How to Set Up a UAE Joint Venture That Actually Protects Control and Exit Rights

How to Set Up a UAE Joint Venture That Actually Protects Control and Exit Rights

Setting up a joint venture in the UAE involves much more than incorporating a company and agreeing ownership percentages. If the parties want the structure to withstand disagreement, funding pressure or the eventual departure of one shareholder, control and exit rights need to be designed from the outset.

The UAE offers several possible structures, including a mainland limited liability company (LLC), a free-zone entity, or a company established within the Dubai International Financial Centre (DIFC) or Abu Dhabi Global Market (ADGM). Each has different consequences for ownership, governance, licensing, dispute resolution and exit.

For a well-structured JV, the shareholders’ agreement and the company’s constitutional documents should therefore be treated as an integrated governance package. Key rights should be reflected in the constitutional documents wherever required or permitted, rather than relying solely on a private shareholders’ agreement.

This guide considers the practical mechanics of vehicle choice, shareholding, governance, financing, transfer restrictions and exit rights under the UAE corporate framework.

1. Choosing the right vehicle and jurisdiction

The first decision is where, and in what form, the JV should operate. The answer affects licensing, foreign ownership, governance flexibility, the ability to conduct business in the relevant market and the forum in which disputes may ultimately be resolved.

The main options are:

• a mainland LLC;

• a company established in a UAE free zone; or

• a DIFC or ADGM company.

Before choosing the vehicle, the parties should confirm:

• whether the proposed activity is permitted;

• whether additional regulatory approvals are required;

• any foreign ownership restrictions applicable to activities with strategic impact;

• licensing and physical-presence requirements;

• whether the company needs to operate directly in the mainland market;

• whether it will hold UAE real estate or other regulated assets; and

• the proposed governing law and dispute-resolution forum.

Mainland LLC

Mainland companies are governed principally by Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended, including by Federal Decree-Law No. 20 of 2025.

A mainland LLC can generally conduct licensed business in the UAE mainland and 100% foreign ownership is available for many activities. Activities classified as having strategic impact may, however, remain subject to additional ownership, approval or regulatory requirements.

An important recent development is that the Commercial Companies Law now gives LLCs substantially greater flexibility in structuring ownership and control. Under Article 76, LLC interests may be divided into different classes carrying different rights in relation to matters such as:

• value;

• voting rights;

• redemption;

• priority in profit distributions;

• liquidation; and

• other rights, privileges or restrictions.

Those rights must be appropriately reflected in the memorandum of association and recorded as required in the Trade Register, and remain subject to the applicable implementing framework and competent-authority requirements.

This makes the mainland LLC considerably more flexible for sophisticated JV structures than under the previous regime.

Free-zone JVs

Free-zone companies generally allow full foreign ownership and can provide efficient incorporation and administration. However, the commercial activities that a free-zone entity can conduct outside its own jurisdiction depend on the particular free zone, Emirate, activity and licensing route.

It is therefore no longer accurate simply to assume that a free-zone company cannot conduct business in the mainland without establishing an entirely separate mainland entity.

In Dubai, for example, Executive Council Resolution No. 11 of 2025 introduced specific routes through which eligible free-zone establishments may conduct activities outside the free zone and within Dubai, subject to the necessary DET and regulatory approvals. Depending on the circumstances, this may be through:

• a mainland branch;

• a branch operating from the free zone; or

• a permit to carry out specified activities.

The position should therefore be assessed on a jurisdiction-by-jurisdiction and activity-by-activity basis.

DIFC and ADGM

DIFC and ADGM offer English-language legal and judicial frameworks and can be particularly attractive for investment, holding and sophisticated JV structures.

DIFC operates under its own body of civil and commercial legislation and has an independent court system.

ADGM has its own legislation but also applies English common law, including the rules of equity, directly as part of its legal framework, subject to applicable ADGM enactments.

Both jurisdictions permit financial and a broad range of non-financial structures and activities, subject to the relevant licensing and regulatory requirements.

Their corporate regimes can be particularly suitable where the parties require detailed governance arrangements, different share classes, sophisticated investment rights or common-law-style contractual remedies.

2. Designing ownership and voting control

Ownership percentage alone does not determine control.

A shareholder holding 49% may have substantial control if specified decisions require its consent, while a 51% shareholder may find that it cannot take key actions without minority approval.

Control can be structured through:

• different classes of shares or interests;

• voting thresholds;

• board appointment rights;

• reserved matters;

• quorum requirements;

• veto rights; and

• contractual and constitutional restrictions on particular decisions.

Following the 2025 amendments, different classes of interests are no longer a concept confined primarily to financial free-zone structures. Mainland LLCs may also establish different classes carrying differentiated voting and economic rights, subject to the applicable statutory and regulatory requirements.

This creates additional flexibility for investors who want economic participation without equivalent operational control, or founders who want to retain specified governance rights despite subsequent investment.

Minority control rights

A minority investor does not necessarily need majority ownership to protect its position.

For example, its consent might be required before the JV can:

• issue additional equity;

• amend its constitutional documents;

• incur borrowing above an agreed threshold;

• dispose of material assets;

• change the business;

• enter related-party transactions; or

• approve a sale or liquidation.

Where different classes of interests are used, voting rights may also be differentiated within the limits permitted by the applicable company regime.

However, sophisticated control rights should not simply be placed in a shareholders’ agreement and assumed to operate independently of the company’s constitutional structure. Particularly for mainland LLCs, key rights should be coordinated with the memorandum of association, statutory voting rules and Trade Register requirements.

3. Governance: boards, reserved matters and operational control

Governance is where control operates in practice.

The shareholders’ agreement and constitutional documents should clearly address:

• the size of the board or board of managers;

• each shareholder’s appointment rights;

• removal and replacement of nominees;

• quorum;

• voting thresholds;

• the chair’s role;

• whether the chair has a casting vote;

• delegated management authority; and

• procedures for resolving deadlock.

Board appointment rights can also be linked to ownership thresholds. For example, a shareholder may retain the right to nominate a director while it holds at least a specified percentage of the equity.

Reserved matters

Reserved matters are decisions that cannot be taken without enhanced shareholder or board approval.

A typical list may include:

• amendments to the constitutional documents;

• changes to share capital or class rights;

• issuing new interests or securities;

• admitting new shareholders;

• approving or materially changing the annual budget;

• material borrowings, guarantees or security;

• acquisitions and disposals above agreed thresholds;

• material capital expenditure;

• appointment or removal of senior executives;

• related-party transactions;

• commencement or settlement of material litigation;

• changes to the nature of the business;

• mergers or reorganisations; and

• winding up or liquidation.

The objective is not to make every business decision a reserved matter. Excessively broad veto rights can make the company difficult to operate and increase the risk of deadlock.

The better approach is to distinguish genuinely strategic decisions from day-to-day management.

4. Funding, dilution and future capital

Funding disputes are one of the most common causes of JV breakdown.

The agreement should therefore make clear:

• whether shareholders are required to provide further funding;

• whether funding will be equity, shareholder debt or third-party borrowing;

• how capital calls are approved;

• whether contributions are proportional to existing ownership;

• what happens if one shareholder does not participate; and

• whether additional funding affects ownership or voting rights.

Capital-call defaults

Potential remedies for failure to meet an agreed funding obligation may include:

• default interest;

• funding of the shortfall by another shareholder as debt;

• additional equity being issued to the contributing shareholder;

• dilution;

• suspension of specified rights; or

• a compulsory transfer mechanism in sufficiently serious circumstances.

The remedy must be carefully drafted and must be permitted by the law and constitutional framework governing the relevant company.

Anti-dilution protection

Investors may also negotiate protection against future equity being issued at a lower valuation.

Possible mechanisms include:

• pre-emption rights;

• weighted-average anti-dilution protection; and

• in some structures, full-ratchet protection.

The suitability and implementation of these mechanisms depend on the particular vehicle and its capital structure.

For a mainland LLC, any arrangement involving changes to equity interests or classes should be coordinated with the Commercial Companies Law, the memorandum of association and applicable registration requirements.

Founder vesting

Founder vesting must also be structured carefully.

For mainland LLCs, Article 76 requires capital contributions to be fully paid at incorporation. Conventional start-up concepts involving “unvested shares” should therefore not simply be imported into the structure without considering how they interact with UAE company law.

Depending on the vehicle, similar commercial outcomes may instead be achieved through appropriately drafted:

• transfer arrangements;

• call options;

• reverse-vesting mechanisms;

• staged issuances; or

• good-leaver and bad-leaver provisions.

5. Transfer restrictions and pre-emption

A JV agreement should control who can become a shareholder.

Common mechanisms include:

• lock-in periods;

• permitted transfers to affiliates;

• pre-emption rights;

• rights of first refusal;

• rights of first offer;

• tag-along rights; and

• drag-along rights.

These mechanisms must be coordinated with any mandatory statutory transfer rules applicable to the relevant company.

Mainland LLC transfers

This is particularly important for mainland LLCs.

Under Article 79 of the Commercial Companies Law, an assignment or pledge of an LLC interest must comply with the memorandum of association and the prescribed formalities. It becomes effective against the company and third parties once recorded in the commercial register.

Article 80 also provides a statutory mechanism where a partner proposes to transfer an interest to a non-partner. The other partners must be notified through the manager and may exercise the statutory redemption right within the prescribed 30-day period.

Contractual ROFR or ROFO mechanisms should therefore be drafted to work together with, rather than conflict with, the statutory transfer regime.

ROFR versus ROFO

Under a right of first refusal (ROFR), the selling shareholder normally obtains a third-party offer and the existing shareholders then receive an opportunity to purchase on matching terms.

Under a right of first offer (ROFO), the selling shareholder must first offer the interest to the existing shareholders before approaching third parties.

Neither is automatically preferable. The appropriate mechanism depends on whether the priority is protecting existing shareholders from unwanted new partners or giving the seller greater flexibility to test the market.

6. Tag-along and drag-along rights

Tag and drag provisions are particularly important in a JV because they deal with what happens when one shareholder wants to sell.

A tag-along right protects a minority shareholder by allowing it to participate in a sale by a controlling shareholder, normally on equivalent terms.

A drag-along right enables shareholders meeting an agreed threshold to require the remaining shareholders to participate in a bona fide third-party sale, allowing a buyer to acquire 100% of the company.

The 2025 amendments to the UAE Commercial Companies Law are particularly significant in this area.

The law now expressly allows LLC partners and shareholders of private joint-stock companies to include provisions in their constitutional documents that:

• require other partners or shareholders to sell their interests to a third party when specified pre-agreed conditions are satisfied; and

• enable another partner or shareholder to join an existing sale on the same terms.

This provides an express statutory foundation for properly structured tag and drag mechanisms in mainland LLCs.

The drafting should nevertheless specify:

• the threshold that activates the right;

• whether the proposed transaction must be bona fide;

• whether consideration must be identical;

• treatment of warranties and indemnities;

• notice requirements;

• completion mechanics;

• treatment of shareholders who refuse to sign; and

• how the provision interacts with statutory and registration requirements.

7. Exit mechanics

A well-designed JV should address exit before anyone wants to leave.

Possible exit routes include:

• a negotiated sale to a third party;

• acquisition of one shareholder by another;

• exercise of a put or call option;

• a strategic sale of the entire company;

• a merger or restructuring;

• an IPO, where appropriate; or

• a compulsory exit following specified default or deadlock events.

Put and call options

A call option can allow one shareholder to require another to sell its interest following a defined event.

A put option can allow a shareholder to require another party to acquire its interest.

Potential triggers include:

• material breach;

• insolvency;

• prolonged deadlock;

• change of control;

• departure of a key founder; or

• expiry of a defined investment period.

The agreement should specify both the triggering event and the methodology for determining the price.

8. Valuation

Poorly drafted valuation provisions can turn an agreed exit right into another dispute.

Common approaches include:

Fixed formula

For example, a multiple of normalised EBITDA.

This can provide certainty but may fail to reflect market conditions if the business changes substantially.

Discounted cash flow

A DCF methodology can better reflect future earnings but depends heavily on assumptions and can generate disagreement over forecasts and discount rates.

Independent expert valuation

An independent valuer determines fair value under agreed parameters.

This may be more objective but will usually take longer and involve additional cost.

A combination can also be used. The parties may agree a default formula, with disputed matters referred to an independent expert.

Any formula should also address:

• whether the value is enterprise or equity value;

• treatment of debt and cash;

• minority discounts;

• control premiums;

• shareholder loans;

• exceptional items; and

• the valuation date.

9. Deadlock

A 50/50 structure is not necessarily problematic. A 50/50 structure without an effective deadlock mechanism can be.

Possible escalation procedures include:

1. escalation from management to the shareholders;

2. referral to senior representatives;

3. mediation;

4. expert determination for technical or valuation disputes;

5. put/call mechanisms;

6. a structured buy-sell process; or

7. ultimately, sale or winding up.

A “shotgun” clause is one example. One shareholder specifies a price at which it is prepared either to buy the other party’s stake or sell its own, and the recipient chooses which side of the transaction to take.

Such provisions can resolve deadlock efficiently but may disadvantage the party with less access to capital. They are therefore not suitable for every JV.

10. Enforceability and dispute resolution

Control and exit rights have limited value if the parties have not considered how they will be enforced.

The agreement should address:

• governing law;

• courts or arbitration;

• seat of arbitration;

• applicable institutional rules;

• language;

• service of proceedings;

• interim relief; and

• enforcement against the assets of the parties.

Arbitration

Arbitration is frequently selected for substantial JV disputes, particularly where the shareholders are international or assets are located in more than one jurisdiction.

Depending on the applicable law, arbitration rules and the parties’ agreement, arbitration may also provide greater privacy or confidentiality than ordinary court proceedings.

The UAE is a party to the New York Convention, which facilitates recognition and enforcement of arbitral awards internationally, subject to the Convention and applicable domestic enforcement rules.

DIFC and ADGM Courts

The DIFC and ADGM Courts can also provide an English-language common-law-oriented forum for commercial disputes.

Where the relevant jurisdiction does not otherwise arise automatically, parties may be able to opt into the court’s jurisdiction through a sufficiently clear written jurisdiction agreement.

The dispute clause should therefore be drafted at the same time as the governance and exit provisions rather than treated as boilerplate at the end of negotiations.

11. Interim relief

In a shareholder dispute, the most important remedy may arise before the final judgment or award.

For example, urgent relief may be required to prevent:

• an unauthorised transfer of shares;

• dissipation of assets;

• implementation of a disputed corporate resolution;

• misuse of confidential information; or

• conduct that would make the final remedy ineffective.

The availability of interim measures differs between courts and arbitral regimes.

For this reason, parties should consider not only who will decide the final dispute, but also where urgent protective relief can realistically be obtained and enforced.

12. Practical JV checklist

Before signing, the parties should ensure that the following issues have been addressed:

• Vehicle and jurisdiction: mainland, free zone, DIFC or ADGM.

• Ownership classes: economic and voting rights.

• Constitutional alignment: consistency between the shareholders’ agreement and MOA/articles.

• Board rights: appointment, removal, quorum and voting.

• Reserved matters: decisions requiring enhanced consent.

• Delegated authority: operational powers of management.

• Information rights: accounts, budgets, reporting and audit access.

• Funding: capital calls, shareholder loans and external finance.

• Dilution: pre-emption and any anti-dilution protection.

• Transfer restrictions: lock-ins, permitted transfers, ROFR or ROFO.

• Statutory transfer rights: particularly Articles 79–80 for mainland LLCs.

• Tag-along: minority protection on a controlling sale.

• Drag-along: ability to deliver a complete exit.

• Founder departures: good-leaver and bad-leaver arrangements where appropriate.

• Put and call rights: triggers and pricing.

• Deadlock: escalation and ultimate exit mechanism.

• Valuation: formula, valuer and assumptions.

• Dispute resolution: governing law, court or arbitration and interim remedies.

• Enforcement: location of assets and practical ability to enforce the agreed rights.

Conclusion

A UAE JV should be designed for disagreement as carefully as it is designed for cooperation.

Recent amendments to the UAE Commercial Companies Law have significantly expanded the tools available to mainland LLCs, including different classes of interests with differentiated voting and economic rights and express statutory recognition of properly structured tag-along and drag-along provisions.

The practical lesson is that sophisticated JV protection is no longer limited to DIFC or ADGM structures.

The right vehicle still depends on the parties’ business, regulatory and commercial objectives. Whatever structure is selected, the shareholders’ agreement should be prepared together with the company’s constitutional documents so that control, funding, transfer and exit rights operate consistently with the applicable corporate regime.

The strongest JV documents answer four questions clearly:

Who controls the business? Who must fund it? Who can transfer their interest? And what happens when one party wants- or needs-to leave?

If those questions are settled at the beginning, the structure is far more likely to remain workable when the relationship is under pressure.

For further guidance, explore the Corporate Lawyers United Arab Emirates directory and the related resources within the Commercial practice for the United Arab Emirates.

This article is for general information only and does not constitute legal advice. Sample clause outlines are illustrative and must not be used without advice from qualified UAE counsel.

Sources

1. UAE Government official portal, Business & company information
2. Securities and Commodities Authority (SCA)
3. Dubai International Financial Centre (DIFC), Laws & Regulations
4. Abu Dhabi Global Market (ADGM), Legislation & Rules
5. Dubai Courts, official portal
6. UNCTAD, Investment Policy Hub (United Arab Emirates)