How To Draft Shareholder Agreements & MoUs in the UAE

Many UAE businesses are built quickly—licensed, capitalised and operational within weeks—but often without written rules on control, decision-making or exits. The standard MOA sets out shareholdings, activities and capital, but it doesn’t explain how decisions get made, how funds can be withdrawn or what happens if someone wants to leave or bring in a third party. This is where understanding How To Draft Shareholder Agreements becomes essential, ensuring clarity, protection, and smooth business operations.

The solution is a shareholder agreement. It gives legal weight to the understandings made at the outset. It sets out who has control, how money moves and what rules apply if the structure changes. Done properly, it helps prevent disputes by locking in expectations while relationships are still steady.

This article focuses on shareholder agreements in the UAE, explaining how they work, what they cover and why they matter. It also touches on how they differ from MoUs and when each is used.

Shareholder agreements: What to cover

A well-drafted shareholder agreement doesn’t repeat what’s already in the MoA. It fills the gaps. Under Federal Decree Law No. 32 of 2021, the MoA outlines a company’s structure, capital and shareholding, but says little about internal control, capital strategy or what happens when someone exits. For private companies, especially LLCs, these areas often need more clarity. That’s where a shareholder agreement comes in.

Some of the most important issues it can address include:

• Decision-making and control. Agreements can set voting thresholds for key decisions, define board composition and specify what requires unanimous consent.
• Transfers and exits. Provisions such as tag-along rights, pre-emption, lock-ins and valuation methods reduce friction when a shareholder wants to leave or bring in someone new.
• Deadlock scenarios. Many 50:50 ventures break down over unresolved disputes. A deadlock clause provides a route forward if agreement cannot be reached.
• Capital and distributions. Clear policies on dividend payments and capital injections avoid later disagreements, especially if shareholders have different expectations.
• Roles and remuneration. If a shareholder is also a director or employee, the agreement can clarify what happens if that role ends.

These terms are often the difference between a smooth commercial partnership and one that ends up in court. Addressing them early keeps expectations aligned and makes it easier to adapt when circumstances change.

Memorandums of understanding: Use, limits, and misconceptions

MoUs are common in early-stage deals. They help capture intent and outline basic terms but they’re often misunderstood.

Parts of them can become enforceable if the language implies commitment or creates obligations but most aren’t legally binding. This is where many disputes start, especially when expectations differ and the wording is loose. One side may treat the document as a formal agreement while the other sees it as non-binding. It’s that mismatch that can trigger disputes, especially if one party acts on terms the other never intended to enforce.

How the courts handle this depends on jurisdiction. In the DIFC and ADGM, judges apply common law standards and give more weight to how clearly the agreement is drafted. In mainland courts, the UAE Civil Code applies, so decisions hinge more on intent and interpretation. This can make outcomes harder to predict unless the MoU is precise about what is, and isn’t, meant to bind.

Used carefully, an MoU can be a useful tool but it’s not a substitute for a shareholder agreement or a formal contract.

Jurisdiction matters

The strength of any agreement depends partly on where it’s enforced. DIFC and ADGM apply English common law, so courts give more weight to well-drafted contracts and shareholder terms can be built directly into the agreement, including different share classes or bespoke rights.

Onshore companies, including those in most free zones, fall under UAE federal law. These entities are governed by the Civil Code and Federal Decree Law No. 32 of 2021. Here, courts place greater emphasis on the company’s registered documents, such as the MoA, and may disregard clauses that contradict statutory requirements or public policy.

If flexibility is important, it’s common to use two documents: one to meet licensing formalities, the other to capture the internal understanding between shareholders.

How to draft shareholder agreements and MoUs in the UAE

Start by being clear on purpose. Use a shareholder agreement to define how the business works day to day, including who controls what, how funding works and what happens if someone wants out. Use a memorandum of understanding when you’re still negotiating or documenting intent but not yet ready to commit.

For shareholder agreements, avoid filler. Focus on what matters:

• Capital and contributions
  Spell out exactly how much each party is expected to invest, when it’s due, and what happens if it’s late. If future funding is expected, include terms now. Courts in the UAE won’t enforce vague promises to contribute capital later unless the obligation is clearly worded.
• Voting and control
  Set thresholds for different decisions — ordinary business, major changes, reserved matters. If certain votes require unanimity or supermajority, say so. List them out. Be realistic. Courts may disregard overly restrictive clauses, especially onshore, if they block the statutory rights of majority shareholders.
• Exit and transfer rights
  Pre-emption, drag-along, tag-along and put options are common, but the wording matters. Tag-along clauses should state who must notify whom, by when, and what price applies. In DIFC or ADGM, these are usually upheld if clear. Onshore, the clause must not contradict the MoA or violate mandatory rules under the Companies Law.
• Profit distribution
  UAE law defaults to profit sharing in line with ownership. If you want a different formula, state it in the SHA. This matters for silent investors, sweat equity, or staged buy-ins. Without clarity, disputes often arise.
• Management roles
  If shareholders also serve as directors or employees, the SHA should confirm what happens if that role ends. Are they entitled to stay on the board? Do they forfeit certain rights or equity?
• Deadlock and disputes
  Define what counts as deadlock, and set a path to resolve it — mediation, third-party buyout, or sale. In 50:50 deals, this is critical. Also confirm which court or arbitration forum will hear disputes. DIFC and ADGM allow more flexibility than mainland courts, but your clause must be enforceable wherever the company is registered.

For MoUs, stick to neutral language unless you want parts of it to be binding. Avoid words like “shall” or “must” unless you’re ready for enforcement. If the goal is non-binding negotiation, say so clearly. If you want confidentiality or exclusivity to apply, isolate those clauses and state that they are binding.

Templates are rarely fit for purpose. A few careless or copied clauses can cause serious trouble. Use language that matches your deal, your structure, and your jurisdiction.