The United Arab Emirates (UAE) continues to strengthen its standing as a major international business centre. This strategic focus is confirmed by the improved Federal Decree-Law No. 20 of 2025.^[1] The Federal Decree-Law No. 32 of 2021^[2] on Commercial Companies (CCL) is significantly altered by this comprehensive decree. The onshore structure and operations of Private Joint Stock Companies (PJSCs) and Limited Liability Companies (LLCs) have been completely updated by these amendments.^[3]

The legislative overhaul aims to clarify the CCL’s application and boost corporate flexibility. It also works to improve corporate governance. The onshore framework now fits in well with modern international corporate standards. This alignment is critical in sectors like venture capital, private equity, and complex group structures.  The reforms offer significant legal certainty and will reshape the corporate law landscape for both local and international investors.  This new legal structure strengthens the foundation of the UAE’s commercial environment.

Who the Law Applies To

The law applies to mainly the companies incorporated onshore in the UAE, foreign companies conducting business or having a management centre in the UAE and branches of financial free zone companies operating outside their zone boundaries.

Companies established anywhere within the UAE, including those in free zones are confirmed to hold UAE nationality. This reduces ambiguity for hybrid structures and helps businesses leverage national status in tendering and contracting.

Modernising LLC Capital Structures and Financing Options

The most impactful changes focus on the capital structure and governance of LLCs. Historically, the LLC structure offered limited scope for customizing shareholder rights. However, the new provisions directly address this core limitation, modernizing the LLC structure.

• Explicit Recognition of Multiple Share Classes for LLCs^[4]

In a groundbreaking move, the amended Article 76 provides explicit confirmation that LLCs may issue different classes of shares. It allows founders and investors to tailor financial and governance arrangements to suit specific needs. Therefore, this flexibility is critical for attracting and retaining sophisticated capital. It modernizes the LLC structure for a global investment audience.

Shares can now carry varied rights. These rights include, but are not limited to:

• Differential Voting Rights: Founders can retain control even if they hold a smaller economic stake. This helps protect the original founding vision during subsequent funding rounds.
• Dividend Priority: Specific share classes can receive preference in profit distribution.  
• Liquidation Preference: The law now establishes a predetermined order for the return of capital upon dissolution.
• Updated Rules for Valuing In-Kind Contributions^[5]

The Ministry of Economy will develop new requirements for the valuations of in-kind contributions for shares in private companies. Specifically, this means non-cash assets contributed by founders must meet clearer valuation standards. This change promotes greater transparency and credibility in capital structuring.

Strengthened Shareholder Rights and Exit Mechanisms

The Law introduces a substantive revision in Article 14. Market-standard exit mechanisms previously relied solely on private shareholders’ agreements. The enforceability of these agreements sometimes faced judicial uncertainty. Consequently, the amended law embeds these mechanisms directly into the constitutional documents (MoA or Articles of Association) of LLCs and private JSCs. This action significantly strengthens their legal foundation and enforceability.

• Drag-Along (Right to Demand Co-Sale): The law specifically authorizes provisions requiring shareholders to sell their shares to a third party upon satisfying predetermined conditions. It is a mechanism that protects a majority shareholder’s ability to achieve a clean exit. It grants the selling majority the authority to compel the remaining shareholders (the minority) to include their shares in the same transaction.
• Tag-Along (Right to Join a Sale): The law also authorizes provisions granting minority shareholders the right to participate in an existing sale on identical term. It is a minority protection mechanism designed to ensure equity and fairness during a control transfer. It grants a minority shareholder the option to participate in a share sale initiated by a majority shareholder preventing the majority shareholder from exiting the company at a premium price without extending the same opportunity to the minority shareholders.^[6]

The Crucial Pre-Emption Caveat: A critical limitation exists, particularly for LLCs. The statutory pre-emption right (right of first refusal) for existing shareholders remains in the CCL. Therefore, a determined minority shareholder in an LLC could still use this pre-emption right to significantly hinder or delay an exit, even if the Drag-Along clause is present.

Succession Framework: Article 14 also introduces an entirely new framework to govern the treatment of shares upon the death of a shareholder in these companies. Companies now have the power to specify the transfer mechanism within their constitutional documents. This is a significant development for family law and estate planning within corporate structures. It promotes business stability and continuity.

The framework’s notable features include:

• First Right to Buy: Other shareholders or the company gets the first chance to buy the deceased person’s shares, keeping control within the group.

• Company Buyback: An LLC can now buy a deceased shareholder’s shares, a major change that helps manage ownership smoothly.

• Fair Valuation: If the heirs and shareholders cannot agree on a price, the court appoints experts to decide a fair value.

Governance Reforms: Resolving Board Deadlocks

The new law introduces an important development in Article 85(4). This article expressly permits the appointment of directors who are not shareholders in the event of a deadlock over the appointment of a new board of directors for an LLC.

Key features:

• Authorities may appoint non-shareholder directors in deadlock situations.
• Boards may continue up to six months after expiry.
• Interim directors may serve up to one year until shareholders resolve appointments.

This crucial change enables efficient, neutral intervention. Therefore, the appointment of independent board members can restore operational stability quickly. This helps prevent business disruption and shareholder disputes. This move aligns the UAE with the best international governance practices thereby reducing the risk of operational paralysis, ensuring the business can continue under competent people.

Corporate Migration and Continuation Across UAE Jurisdictions

The Amended Law introduces a statutory framework governing the migration (continuation) of companies between jurisdictions within the UAE in the new Article 15.  This allows seamless re-domiciliation between jurisdictions within the UAE. This is a massive improvement for regulatory compliance. Previously, companies had to undergo a complex process of liquidation followed by reincorporation. This new process preserves the company’s legal identity throughout the entire transfer.

The migration covers transfers across various boundaries:

• Between different Emirates (Dubai to Abu Dhabi).
• From the mainland to free zones, and vice-versa.
• Between the mainland and financial free zones (like the DIFC or ADGM).

Importantly, during migration, the company’s legal status is preserved. This includes all rights, obligations, assets, contracts, and liabilities. Furthermore, it reduces transaction costs significantly. It also allows businesses to optimize their regulatory environment based on commercial needs.^[7]

Private Placement Options for Private Joint Stock Companies

The Law now formally permits Private Joint Stock Companies (PJSCs) to offer and conduct private placements of their securities within the UAE’s financial markets. A private placement involves selling shares or other securities directly to a limited, specified group of sophisticated investors. This is a huge benefit for sponsors. Historically, many often used offshore or parallel holding structures for intermediate capital-raisings. The new rule allows PJSCs to access domestic capital more directly and efficiently. This will unlock significant local and regional investment potential for these companies.

Simplified Conversion to a Joint Stock Company (JSC)

Article 275 of the Law simplifies the conversion of companies into joint stock companies. Converting companies are no longer required to submit a new incorporation application. Similarly, they do not need to form a separate founders’ committee. The existing management team can now carry out the necessary conversion procedures quickly.

The company can complete its conversion and registration without immediately appointing a new board, auditor, or share registrar. This speeds up the process considerably. However, the law mandates a General Assembly must be convened within 30 days of conversion. This assembly must formalize these essential appointments. This balance promotes speed while maintaining strict governance standards post-conversion.

Introduction of Non-profit Companies

The CCL also addresses a major gap in the market by expressly allowing the incorporation of non-profit companies in Article 8. These entities must apply their revenues back toward their stated objectives. They cannot distribute profits to partners or shareholders.  

Application of the Law to Free Zone and Onshore Entities

The CCL now provides explicit guidance on its application to branches and representative offices of free zone companies when conducting business onshore. Free zone companies are still governed by their own regulations within their geographic boundaries.

• Dual Licensing Implications– Where a free zone company is permitted to operate onshore, its onshore branch must comply with the Commercial Companies Law. This alignment supports smoother operational planning for multi-jurisdiction business models. This clarification resolves long-standing structural uncertainties. It confirms that free zone companies are considered UAE national companies for legal purposes.

Conclusion

The 2025 amendments position the UAE as a modern, competitive jurisdiction for global and regional business. They enhance corporate mobility, strengthen shareholder protections, broaden fundraising options and modernise governance frameworks. For founders, investors and multinational groups, these developments create a more predictable and attractive legal environment. Nevertheless, many mechanisms require precise drafting and careful integration with existing statutory requirements

At the same time, certain amendments will require further clarification through implementing regulations. Companies should, therefore, assess the potential impact of these reforms on their existing constitutional documents, shareholder arrangements, governance structures, and funding strategies. They should consider whether amendments or updated shareholders’ agreements may be necessary to fully leverage the new statutory tools and act promptly to update their documents, evaluate and align internal processes with the new framework.

Contact our firm for a comprehensive legal consultation to ensure your company structures fully comply with and benefit from the new UAE Commercial Companies Law.

[1] https://uaelegislation.gov.ae/ar/legislations/1542/modifications- Legislative Amendments

[2] Federal Decree-Law No. (32) of 2021 on Commercial Companies

[3] UAE government issues Federal Decree-Law amending certain provisions of Law on Commercial Companies- WAM

[4] 2025 Amendments to the UAE Commercial Companies Law- Lexis Middle East

[5] UAE issues amendments to Commercial Companies Law to improve competitiveness- The National

[6] UAE: Important Amendments to the Companies Law- UNIWIDE

[7] Commercial Companies Law Amendment Allowing for Class Shares, Non-profit Companies, Company Migration and Deadlock Resolution Tools by Squire Patton Boggs– Lexology

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