The Strategic Context and Historical Evolution of UAE Commercial Legislation

The transformation led by the Ministry of Economy in the UAE is the culmination of a long legislative trajectory aimed at liberalising the economy and making it more flexible and responsive to global variables. Looking at the historical evolution, we find that the second pivotal phase in modernising company laws began with the issuance of Federal Law No. (2) of 2015, which represented a qualitative leap in legislative development at the time by introducing substantial and comprehensive amendments in line with international standards. The government then recognised the importance of granting companies sufficient time to adapt, extending the grace period for existing companies in the state to regularise their status with the provisions of the 2015 law for additional periods to include hundreds of thousands of limited liability companies and joint-stock companies.

With the accelerating pace of economic globalisation, the historic amendment came in September 2020, allowing 100% foreign ownership of companies. This represented a radical shift that facilitated company incorporation and attracted foreign investments unprecedentedly. This was followed by the issuance of Federal Decree-Law No. (32) of 2021, which entirely restructured the law to absorb these massive changes. Nevertheless, investors and startups faced practical challenges related to the rigidity of certain onshore institutional structures regarding the distribution of rights and capital structuring. This prompted many companies to resort to financial free zones such as the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC) to benefit from the flexibility of company laws there, particularly concerning share classes and minority shareholder rights.

Hence, an analytical reading of Decree-Law No. 20 of 2025 indicates a clear and profound legislative strategy aimed at bridging the regulatory gap between free zones and the mainland, making Limited Liability Companies (LLCs) registered locally in the mainland attractive and capable of accommodating complex investments, such as advanced venture capital funding rounds and mergers and acquisitions, whilst preserving the state’s regulatory sovereignty.

The Systematic Expansion of Scope of Application and Legal Jurisdiction of Companies

The UAE legislator recognised the necessity of removing the legal ambiguity that surrounded the operations of certain economic entities, especially those operating in areas where the jurisdictions of mainland local authorities and free zone authorities intersect.

Entrenching the Dual Licensing System and Mainland Branches

One of the most prominent structural issues addressed by the new law is the overlapping jurisdictions between free zones and mainland local authorities. Under the 2021 law, the application of the Companies Law to the mainland branches of free zone companies was less clear and subject to multiple interpretations and jurisprudence. Today, however, and in accordance with the amendments made to Articles (3) and (5) of the Companies Law, what is known as ‘Dual Licensing’ has been explicitly and definitively codified. Companies incorporated in UAE free zones (including financial free zones enjoying legislative independence) are now permitted to establish branches and representative offices in the mainland, provided that the legislation governing that free zone permits doing so.

This amendment carries profound implications for the operational structuring of multinational companies; it provides companies operating in free zones with clear legal cover to expand their geographical scope of business within the state and conduct their commercial activities without the urgent need to establish a completely separate and independent legal entity in the mainland. This approach tangibly reduces operational capital costs and dual regulatory compliance burdens. Once these branches commence their activities in the mainland, they are subject exclusively to the provisions of the Federal Commercial Companies Law within the limits of their mainland local activities, while their head office remains subject to the free zone laws.

Legislative Resolution of the Nationality of Free Zone Companies

In a strategic move to unify the state’s corporate identity on the international stage, the amendment in Article (9) explicitly and unambiguously stipulates that all companies incorporated within UAE free zones enjoy ‘UAE Nationality’. This clarification is decisive in the contexts of international trade, double taxation treaties, and cross-border investment protection laws. It also grants these companies a competitive advantage, enabling them to enter government or regional tenders that stipulate local nationality status for the applicant entity, and bolsters the state’s position as a unified business hub that does not differentiate in national identity between mainland and free zone entities.

Recognition of Non-Profit Companies

In a radical departure from the traditional commercial concept firmly established in legal jurisprudence, which stipulated ‘the intention to achieve and distribute material profit’ as a fundamental element of any company contract, the amended Article (8) of the 2025 law introduced an unprecedented mechanism for establishing ‘Non-Profit Companies’ in the mainland.

This new category of companies is strictly obligated to entirely reinvest all its net profits and operational revenues to achieve its specified societal, environmental, cultural, or scientific objectives set out in its Memorandum of Association. It is strictly prohibited from distributing any profits, whether in cash or in kind, to partners or shareholders.

This legislative development indicates the UAE legislator’s profound response to the growing Environmental, Social, and Governance (ESG) sector and global sustainability trends. This clear institutional framework will allow non-governmental organisations, charities, research and educational institutions, and entities focusing on social entrepreneurship to operate under an official and commercially recognised regulatory umbrella. This recognition facilitates their opening of corporate bank accounts, attracting international funding and grants, and employing global talent legally and transparently. This sector currently awaits the issuance of a detailed Cabinet decision that will precisely specify the permitted purposes and exact legal forms available to these companies, in addition to potential exemptions they may enjoy from certain provisions of the Commercial Companies Law.

The Evolution of the Capital Structure of Limited Liability Companies (LLCs)

The amendments affecting the capital system of Limited Liability Companies (the most common legal form in the state) are considered among the most impactful and profound reforms in the 2025 law, as they radically redraw the contours of the venture capital and private equity sector in the UAE.

Permitting Multiple Classes of Quotas and Shares

Under the previous legal regime of 2021, only public joint-stock companies were permitted to issue different and varying classes of shares. Limited liability companies were restricted to a system of equal-value quotas granting equal voting and profit rights. The new law, through the amendment of Articles (76) and (208), has expanded to encompass limited liability companies, allowing founders and investors for the first time in the mainland to issue shares of multiple and distinct classes (for example, Class A, Class B, etc.).

These varied classes can enjoy entirely different economic and voting rights. This includes specific rights to dividend distribution, redemption rights, and, most importantly, liquidation preferences that guarantee investors priority in recovering their funds over founders in the event of the company’s liquidation or sale.

This amendment fundamentally alters the business landscape, particularly in the Venture Capital sector. Startups registered in the mainland can now offer preference shares to investors in funding rounds (Series A, B, etc.) that grant them financial protection and economic priority, while founders retain ordinary shares with higher voting power ensuring their administrative and directive control over the company. Historically, startups were compelled to establish intermediate holding companies (SPVs) in offshore financial free zones to structure these complex share classes, adding layers of legal complexity and financial cost. The new amendment eliminates the need for these dual structures, keeping investments, capital, and their management within the direct local economy, thereby reducing costs and enhancing structural efficiency.

Controls on the Valuation of In-Kind Contributions

In parallel with the flexibility of share classes, Decree-Law No. 20 of 2025 rigorously addressed the controls for providing in-kind contributions in limited liability companies to protect capital from fictitious valuation. The amendments stipulated that partners may provide in-kind quotas against their contribution to the company’s capital, but it is conditional that these in-kind quotas are precisely evaluated at the expense of their providers by one or more certified financial valuers. If these strict valuation procedures are not followed, the valuation is considered legally void. This measure ensures the transparency of the capital structure and protects creditors and other partners (especially minority shareholders) from the inflated valuation of non-cash assets provided as part of the capital.

Shareholder Governance, Minority Rights Protection, and Exit Mechanisms

The 2025 UAE legislation adopted advanced concepts in managing shareholder relations, moving them from the sphere of private side agreements into the core of commercial legislation.

Explicit Codification of Drag-Along and Tag-Along Rights

Drag-along and tag-along mechanisms are among the most crucial contractual tools in joint ventures and private equity investments. Under the strategic amendment to Article (14), explicit legal and legislative recognition has been granted to these joint venture mechanisms.

The company’s Memorandum and Articles of Association can now explicitly provide for a shareholder’s right (usually the majority shareholder or lead investor) to force other shareholders to sell their shares to a third-party buyer based on pre-determined terms and valuations, known as a ‘Drag-Along Right’. Conversely, the amendment allows granting a minority shareholder the right to join a share sale undertaken by a majority shareholder to a third party under the same terms and prices, known as a ‘Tag-Along Right’.

Under the 2021 law and prior, investors relied exclusively on private Shareholders’ Agreements to enforce these terms. These side contracts often faced immense enforcement challenges before local courts if they contradicted the standard officially notarised Memorandum of Association. The new addition, however, provides institutional investors and investment funds with unprecedented reassurance and facilitates exit strategies and full acquisitions, as these rights have become directly enforceable as an integral part of the company’s constitutional documents.

Share Transfer and Succession Planning

The death of a shareholder in limited liability companies poses a real threat to business continuity, given the intervention of inheritance laws and a multiplicity of heirs who may lack the expertise or desire to continue the company’s activities. To resolve this institutional dilemma, the new amendments to Article (14) permit the inclusion of pre-determined rules and procedures in the company’s Articles of Association for transferring the deceased shareholder’s shares and determining their fate.

This includes the possibility of explicitly stipulating the right of the surviving shareholders, or even the right of the company itself (as a corporate person), to automatically acquire the deceased partner’s shares and compensate the heirs based on a fair valuation mechanism pre-agreed upon in the Articles of Association, or through a valuation determined by the competent court in case of dispute. This legislative development significantly curtails complex judicial disputes between heirs and remaining partners, insulating the commercial entity from personal complications, thus ensuring business continuity and protecting enterprise value.

Enhancing Corporate Governance and Managing Structural Disputes

The 2025 law imposed higher regulatory and governance standards to ensure management transparency and protect stakeholders and investors.

Responsibilities of Board Members and Related Party Transactions

The new decree significantly broadened the obligations and duties of company directors, explicitly encompassing the duty to act with Due Care and exclusively in the best interests of the company as an independent entity, divorced from personal interests.

Furthermore, regulatory restrictions on Related Party Transactions were tightened to limit conflicts of interest and profit shifting. A company is prohibited from concluding deals or contracts with any related party with a value exceeding 5% of the company’s capital without obtaining prior and explicit approval from the Board of Directors. Anything exceeding this critical threshold requires the prior approval of the company’s General Assembly, and these major deals are evaluated according to strict conditions and controls set by the Securities and Commodities Authority (SCA). A director who has a direct or indirect interest in the transaction is precluded from voting on those resolutions to ensure absolute integrity. The law also mandated certain categories of companies to appoint independent board members and imposed requirements for maintaining accurate records of board meetings and conflict of interest registers.

It is worth noting that the amended Article (151) also addressed the issue of board members’ nationality, emphasising the necessity of observing Emiratisation requirements and forming the Board of Directors in accordance with the decisions of the Cabinet and competent authorities. Should the percentage of UAE nationals on the Board of Directors fall below the legally prescribed limit, the board is granted a grace period not exceeding three months to rectify this shortfall, otherwise, all subsequent board resolutions are considered absolutely null and void.

Intervention to Resolve Board Deadlocks

Among the most innovative solutions introduced by the UAE legislator in the new law is the resolution of board deadlock or administrative paralysis situations. In cases of severe disagreement and intractable division among shareholders leading to their total inability to agree on appointing board members or making critical decisions, the new law granted the competent local licensing authorities (such as the Department of Economy and Tourism in Dubai or the Department of Economic Development in Abu Dhabi) exceptional authority to intervene swiftly to rescue the company. These authorities are entitled to appoint independent and impartial board members (from outside the disputing shareholders) to manage the company for up to one year. This radical measure ensures that the company’s operational activities do not grind to a halt and protects the rights of employees, creditors, and the local economy from the fallout of personal disputes between owners.

The Dynamics of Corporate Migration: Redomiciliation and Company Continuation

The introduction of a comprehensive and integrated legal framework for ‘Redomiciliation and Continuation’ under Article (15 bis) is one of the most significant regulatory legislative leaps in the history of the UAE Companies Law.

Under the old 2021 law, relocating a company’s head office from one Emirate to another, or transferring a company from operating under a free zone umbrella to the mainland, mostly required complex Liquidation procedures for the old entity and the establishment of an entirely new legal entity. This pathway was accompanied by costly and complex asset transfers, employee sponsorship transfers, renegotiation of commercial contracts, and the closing and opening of bank accounts, causing massive disruption to business.

The new amendment revolutionised this area; companies are now permitted to seamlessly transfer their registration and domicile, whether between different authorities within the same Emirate, between different Emirates, or moving from free zones (including financial free zones like DIFC and ADGM) to the mainland, and vice versa. Above all, the migrating entity retains its ‘corporate personality’, the continuity of its commercial register, and its contractual history. That is, the company remains the very same legal person, retaining all its rights, obligations, ongoing licences, and contracts with third parties without any interruption.

This constitutes a massive strategic development for regional groups and multinational companies to restructure their operations in alignment with tax planning and operational regulations without destroying corporate value or invalidating their licences. This corporate migration process is subject to shareholder approval according to the prescribed percentages, approval from competent authorities (including the Ministry of Economy or the Securities and Commodities Authority where applicable), and ensuring there are no legal restrictions or preventative attachments on the entity.

Private Joint Stock Companies and Capital Market Offerings

The UAE legislator aimed to liberate Private Joint Stock Companies (PrJSC) from traditional constraints that hindered their financing flexibility and ability to efficiently raise capital.

According to the amendments encompassing Articles (32) and (266), the law permitted private joint-stock companies to offer their securities and shares through a ‘Private Placement’ to investors in financial markets within the state, subject to regulatory frameworks issued by the Securities and Commodities Authority (SCA) in coordination with the Ministry of Economy. The core advantage here, which constitutes a major draw for investors, is exempting companies that offered their shares via private placement from the mandatory one-financial-year share trading lock-up period, which was compulsorily imposed under the 2021 law for all private joint-stock companies starting from their registration date and before their shares were permitted to be traded.

This exemption accelerates the capital cycle and provides immediate cash liquidity to founders and strategic investors desiring partial or full exit. Furthermore, the complex administrative requirements for companies transforming from other legal forms to joint-stock companies were simplified by revoking the amended Article (275) concerning the need to submit a ‘new entity incorporation’ application or form a ‘founders committee’ upon transformation, thereby reducing administrative bureaucracy and the time required for restructuring.

Structural Comparison Table: 2021 Companies Law vs. 2025 Radical Update

To elucidate the magnitude of the systematic shift and legislative depth brought about by Decree-Law No. 20 of 2025, the following analytical table summarises the most significant substantive comparisons and practical implications compared to the 2021 law:

Transitional Periods and Regulatory Grace Periods for Comprehensive Compliance

Although the new law officially entered into force in October 2025, the rational UAE legislator fully realised the necessity of granting the business environment and regulatory bodies adequate and appropriate time to absorb these complex structural amendments.

Many of the advanced gains facilitated by the law (such as multiple share classes, private placement procedures, and the technical execution of redomiciliation operations) are still awaiting supplementary executive regulations and clarifying decisions from the Cabinet, the Ministry of Economy, the Securities and Commodities Authority (SCA), and local authorities to detail the precise technical application mechanisms in commercial registers. Consequently, companies operating in the UAE are currently traversing a ‘Transitional Period’ that observers expect to extend from 12 to 24 months for the gradual and phased implementation of various aspects of the law to regularise their status and amend their Articles of Association.

This transitional landscape is not isolated but coincides with other parallel and profound legislative and regulatory developments in the state. For instance, the significant grace period granted by the Federal Tax Authority (FTA) to registrants to update their tax records without incurring administrative penalties, which ends in late March 2025. It also coincides with the grace periods granted to financial institutions to comply with the new Central Bank law and its updates, continuing until September 2026. This is in addition to the increasing requirements to comply with UAE Corporate Tax (at a 9% rate), Environmental, Social, and Governance (ESG) rules, and Ultimate Beneficial Owner (UBO) registers.

This regulatory overlap and momentum definitively confirm that the years 2025 and 2026 are the years of ‘in-depth regulation and structural compliance’ par excellence, compelling boards of directors, founders, and legal advisors to proactively audit their current structures, align them with the package of interconnected laws, and avoid taking hasty decisions to change structures before the issuance of the precise executive regulations interpreting the new Companies Law.

The Critical Role of Strategic Legal Consultancy: Crimson Legal as a Leading Model

With the increasing complexity of legislation and its intertwining with tax laws, and the immense variety of available institutional options (as the UAE today boasts over 60 different options for obtaining commercial licences and incorporating companies distributed across 7 Emirates and multiple free zones), establishing a business or restructuring it is no longer merely an administrative, routine procedure relying on boilerplate templates. Selecting and designing the correct legal structure, tailored specifically to the company’s needs, has become an imperative necessity to ensure sustainable growth, the ability to attract financing, and avoiding costly mistakes that could collapse the entire commercial entity.

In this landscape fraught with opportunities and regulatory challenges, an urgent and pressing need emerges for specialised legal consultancy firms that do not merely offer theoretical advice but adopt a Practical Approach reflecting a profound understanding of modern entrepreneurship dynamics and venture capital challenges. Crimson Legal is considered one of the most prominent and reliable advisory choices in the United Arab Emirates in this regard. This firm is distinguished by being a Boutique Legal Consultancy, licensed and headquartered in the prestigious regulatory environment of the Abu Dhabi Global Market (ADGM). The firm, thanks to its elite team, dedicates its efforts to providing precise and timely commercial and corporate legal consultations to founders and entrepreneurs to ensure their business operations fully comply with modern UAE laws, with an intensive focus on the startup and Small and Medium Enterprises (SMEs) sectors. To comprehensively view the service packages and commence building a solid legal foundation for your project, it is highly recommended to visit the detailed services section on the official website.

An Integrated Methodology Keeping Pace with the 2025 Law Revolution

The Crimson Legal team offers a unique and rigorous consulting approach founded on high legal ethics and deep Empathy for the challenges faced by entrepreneurs, which strikingly distinguishes them in the local market as true long-term partners rather than mere one-off service providers or word processors. The firm pursues a policy of candour and clarity, focusing on delivering genuine and applicable solutions, eschewing free services or commercial discounts to concentrate on the quality of outputs and the meticulous selection of clients to ensure the success of their projects.

In light of the radical amendments to the 2025 Companies Law, the importance and effectiveness of the services provided by the firm manifest through six main strategic pillars, meticulously designed to keep pace with these legislative developments:

• Structuring: With the fundamental updates introduced to issuing multiple classes of shares and redomiciliation rules, the firm’s team assists entrepreneurs in devising flexible, sustainable institutional structures capable of investment scalability. The intricate and complex aspects of licensing are analysed with utmost care; for example, debating whether it is strategic to incorporate Onshore now to directly benefit from the ability to issue multiple share classes to attract funding, or to opt for a sole establishment, freelance permits, or determine the most suitable free zone based on the business plan and the project’s future expansions, thus transcending the antiquated notion that obtaining a licence is the ultimate goal.
• Operating responsibly: The firm believes that investment, financing, and exit operations must be conducted with the highest degrees of legal and institutional responsibility. With the prior permission and legal recognition of Drag and Tag-along rights in the mainland under the latest 2025 law amendments, Crimson Legal plays a vital and decisive role in drafting Customised Articles of Association and side shareholders’ agreements that guarantee ironclad protection for founders’ rights on one hand, and investors’ interests on the other, particularly in complex exit and merger phases.
• Growing and forming strategic partnerships: To achieve calculated growth leaps and form successful commercial partnerships and alliances, proactive and robust commercial contracts must be established. The firm possesses accumulated and deep expertise in creating and drafting cooperation instruments, strict compliance with the stringent and newly introduced controls for Related Party Transactions according to the legally set 5% threshold, and establishing proactive mechanisms to avert the heavy legal consequences of conflicts of interest based on the heightened duties and responsibilities of directors in the new law.
• Financing and efficient Hiring: Business sustainability and capital attraction are organically linked to hiring efficiency and the ability to retain rare talent. The firm proficiently contributes to designing Employee Retention programmes and aligning Employee Stock Ownership Plans (ESOPs) with the new laws that facilitated the separation of voting rights from the economic rights of shares. It also vigorously contributes to guiding companies to mitigate and manage legal and labour risks when they desire rapid profitable Scaling, determining the realistic needs for visa and permit requirements not guaranteed merely by obtaining a commercial licence, and planning for incorporation costs and annual renewals.
• Protecting comprehensively and ensuring business continuity: Business protection is not limited to registering the legal entity but extends to protecting intellectual property assets and drafting and activating Succession Planning. With Article 14 of the new 2025 law allowing shareholders the right to seamlessly arrange share transfers in the event of death via mechanisms specified in the Articles of Association, Crimson Legal’s protection services offer a proactive strategic lifeline for family businesses and startups to preserve their operational stability and ward off the risks of destructive disputes among heirs, thereby preserving the company’s value and market position.

Expert Legal Leadership Anticipating the Future

It is particularly noteworthy that the strength and reliability of Crimson Legal stem not only from its comprehensive service structure but fundamentally rely on the high-calibre legal professionals leading it, foremost among them the legal consultant, expert, and founder Bianca Gracias. Bianca possesses exceptional experience exceeding 15 years in the commercial legal sector and corporate governance in the UAE. She has harnessed her rich professional career (which included working in major institutions such as Emaar and the Al Ghurair Group) to support and guide SMEs and startups through all stages of their development, from the incorporation phase through to advanced funding rounds, via precise institutional guidance that circumvents investment risks.

Her active participation as a Mentor in major organisations and business accelerators like TiE Dubai and in5, alongside her extensive expertise in Web 3 technology, privacy laws, and sustainability, positions her and the firm at the forefront of entities capable of unpacking the complexities of new laws (such as the 2025 Companies Law and the modern Labour Law) and translating them into simplified frameworks and Checklists for immediate implementation by boards of directors. The legal professionals at the firm understand the depth of strategic transformations and their on-the-ground details—such as the importance of planning for visa issuance, analysing required commercial workspaces, and realistically evaluating renewal and liquidation costs away from false marketing promises. This provides entrepreneurs with a clear operational and legal roadmap that goes beyond mere trade licence acquisition to guarantee excellence, financial stability, and sustainable institutional success.

We invite all founders and managers to explore this added value and strategic partnership by visiting the official website and closely acquainting themselves with the unique legal methodology and the details of advisory services to protect and grow their investments, by visiting the comprehensive link: https://www.crimson-legal.com/services/.

The Major Strategic Implications and the Future Landscape of the UAE Business Environment

In conclusion, Federal Decree-Law No. 20 of 2025 establishes a historic phase of legislative maturity and structural depth in the United Arab Emirates. Legal amendments are no longer merely tactical reactions but have become proactive engineering to shape the economy of the future. The inclusion of advanced governance mechanics and financing tools inspired directly from the core of Common Law schools—such as allowing multiple and varying classes of shares in the mainland, establishing a seamless framework for corporate redomiciliation without liquidation, granting exceptional powers for resolving administrative deadlocks and disputes, providing binding legal character to pivotal shareholder rights (Tag/Drag along), and ownership transfer solutions following death—collectively constitutes an unprecedented driving and attractive force to draw Foreign Direct Investment (FDI), stimulate global venture capital funds, and vigorously invigorate the private placement market.

In this new regulatory era, companies operating in the state are no longer hostages to the rigid and stereotypical templates of the past; rather, they have been granted absolute freedom to engineer their constitutional structures and Articles of Association with supreme flexibility to suit the most severe complexities of contemporary financial and technological transactions. In this dynamic, highly competitive investment environment, a proactive and precise understanding of these intricate legal texts forms an indispensable competitive advantage for companies and investors alike. This highlights, more than ever, the pivotal and vital role of prudent and experienced legal consultancy, capable of translating these complex legislative texts into safe commercial practices and profitable investment structures that guarantee business sustainability and leadership in the heart of the evolving UAE economic landscape.

References

• 2025 Amendments to the UAE Commercial Companies Law – Lexis® Middle East
• We offer real solutions to legal issues and are practical in our …
• Federal Decree-Law No. 20 of 2025 2025 20 بشأن لسنة املرسوم بقانون اتحادي رقم تعديل بعض أ
• مرسوم بقانون اتحادي رقم ) 20 ( لسنة 2025 بشأن تعديل بعض أحكام املرسوم بقانون
• United Arab Emirates Legislations | Federal Decree Law on Commercial Companies
• Federal Tax Authority calls on Registrants to Benefit from the Grace Period to Update their Tax Records before end of March 2025 without incurring administrative penalties
• مرسوم بقانون اتحادي في شأن الضريبة على الشركات والأعمال – تشريعات الإمارات
• Bianca Gracias – AD SME Hub
• Who is Bianca Gracias? – Favikon