in banking and financial services, insurance, telecom, healthcare, education, and media require sector regulator consent. Central Bank approval is needed for any significant stake in a regulated financial institution. The SPA should specify which approvals are required and allocate responsibility for obtaining them.

Competition clearance. The UAE operates a mandatory, suspensory merger control regime under Federal Law No. 4 of 2012. If combined UAE turnover exceeds AED 300 million or the transaction creates 40% market share in a relevant market, notification to the Ministry of Economy is required before closing. Failure to notify can result in fines and unwinding of the transaction. Allow at least 90 days for clearance.

Foreign ownership. The general 49% foreign ownership restriction was abolished in 2021 for most sectors. However, strategic activities including defence, certain financial services, and telecommunications still require Emirati ownership or special approval. Confirm the target's licence permits the intended ownership structure before signing.

Shareholder waivers. For mainland LLCs, obtain written pre-emption waivers from all existing shareholders. Do not proceed to notarization without these.

Warranties, Indemnities, and Insurance

Comprehensive warranties are enforceable under UAE law. Standard coverage includes title to shares, accuracy of financial statements, absence of undisclosed liabilities, compliance with laws, employment matters, tax compliance, pending or threatened litigation, and material contracts.

Warranty survival periods typically run 18-24 months for general warranties, with longer periods (often 5-7 years or the statutory limitation period) for fundamental warranties covering title, authority, and tax.

Tax indemnities have become essential since the introduction of corporate tax and VAT. Sellers should indemnify buyers for pre-closing tax liabilities and any loss of free zone tax exemptions resulting from pre-closing conduct.

Gratuity indemnity. End-of-service benefits for employees are frequently understated on UAE company balance sheets. Calculate the actual liability independently and negotiate an indemnity covering any shortfall. This is one of the most common sources of post-closing disputes.

W&I insurance. Warranty and indemnity insurance is now available for UAE transactions, typically priced at 1-2% of coverage for limits of 10-30% of deal value. Insurance can facilitate transactions where sellers are unwilling to give broad warranties or where the buyer needs recourse after the seller exits the jurisdiction.

Execution and Closing

Mainland Transactions

The closing sequence for a mainland LLC:

1. Satisfy all conditions precedent
2. Obtain written pre-emption waivers from existing shareholders
3. Prepare Arabic share transfer agreement and amended MOA
4. All parties attend before UAE notary public (or provide notarized POA)
5. Notarize the transfer documents
6. File with DED to update commercial licence and share register

Critical point: Do not attend the notary until all conditions are satisfied. Under UAE law, notarization consummates the transfer. If you notarize before competition clearance is obtained and clearance is subsequently denied, you face a dispute about whether the deal closed. The notarized Arabic document creates legal effect regardless of what conditions remain outstanding under the English SPA.

Foreign corporate buyers must legalize their documents (attestation by UAE embassy, UAE Ministry of Foreign Affairs, and sworn translation) before the notary will accept them. Budget time for this.

Free Zone and DIFC/ADGM Transactions

Execution is administrative:

1. Submit application to free zone Registrar with board resolution and transfer documents
2. Execute the share transfer instrument (electronic signatures usually accepted)
3. Registrar reviews and issues updated commercial licence

No notarization or legalization of foreign documents is required. The process typically completes within one to three business days of filing.

Dispute Resolution and Governing Law

Governing Law

English law is commonly chosen for UAE SPAs involving international parties. However, English law cannot override mandatory UAE provisions. If the target is a mainland company, the statutory pre-emption right applies regardless of the governing law. Notarization is still required to transfer title.

UAE law governs contracts differently from common law. Article 390 of the Civil Code permits courts to adjust agreed damages to equal actual loss, which may affect liquidated damages provisions. Courts can also refuse to enforce penalty clauses they consider excessive.

Dispute Resolution

UAE local courts conduct proceedings in Arabic without binding precedent. Enforcing an SPA through local courts requires proving foreign law content through expert evidence, which is expensive and uncertain. Most sophisticated transactions avoid local courts.

DIFC and ADGM courts are English-language common law courts. Parties can opt into their jurisdiction by contract even without other connection to the free zones. Judgments are enforceable in mainland UAE through established protocols.

Arbitration is the market standard for cross-border M&A. DIAC arbitration seated in DIFC is the most common choice, combining institutional support with supervision by DIFC courts applying common law principles. Awards are enforceable under the New York Convention. The UAE's Federal Arbitration Law (No. 6 of 2018) provides a modern framework that respects party autonomy.

Due Diligence Priorities

UAE due diligence should focus on areas where local practice differs from international norms:

Trade licence scope. Verify the commercial licence covers all activities the company actually conducts. Operating outside licensed activities can void related contracts and trigger penalties.

Shareholder side agreements. Before the 2021 foreign ownership reforms, many businesses used nominee arrangements with UAE national partners holding legal title while foreign investors held beneficial ownership through side agreements. These legacy structures create risk. Identify any such arrangements and plan for their unwinding.

UBO registration. UAE law requires companies to maintain registers of ultimate beneficial owners and notify authorities of changes. Confirm compliance and plan for post-closing UBO filings.

Gratuity accruals. End-of-service benefits are frequently understated. Calculate the liability independently using actual employee data.

Tax status. Assess corporate tax registration, VAT compliance, and eligibility for free zone exemptions. With corporate tax now effective, tax due diligence has become essential.

Real estate. If the company owns property, verify title at the relevant Land Department and check for mortgages and encumbrances.

Common Mistakes

Notarizing before conditions are met. Notarization under UAE law completes the transfer regardless of outstanding SPA conditions. Do not attend the notary until all conditions precedent are satisfied or waived.

Ignoring pre-emption. The 30-day statutory pre-emption right for LLC shareholders cannot be contracted away. Obtain written waivers.

MOA/SPA disconnect. Rights granted in the SPA but not reflected in the MOA may not bind the company. Ensure constitutional documents are amended to match.

Underestimating regulatory timelines. Competition clearance takes 90+ days. Sector-specific approvals add further delay. Build realistic long-stop dates into the transaction timetable.

Assuming English law solves everything. English law governs contractual rights between the parties. It does not override UAE mandatory provisions on share transfers, pre-emption, or company law.

Frequently Asked Questions

Can I use a standard international SPA template for a UAE acquisition?

International templates require significant adaptation for UAE transactions. They typically omit provisions addressing pre-emption waivers, notarization sequencing, and alignment between the SPA and constitutional documents. Penalties and liquidated damages clauses may not be enforceable as drafted. Have UAE counsel review and adapt any international template.

What happens if I notarize before obtaining competition clearance?

You may have completed the transaction in the eyes of UAE law while breaching mandatory merger control requirements. This can result in fines, forced unwinding, and disputes between the parties about whether closing occurred. Never notarize until all conditions are satisfied.

How long does a UAE share transfer take?

For DIFC/ADGM companies with no regulatory conditions, closing can occur within days of signing. Mainland LLCs require notarization and DED processing, typically one to two weeks. Transactions requiring sector regulatory approval or competition clearance should plan for three to six months.

Is W&I insurance available for UAE transactions?

Yes. International insurers now offer warranty and indemnity insurance for UAE deals. Coverage typically costs 1-2% of the insured amount for limits of 10-30% of enterprise value. Insurers will expect thorough due diligence and may exclude known issues.

Can I exclude liability for warranty breaches?

UAE law generally permits parties to agree on liability caps and exclusions, but courts may adjust agreed damages under Article 390 of the Civil Code if they consider them disproportionate to actual loss. Exclusions of liability for fraud or gross negligence are unenforceable.

What if the seller is a foreign entity that will wind up after closing?

This is precisely why escrow arrangements and W&I insurance are important. Without either, your practical remedy for warranty breaches may be limited to pursuing a dissolved foreign entity in its home jurisdiction.

‍