The UAE has long upheld its status as one of the world’s most appealing destinations for commercial investment, driven by its business‑friendly environment and the wide range of opportunities available across its diverse economy.
Yet, while the investment environment was robust, the legal framework governing shareholder rights did not always align with global market practices. The law did not recognise different classes of shares or structured exit mechanisms, and investors were treated on par with regular shareholders. As a result, investor protections were often structured outside the constitutional documents of companies. Enhanced rights relating to governance, equity protection, exit, and economic preference were therefore set down in side agreements which were often deemed unenforceable. This has had the effect of deterring institutional Private Equity/Venture Capital investors, in the mainland jurisdiction.
This regulatory distinction became particularly visible when compared to UAE free zones, where differentiated share classes, tailored voting rights, and structured exit provisions were more readily accommodated. This flexibility often led institutional investors to structure transactions through free zones rather than the mainland.
With the introduction of Federal Law No. 20 of 2025 (“Amendment”), amending Federal Law No. 32 of 2021 on Commercial Companies (“CCL”), the UAE mainland framework has undergone a significant shift by enabling structured investment models, enhanced investor protections, and exit mechanisms within the statutory regime.
Key Changes To Investment Structures
Different Classes of Shares:
From an institutional investor’s perspective, the most consequential development is the amendment to Article 76 and Article 208 of the CCL.
Article 76, which governs the capital of the company, now expressly permits the classification of shares into different categories with differentiated rights. Subsection (4) provides that shares may vary in value, voting rights, redemption rights, priority in profit distribution, priority upon liquidation, or other rights or restrictions. These classes may now be reflected directly in the Memorandum of Association (MoA) and recorded in the Commercial Register.
In parallel, Article 208 has been amended to remove the earlier restriction on issuing different classes of shares. This is a material departure from the previous position under which shares were required to be equal in value and rights, leaving limited room within the statutory framework for structuring differentiated economic or governance rights.
The ability to issue different class of shares carrying differential rights is a widely used feature in investment transactions internationally (as well as in certain free zones in UAE). Such structuring tools allow investors to negotiate protections relating to anti-dilution, pre-emption, priority returns, and even liquidation preference in case the investee company is being wound up. At the same time, arrangements may be calibrated so that founders retain control through voting structures or economic configurations that preserve operational autonomy. This development is expected to attract institutional investors into the jurisdiction, as well as encourage business owners who might be wary of PE/VC funding for fear of losing autonomy in running their business.
Recognition of Exit Structures
Article 14 has also been amended permitting shareholders to incorporate structured and trigger-based exit rights within the MoA.This amendment formally recognises mechanisms that give investors a clear and predictable way to exit the company when pre-agreed events occur. If the business underperforms or agreed events occur, investors are not indefinitely locked in. Conversely, if the business performs well, defined mechanisms allow them to sell their stake and realise returns, rather than relying solely on informal negotiations or uncertain future opportunities. Triggers may include default, a change of control, breach of partner or shareholder obligations, deadlock, or the achievement of agreed financial or operational milestones.
The amendment also enables founders and investors to regulate how and to whom shares may be transferred, preventing unwanted third-party entry into the business and balancing liquidity with control.
The principal mechanisms contemplated under the New Article 14(4) include:
- Drag-Along Rights – permitting majority shareholders to compel others to join and sell their shares in a sale to third parties.
- Tag-Along Rights – rights allowing minority shareholders to join in and sell their shares, ‘tagging along’ with share sales conducted by other shareholders on the same terms.
- Pre-Emptive Transfer Rights (RoFR / RoFO) – requiring shares to be offered internally before transfer to third parties.
- Call Options – allowing a shareholder or the company to require a sale upon defined trigger events.
These are well-established share transfer, exit and liquidity mechanisms that institutional investors across jurisdictions routinely rely upon to protect their investments and preserve value. The ability to time, structure, or compel an exit is regarded as one of the core risk-management tools available to institutional investors.
Conclusion
The formal recognition of differentiated share classes and structured exit mechanisms marks a substantive evolution in the UAE mainland corporate regime. By embedding investment protections within the statutory and constitutional framework of companies, the Amendment reduces structural uncertainty and aligns the CCL more closely with international investment standards and positions the UAE as a more credible and competitive platform for institutional capital deployment.
Note: This Legal Update / Newsletter is intended for general informational purposes only and should not be construed as legal advice. It is based on laws and legal interpretations in effect as of the date of publication. Laws and regulations may change over time, and their application can vary depending on individual circumstances. Readers are strongly encouraged to seek specific legal counsel before acting on any of the information provided herein.rian and religious purpose in accordance with the law.