Sale of Share in a Limited Liability Company in UAE

Every entity is formed by a certain number of shareholders (owners) and a share can be defined as the amount of percentage of the company owned by each of the shareholders of the entity. However, the number of shareholders can be increased or decreased as per each companies’ requirements by a way of selling or transferring the shares.

Some of the common reasons that the entity might want to sell or transfer the share are as follow:

• To raise capital by selling the shares to a party willing to invest into the company;
• If one of the shareholders decides to exit the company;
• Many investors buy shares of different companies to benefit from the profits generated by the entity;
• If the entity wants to bring a rebalance or restructure to the company share structure; in cases where the shareholder or company has gone bankrupt;
• where the shareholder is an employee of the company, like a director of the company, then on their termination, the shares belonging to them can be sold or transferred; among various other such reasons which may require the company to sell or transfer shares.

 

Federal Law Number 2 of 2015 on Commercial Companies as amended by Federal Law Number 7 of 2018 (the Companies Law), governs all the relevant aspects of the companies established in UAE. However, article 5 and 6 of the Companies Law lays down the entities which are exempted from falling under the purview of the provisions of this law.

Article 9 of the Companies Law provides the forms of companies that one may prefer to establish their business in UAE. The forms of companies available by the provisions of Companies Law are, joint liability company, limited partnership company, limited liability company, public joint stock company and private joint stock company. 

This article intends to elucidate on the provisions on the sale of share in the Limited Liability Company (LLC) in UAE and also provide with relevant details on the procedure involved to carry out such transfers or sale of the share (or shares) in an LLC. 

The memorandum of association (MOA) and the articles of association (AOA) are the company’s fundamental documents, as they lay down all the vital details of the company, like the MOA covers the objectives of establishing the company, the type of company, date of incorporation and details and numbers of shareholders and percentage of shares held and other such foundational aspects of the company. 

Whereas, the AOA specifies the conditions required to carry out the transfer or sale of the share, rules regulating the corporate governance, division of shares and dividends, voting rights among various other such relevant aspects of the company. Article 209 of the Companies Law stipulates that the shares can be disposed of only in line with the provisions as specified by this law, the implementing regulations and decisions as decreed by the competent authority and as prescribed in the AOA of the company. Article 209 further states that, such disposal of shares shall not contravene with the article 10 of this law; where it mentions that except for joint liability companies and limited partnership companies, all other companies established under UAE and are governed by the provisions of this law, shall have one or more UAE national partners holding a share of fifty-one (51) percent of the company’s capital. 

 

Sale of Share in Limited Liability Company in UAE:

Article 79 of the Companies Law covers the sale or transfer of share of a limited liability company established in UAE. It stipulates that the shareholders may transfer or sell, or pledge their shares in the company to another shareholder of the company or to a third party. However, it is pertinent to note that such transfer or sale of the share shall be carried out in line with the terms specified in the MOA of the company and the provisions of this law. The transfer or the sale of the share shall become valid from the date when such sale or transfer of share has been duly registered in the commercial register by a competent authority. Thereafter, such registered transfer or sale of share shall remain valid, unless such sale or transfer of share is found contravening with the terms of the MOA or the provisions of this law. 

However, it is necessary for the sale or transfer of the share be executed before a competent authority like the notary public before being registered in the commercial register. 

 

Procedure of Sale of Share or Transfer of Share:

Article 80 of the Companies Law lays down the procedure in which a shareholder of the company may carry out the sale or transfer of his shares with a third party (the one who is not a partner to the company). Any shareholder who intends to sell or transfer his share to a third party is first required to seek the consent of other shareholders of the company. The shareholder seeking to sell or transfer his share shall notify the other shareholders of all the relevant details of the person intending to buy the share or person to whom such share is being assigned to along with the terms of the agreement of such sale, through the manager of the company. Thereafter, if the pre-emptive rights have not been exercised by the shareholders, then the party intending to sell the shares may initiate the process and successfully accomplish the sale of shares, by following the steps mentioned below:

• The shareholder selling his share is first required to obtain an approval from the Department of Economic Development (DED) – Before submitting the DED application form, the shareholder intending to sell or buy shares is required to have a draft of the board resolution or a shareholder resolution, along with the power of attorney from the shareholders and the board members of the company, approving the sale of share agreement or purchase of the share as proposed by the seller or the buyer shareholders. Where the seller is a UAE national shareholder, then the other shareholders of the company are required to implement the shareholders resolution before the notary public. If the seller shareholders company is a foreign company, then the board resolution or the shareholders resolution is required to be legalized. The resolution shall be duly notarized in the country where the seller company has been registered and thereafter, it shall be attested at the Ministry of Foreign Affairs and also the UAE embassy based at the country where the company has been registered. Then, the documents are required to be attested at the UAE’s Ministry of Foreign Affairs and where necessary, it shall also be translated into Arabic by a recognized legal translator and then it shall also be attested at the UAE Ministry of Justice.
• Thereafter, the BR1 type form available in the DED’s website is required to be filled up in Arabic providing all the essential details of the seller and buyer. The form shall also be signed by the parties to the sale of share agreement and also the manager of the company;
• After filling in the BR1 application form and duly signed by the required legal parties, then the form can be submitted to the DED along with the supporting documents as mentioned below, for the review of the DED. A fee shall be payable to the DED for reviewing the application form;
  • 1. If it is an individual seller- then just a copy of the passport and Emirates ID shall be required, Emirates ID, only if such seller is an UAE resident. 
  • 2. If the seller is an owner of the company or an entity then: the seller is required to submit the fundamental documents like but not limited to the MOA, AOA, trade license, among other such relevant documents. Further, the seller is required to submit also the above-mentioned attested board or shareholder resolution. 
  • 3. Buyer: if it is an individual buyer – a copy of his passport and Emirates ID, if such buyer is a UAE resident. If the buyer is the owner of the company or entity, then the following supporting documents are required to be submitted: the certificate of commercial registration and the trade license (where it is a foreign company, such document shall be duly attested by the competent authority). The buyer is also required to submit the notarized board or shareholder resolution as approved by the buyer’s company to purchase such shares. If the company buying is established in UAE, then the relevant documents shall be notarized or legalized as required. After successfully submitting the BR1 application form with all the relevant documents to the DED, the DED shall issue the approval of the sale of shares within a period of one (1) to eight (8) business days.

• In the meanwhile, the seller or the buyer of the share is required to draft a purchase of share agreement which is called a short-form Share Transfer Agreement (STA) and also an amendment made to the MOA also shall be kept ready. These documents shall be in either Arabic language or bilingual, and where it is bilingual, it shall be attested by a legal translator and stamped by the Ministry of Justice.
• Thereafter, the STA shall be executed by the parties before the notary public and such agreement shall be duly signed by the parties. It is necessary to make sure that the person signing the agreement on behalf of the company has a valid and legalized or notarized power of attorney from the company.
• Thereafter, the duly executed Share Transfer Agreement, along with the initial approval obtained from the DED and the other supporting documents shall be referred to the DED. The documents required here are: duly signed STA by all the relevant parties to the agreement, amended MOA, details of already existing shareholders, and the power of attorney, trade licenses of the parent company.
• Then upon receiving all the required approvals and paying the fees applicable, the seller or the buyer company can apply for a new trade license, which encompasses the new shareholders or change in share structure of the company. Once the DED trade license has been updated then the company is further required to update the other licenses in the relevant regulatory bodies.

 

Pre-emptive right of the shareholders: 

However, by virtue of the right to demand the pre-empt shares, the shareholders may exercise their pre-emptive rights on the shares within a period of thirty (30) days from the date when they have notified the manager of their agreed price. A pre-emptive right can be explained as a right which allows the shareholders to have the option to purchase any new shares that come up in the company before it can be sold to any other outsiders, who are not partners to the company. In simple terms, the shareholders are bestowed with the right to buy the new shares first, before any party who is not a shareholder in the company. Where any dispute arises regarding the price of purchasing the share, then the parties exercising their pre-emption rights may request the competent authority to nominate a team of one or more experts who are well experienced in analyzing the technical and financial aspects of the subject matter of the share. 

The partners applying for this request shall bear all the expenses followed by such a request of nomination of an expert team. If there is more than one shareholder exercising their pre-emption right, then the share or shares shall be divided among such shareholders, proportional to their respective shares and in accordance with article 76 of this law. The right to demand preempt on the shares shall lapse in the event if the shareholders failed to notify of their intentions before the expiry of the thirty (30) days as mentioned above.