Due to its multiculturalism and stability, the United Arab Emirates (UAE) has become one of the best places for investors from all over the world to set up their businesses. Different types of companies can be established in UAE as it offers easy and convenient business set up procedures. The most formed companies in the UAE are the Limited liability company (LLC). LLC’s ambit is defined in article 71 of Federal Law Number 2 of 15 on Commercial Companies Law (the Companies Law). As defined in the article mentioned above, a limited liability company (LLC) is a company that consists of at least two shareholders or at max 50 shareholders where the partners shall be liable to the extent of shares in capital owned by them. Interestingly, LLC can be formed with a single person also, but the here holder will not be held liable for the company’s obligations other than to the extent of share capital owned by him as laid out in the memorandum of association (MOA).
In an LLC, the shares owned by a partner can be transferred or assigned in a company to another partner or a third party. Hence, the process of transferring shares already in existence is called a share transfer when one of the shareholders wants to sell the shares or change the percentage of ownership or add new shareholders. Every company experiences its share of ups and downs, which is important for its development and goodwill. However, the one who manages to sell through in such a situation through various means stands strong. One of the means being share transfer. Share transfer can be needed when a shareholder is leaving the company or invited to join a new shareholder. The death of a shareholder, the whole company, is sold to a new owner or similar circumstances.
The Department of Economic Development (DED) has jotted down the procedure and guidelines for transferring a limited liability company shares. The following points highlight significant steps involved in transferring of shares of LLC registered in UAE:
The LLC is required to procure a Board or Shareholder Resolution and Power of Attorney from the board or the shareholders. In case the shareholders are corporates, then BR/SR from parent companies is required. The following documentation is necessary to complete this step:
In a foreign company, documents must be attested in the foreign country jurisdiction through the UAE Embassy and the Ministry of Foreign Affairs (MOFA) in UAE.
A DED application form BR1 needs to be completed in Arabic; the buyer, the seller and the LLC company manager must sign the document and be sealed with the LLC company stamp.
Once the application form has been submitted to the DED along with the required supporting documents (mentioned below), you will wait for initial approval from the DED, which normally takes 1 to 8 business days.
Documents required for the buyer/seller (corporate):
Documents required for the buyer/seller (individual):
A short-form Share Transfer Agreement (STA) and an Amendment to the Memorandum of Association (AMOA) of the company will need to be prepared. This document must be in Arabic or be bilingual; if bilingual, the document must be attested by a legal translator and stamped by the Ministry of Justice.
The Share Transfer Agreement will need to be executed before the Notary Public – signed by all parties. On the execution day, all the LLC documents and the initial approval should be carried as the notary public generally scrutinizes the share transfer instrument, which is to be executed.
Once the Share Transfer Agreement has been notarized, this, along with the initial DED approval and supporting documents, should be submitted to the DED.
Once the Share Transfer documents are submitted to the DED, one will receive a DED Authorization letter, which should be used to place an advert in the Gazette for 14 days publicizing shareholder (s) change. The 14-day gazette period is only a requirement in Abu Dhabi and other Emirates, not in Dubai.
Once the fees are paid and all approvals are in place, a new trade license will be required to be applied, including the new shareholders or change in shareholding capacity.
Once the DED Trade License has been updated, then the LLC may need to update the other licenses for the LLC – particularly the Ministry of Labor (MOL), Immigration (MOI), Ministry of Economy (MOE), and Chamber of Commerce. Other Licenses and regulatory bodies will also need to be notified and updated, as will the bank and potentially other counterparties. Further, as per article 80 of the commercial companies law, the procedure for the assignment of shares of a partner in the company is as follows:
It must be noted that the partners of the company while pledging or assigning shares, have to act in accordance with the memorandum of association (MOA). MOA shall always have a bigger say and prevail over any assignment or transfer of shares that are being carried out as per the terms of the company’s memorandum (MOA) exclusively, or else the transaction will be invalid. It is pertinent to note that entry of such a transfer must be done in the commercial register with the competent authority; otherwise, the transaction will again be held invalid. Moreover, a company cannot reject a transaction unless it violates the memorandum of association or the Companies Law.
Furthermore, shareholders of free zone entities are not entitled to the benefit of statutory preemption rights on a transfer of shares. However, shareholders of free zone entities can agree to such restrictions between themselves, either in the company’s articles, memorandum of association (MOA), or shareholders’ agreement. Moreover, approval from the relevant free zone authority is required for the transfer of shares.
The most advantageous factor of a share purchase is that the target company remains as it is, with control simply transferring to the new owner. The transfer of underlying assets and liabilities of the company is not required. Transferring shares is a straightforward process, subject to any third party (that is, customer, supplier, landlord, or bank) or UAE authority approvals required. All assets and liabilities are held up with the business unless specifically carved out in the relevant sale and purchase documentation. This generally proves to be a disadvantage. Therefore, the buyer must seek contractual protections, for example, warranties and indemnities.