For many years, foreign investors looking to set up in the UAE faced a familiar hurdle: they could own only 49% of a mainland limited liability company (LLC), while the remaining 51% had to be held by a UAE national (UAE Ministry of Economy).

In reality, this often meant that the Emirati shareholder was a “silent partner,” listed on paper but not actively involved in running the business or contributing capital. To protect their real stake, foreign investors relied on private “side agreements” with their local partner-documents that gave them full control and all financial rights, even though the official records told a different story.

Why Side Agreements Were Risky

While side agreements provided practical workarounds, they also created legal uncertainty. UAE courts were clear that such arrangements could not override the law or the company’s Memorandum of Association. In cases where a UAE shareholder was proven to be only a sponsor, courts treated the setup as a sham partnership and in some cases ordered the company’s liquidation.

A Turning Point: The 2021 Reform

That landscape changed dramatically with Federal Decree-Law No. 32 of 2021 on Commercial Companies. The new law abolished the 51% Emirati ownership requirement for most sectors and opened the door to 100% foreign ownership of LLCs. For entrepreneurs and investors, this was a game-changer.

The law also introduced new flexibility, such as allowing single-shareholder LLCs. Importantly, Article 359 granted companies established under the old system a grace period to bring their structures in line with the updated rules.

The Court’s Position in 2025

In a recent ruling (Decision No. 8 of 2025), the UAE Court of Cassation addressed concerns about companies formed before the reform. The Court confirmed that these entities are not automatically invalid just because they were structured under the old 51% rule. Instead, they can be modified or “regularised” under the new law, ensuring greater stability and certainty for investors.

The Court emphasized that once the ownership restriction was abolished, it could no longer serve as a reason to strike down a company-unless a final judgment had already been issued under the previous law.

What This Means for Businesses

For investors and business owners, the message is clear: the UAE has embraced a modern, investor-friendly approach. By removing outdated restrictions and validating older structures, the country has strengthened legal certainty and reinforced its commitment to economic growth.

Our Perspective

At Alketbi Law, we regularly advise companies navigating these changes. Whether you are looking to establish a new entity, restructure an existing one, or resolve disputes arising from past arrangements, our team is well-equipped to provide clear, strategic guidance.

If you need support in aligning your company with the new framework or have concerns about the validity of your current setup, reach out to us. We are committed to delivering practical solutions that protect your business interests and support your long-term success.

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