28 Aug 2017

Mergers and Acquisitions in the UAE: A Snapshot of Key Recurring Legal Issues for Newcomers to the Market

Authored by: Paul Wynne

In brief:

  • Discusses seven legal issues which are particularly relevant to mergers and acquisitions in the UAE, and which consistently arise in transactions in this jurisdiction (as examples only of some of the types of issues to consider); and
  • Considers the steps parties should take to protect their interests in each case.
  1. Term Sheet

    Term sheets, offer letters, heads of terms, letters of intent and memoranda of understanding are all particularly popular in the UAE with respect to initially documenting the principal commercial terms of an acquisition. However, we often find that key issues can be absent from such term sheets.

    In our experience, we find that the more parties can agree the critical legal and commercial issues (e.g. consideration adjustment mechanics, key limitation of liability provisions, management of the target post-completion) at an early stage of the transaction and then set them out in reasonable detail in the term sheet, the smoother the transaction will progress.

    Such an approach can often also potentially reduce the ultimate total legal spend in respect of a transaction.

  2. Pre-Transaction Structuring

    It is important that prior to the preparation of any transaction documents in the UAE, the parties consider and finalise what the shareholding structure of the target should look like following completion of the acquisition.

    It is particularly important to carry out such a structuring exercise in the situation where the buyer is, or is directly or indirectly owned (in part or in whole) by, a non-UAE or non-GCC national, considering the foreign ownership restrictions under UAE law.

    In particular, it is well noted that under the UAE Companies Law, a minimum of 51% of the share capital in a limited liability company incorporated “on-shore” in the UAE (i.e. the most common form of company in the UAE) must be held by UAE nationals (either directly or indirectly). Only the remaining 49% of the issued share capital of a LLC is available for foreign investment.

    It is also worth noting that foreign investment is completely prohibited within certain sectors, including commercial agency activities. Accordingly, the buyer and its advisors should, as part of the structuring exercise, investigate whether there are any foreign ownership restrictions within the relevant sector and whether the proposed post-acquisition structure is appropriate.

    We typically advise buyers to undertake such a structuring exercise as early as possible in the transaction process to ensure that it is possible to implement their proposed post-acquisition shareholding structure, prior to utilising significant resources and incurring substantial legal costs in relation to the transaction.

  3. Sharia Law Issues

    Where, following an acquisition, a UAE national individual remains a shareholder in the target (whether as a nominee or as an economic shareholder), buyers should be aware of potential Sharia law issues that might arise on the death of such an individual shareholder.

    In the event of the death or incapacity of the UAE individual shareholder, his or her assets (including any shares or interest he holds in the target) could be, without any further investigation, subject to the rules of Sharia. This could have a significant impact on the management of the target. For example, the passing of shareholder resolutions could become problematic if any of his or her heirs refuses to co-operate. A buyer should consider, together with its legal advisors, potential methods of structuring around or mitigating such issues.

  4. Replacement of Post Dated Cheques and Guarantees

    Post-dated cheques (PDCs) play a daily role in commercial life in the UAE. Companies often use PDCs as a method of guaranteeing payment for larger items or services over a period of time, for example rental payments or loan repayments. This practice is generally regarded as a form of security for payees (such as banks and landlords) due to potential criminal liabilities in the UAE, including imprisonment, in the event of a failure by the payor to honour a cheque.

    An individual seller will be keen to ensure that any PDCs they signed on behalf of the target (having a date falling after completion of the sale) are replaced as soon as possible. The reason for this is that although a PDC may have been issued in the name of, or for the benefit of, the target itself, liability will likely attach to the person who has actually signed the PDC, notwithstanding that they may no longer be a shareholder (or the general manager) of the target.

    The buyer and seller should address this issue at an early stage and devise a plan for the orderly replacement of PDCs signed on behalf of the seller, and for communicating the need for such replacement with the relevant payee (e.g. a landlord), and such a plan should be made clear in the transaction documents.

    Similarly, consideration should be also be given to the method and timing of replacing of any other security such as personal guarantees (or corporate guarantees) provided by the sellers.

  5. Governing Law and Dispute Resolution

    The UAE is a particularly interesting and a unique jurisdiction in terms of the issues to be considered when selecting the laws which should govern an acquisition, and the courts or method of dispute resolution to which that acquisition should be subject.

    The UAE courts primarily operate under a civil law system which is largely influenced by Islamic and European civil law. Separately, civil matters between Muslims are governed by Sharia law.

    However, the DIFC courts offer litigants an English language common law judiciary, based in a UAE “free zone”, with jurisdiction governing civil and commercial disputes. The law applied by the DIFC courts is common law-based (the DIFC courts have been described by a former Deputy Chief Justice of the DIFC courts as a “common law island in a civil law ocean”). In addition, two international arbitration centres are located in the UAE: the DIFC-LCIA Arbitration Centre; and the Dubai International Arbitration Centre.

    Furthermore, it will be open to the parties to elect for the transaction documents to be governed by foreign law (e.g. English or New York law) and subject to foreign courts or arbitration (e.g. the London Court of International Arbitration), and the parties may particularly wish to do so where the subject matter of the transaction, and/or the nationality of the parties, are multi-jurisdictional.

    Accordingly, there are a myriad of options in terms of determining the governing law and dispute resolution of a UAE-related acquisition. The factors that parties should consider in conjunction with their legal advisors when selecting governing law and jurisdiction/dispute resolution include the nature of the subject matter of the transaction, the nationality of the counter-party, where the counter-party’s assets are located and the types of remedies the relevant party may require in the future with respect to the transaction documents.

  6. Authorised Signatories

    As in any jurisdiction, a buyer should give thought at an early stage as to which persons should have signatory power (and the extent of such signatory powers) with respect to the target following completion of the acquisition. The timing of the replacement of signatories should be set out in the transaction documents, to assist in ensuring the smooth continuation of operations during the transition of ownership period.

    Changing authorised signatories in the UAE following an acquisition can involve more administrative work than in other jurisdictions. For example, if the target is incorporated “on-shore” in the UAE, representatives of the new shareholders following an acquisition will need to attend at the UAE Notary Public to execute a new power of attorney in favour of the general manager selected to manage day-to-day operations (even where that person was the appointed general manager prior to the acquisition).

  7. Agree Precise Steps for Effecting Completion

    The actual statutory / governmental process for effecting the transfer in legal title to shares in a UAE company is typically more complex than in common law jurisdictions.

    The process for effecting the transfer of legal title in shares in a UAE company incorporated on-shore in the UAE involves, among other things, the approval of the UAE Notary Public and the Department of Economic Development (DED) in the relevant Emirate. If the target operates in a regulated industry, the approval of the relevant regulator may also be required. Where the buyer or seller are corporate entities incorporated outside the UAE, the notarisation and attestation of corporate documents in the jurisdiction of incorporation (by the relevant UAE embassy) will be required.

    The process for registering a share transfer also differs from Emirate to Emirate. In addition, there are distinct processes for registering a share transfer in companies incorporated in particular “free zones” in the UAE. The share transfer process may be further complicated where there are multiple target companies incorporated across the UAE and other GCC countries.

    Accordingly, it is critical for the exact steps of the share transfer (or share transfers in the case of multiple target companies), and the specific obligations of each party in relation to that process, to be detailed in the transaction documents. The exact point in the share transfer process at which consideration for the shares should be transferred to the seller should also obviously be addressed in the transaction documents.


While, of course, there are a host of other legal issues applicable to international mergers and acquisitions which parties will need to address in executing a UAE-focused transaction  (e.g. comprehensive legal due diligence, adequate warranty and indemnity protection, appropriate conditions precedent, consideration adjustment mechanics and curbing limitation of liability provisions), the above issues are examples of issues which are particularly relevant to the UAE, and if properly addressed, will aid a party in executing a smoother transaction and one in which their interests will be better protected.


This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.