A Comprehensive Analysis Of The 2025 Amendments To The UAE Commercial Companies Law

Introduction

The Federal Decree Law No. 32 of 2021 on Commercial Companies (“CCL”) represented the most substantial reform of the corporate law regime in the UAE. It modernised governance standards, removed restrictions on foreign ownership for most commercial activities, and aligned the UAE corporate law framework more closely with international corporate frameworks. Four years later, Federal Decree Law No. 20 of 2025 (the “Amendment”) notably amends the CCL. While the CCL established the foundation of a more flexible corporate framework, the Amendment fine tunes that framework by clarifying jurisdictional boundaries, enhancing shareholder tools, introducing new corporate structures and providing companies with more operational flexibility.

These amendments reflect the UAE's evolving economic landscape, characterised by increasing cross-border investment, diversified business activities across mainland and free zone jurisdictions, and growing demand for sophisticated corporate structuring tools. This article examines each of the major amendments, explains the statutory changes with reference to the underlying text, and analyses their practical implications and areas where further regulatory clarity may be required.

Applicability to foreign companies and free zone entities operating onshore

The Amendment notably clarifies the scope of the CCL. Historically, uncertainty existed where free zone entities carried out activities onshore. The Amendment resolves this ambiguity by expressly extending the CCL to these entities when their business extends beyond their licensing authority.

The clarification comes through amendments to:

a. Article 3 of the CCL that now specifies that the CCL will apply to branches of companies or representative offices for companies established in free zones and financial free zones in case they practice their activities outside the border of the zone and within the country, i.e., on mainland; and

b. Article 5 of the CCL also now specifies that companies incorporated in free zones and financial free zones may establish branches or representative offices within the country subject to the provisions of the CCL and removes the ambiguity from the earlier provisions where the Council of Ministers would issue a decision specifying the conditions to be observed for the registration of companies operating in free zones and wishing to commence their activities in the UAE outside the free zones.

These changes codify a principle that was widely understood in practice but inconsistently applied. Previously, free zone entities sometimes engaged in activities outside the free zones assuming that free zone licences offered broader protection and they could provide their services or products outside the free zones.

The Amendment eliminates ambiguity by establishing “when” federal corporate obligations apply especially for international businesses operating in the UAE through a combination of mainland LLCs, free zone entities, and foreign branches. Further, the emphasis on ‘the location of the activity', rather than the registered office, implies that companies must assess their operational footprint continuously. Even occasional onshore activities could trigger obligations under the CCL. Although currently unknown how scrutiny will be applied with certainty, the economic departments of the relevant Emirates may increase oversight of foreign branches and free zone entities marketing or contracting outside their authorised jurisdictional and geographical scope. Free zone authorities may also become more explicit in warning licensees about the limits of their licence. However, it remains to be seen whether actions such as conducting meetings or signing contracts onshore or choosing the governing law and jurisdiction of the UAE would constitute an ‘activity' for the purpose of the CCL.

Introduction of non-profit companies

The amendments to Article 8 of the CCL introduce a structural shift in how the UAE conceptualises the ‘company' as a vehicle for economic and now, non-commercial activity. The revised Article 8 retains the foundational definition of a company and expands this concept by authorising the establishment of non-profit companies. Previously, organisations wishing to pursue social, charitable, cultural, or sustainability objectives had to operate through associations, public-benefit entities under Emirate-level regulations, or through foundations in financial free zones such as ADGM and DIFC. The introduction of a non-profit company structure within the federal CCL expands the UAE's corporate spectrum and aligns it more closely with sophisticated jurisdictions that permit hybrid corporate vehicles. The non-profit company retains an ‘economic project' element, distinguishing it from purely charitable entities. It may therefore engage in revenue-generating activities, but any surplus must be reinvested as opposed to being returned to investors as profit in the traditional sense. The requirement that the Council of Ministers define the purposes and regulatory provisions signals that detailed governance, reporting, and licensing rules will almost certainly follow.

The introduction of non-profit companies provides a compliant structure for corporate social responsibility programmes housed within group structures, social enterprises wishing to reinvest revenue and educational, cultural or environmental programmes seeking a federal corporate identity. However, the true contours of this new structure will depend on Cabinet regulations. It remains unclear whether non-profit companies will be permitted to receive donations, whether they may engage in public fundraising, whether they will be exempt from certain taxes or fees, and what financial transparency obligations they must follow. These elements will determine the attractiveness of this new form for domestic and international organisations. Until then, corporate groups may consider structuring through non-profit companies only where the operational model aligns with reinvestment of surplus or where regulatory compliances burdens can be anticipated. However, the strong positioning with more mature economic frameworks from around the world (UK, USA etc.) sends a strong signal of what is to come from the UAE and greater GCC region.

Forms of companies and Corporate Nationality

The amendments to Article 9 introduce limited but noteworthy refinements. While the recognised forms of companies under the CCL remain unchanged, the amended Article 9 clarifies that every company established in the UAE, including those incorporated in free zones and financial free zones, holds UAE nationality. This clarification does not in itself confer additional rights or modify the regulatory treatment of free-zone companies, but it does reinforce the principle that such entities are regarded as UAE companies for purposes of private international law and cross-border recognition.

Enhanced Shareholder Protections and Exit Rights

Among the most commercially relevant amendments introduced are those made to Article 14 of the CCL, which now expressly allows key shareholder arrangements to be incorporated into the Memorandum of Association (“MOA”) or Articles of Association (“AOA”) of limited liability companies (“LLC”) and private joint stock companies. This represents a significant shift in UAE corporate law, enhancing the enforceability and certainty of contractual rights. The amended Article 14 retains the core requirements relating to the formality of the MOA, providing that the MOA must be in Arabic and notarized by the competent authority. The material change arises through the introduction of sub-article 14(4) which introduces share transfer and succession mechanisms widely recognised in corporate and investment practice:

1. Drag along rights, whereby a shareholder can compel other shareholders to participate in a sale of the company.
2. Tag along rights, whereby a shareholder can require that they be permitted to join a sale initiated by another shareholder; and
3. Provision relating to acquisition of a deceased shareholder's shares providing a statutory basis for succession planning provisions.

Prior to this amendment, drag-along and tag-along rights were commonly included in shareholder agreements, particularly in joint ventures, venture capital-backed entities, and family businesses. However, because they were contractual rather than constitutional, their enforceability against non-signatories (such as heirs, subsequent transferees, or third-party buyers) was less certain. By expressly authorising these mechanisms within the MOA or articles of association, the Amendment elevates them from purely private arrangements to company-binding constitutional rights, enforceable against all shareholders, successors, and registrars.

Equally significant is the introduction of the provision relating to acquisition of a deceased shareholder's shares. Previously, the CCL did not expressly allow LLCs to include mechanisms addressing inheritance of shares. As a result, the transfer of shares following the death of a shareholder was subject to federal personal status laws, which could lead to fractional ownership, multiple heirs, or delays in probate proceedings, each of which could cause governance deadlock or disruption. The Amendment allows the MOA to include a right of priority for surviving shareholders or the company itself, a predefined valuation mechanism agreed with the heirs and a structured process for transferring ownership after death. This provision is relevant for family businesses, closely held LLCs and joint ventures where continuity of control is essential.

The amendment to Article 14 is a welcome development, several considerations likely to arise in practice. Existing LLCs may need to amend their MOAs/AOAs because these rights are only enforceable when included in the constitutional documents. Companies wishing to benefit from these provisions will have to undertake formal amendment procedures including notarisation. With respect to acquisition of shares of deceased shareholders, the valuation process must be carefully drafted since the law does not prescribe whether valuation must be done by experts or through formulas, leaving this to contractual arrangement. While the amendment allows the MOA / AOA to regulate post-death transfers, it is unclear whether heirs must explicitly consent or whether a court may override MOA /AOA provisions in exceptional circumstances. The statutory elevation of drag-along and tag-along rights suggests that registrar should accept such rights without raising objection. However, practice may vary between Emirates especially when complex valuation formulas are integrated for such rights.

Notwithstanding the aspects that remain to be seen through interpretation of courts, the amendments to Article 14 are among the most progressive elements of the Amendment, directly addressing long-standing limitations in the UAE's corporate structuring environment. By enabling constitutional incorporation of drag-along, tag-along, and succession mechanisms, the Amendment provides tools that align with international investment standards and support smoother transactional processes, more predictable exits, and more resilient ownership structures. Again, this represents a significant development in UAE mainland corporate legacy/ succession planning and possibly signals greater prospective certainty for businesses creators in the UAE.

Capital contributions and valuation requirements

The amendments to Articles 17 and 78 refine the regime governing capital contributions in UAE companies, particularly where partners contribute assets in kind rather than cash. They tighten the framework for valuing in-kind shares and clarify who is responsible for setting the relevant standards. The amendment to Article 17 assigns to the Ministry, working with the competent authority, the task of setting the criteria and requirements for valuing in-kind shares and the rules for accrediting those who perform such valuations, with the public shareholding companies being carved out. This creates a regulatory platform for more detailed valuation standards to be issued, which should bring greater consistency and predictability to how non-cash contributions are treated. The amendments to Article 78, though minor, clarify that these evaluations envisaged for in-kind contributions should be carried out by one or more evaluators and that should the competent authority object to the appraisal report and appoint another evaluator, the expense will be borne by the in-kind shareholder, as opposed to the appraiser, as was the case earlier.

What remains to be seen is the level of detail and prescriptiveness in the forthcoming criteria under Article 17. If the Ministry adopts a flexible, principles-based approach, companies may enjoy a reasonable degree of discretion in choosing methodologies. A more prescriptive regime, by contrast, could introduce additional compliance steps but also stronger protection against inflated valuations.

Private placement offerings and transfer restrictions for newly incorporated private joint stock companies

The Amendment introduces important refinements to the rules governing securities offerings by private joint stock companies (“Private Companies”), marking a shift towards greater capital-raising flexibility while preserving regulatory safeguards. These amendments primarily appear in Article 32, which now expressly recognises the possibility of private placements and Article 266 which adjusts the transfer restrictions applicable to shares of newly formed Private Companies. Prior to the Amendment, Article 32 focused exclusively on prohibiting any entity other than a public joint stock company and any company from making advertisements including an invitation to subscribe to public securities without the approval of the Securities and Commodities Authority (“SCA”). It did not address private placements, leaving a gap between market practice and statutory language. The amended Article 32 now codifies an increasingly relevant method of capital raising. Private placements, i.e., offers made to pre-selected or sophisticated investors, have been a key feature of pre-IPO financings, private equity transactions and strategic investments globally. By incorporating private placements into the CCL, the Amendment aligns the UAE's corporate landscape with international market practice.

The new private placement provisions create a broader financing toolkit for Private Companies that may now raise capital without undergoing the burdens associated with a public offering. This is particularly beneficial for growth-stage companies that wish to bring in institutional investors. The terms and conditions that the SCA issues in this regard will likely govern investor eligibility, disclosure expectations, offering procedures and resale restrictions. These will be crucial in defining the accessibility and attractiveness of private placements. The explicit statutory recognition removes ambiguity and provides clearer footing when advising on fundraising transactions.

Article 266 of the CCL imposes a mandatory lock-up lasting at least one financial year, during which shares of Private Companies cannot be transferred during its initial establishment period, except in limited circumstances. The Amendment introduces two notable modifications to Article 266: (a) broadening the Minister's authority to amend or exempt the prohibition period altogether as opposed to the earlier range of 6 months to two years; and (b) exempting Private Companies that offer their securities for private placements and are listed on one of the financial markets in the UAE from this restriction of transferring shares in its initial establishment period. Transfers relating to inheritance or bankruptcy remain permissible. These exceptions are now more clearly articulated, reducing doubt in succession or insolvency scenarios. Together, Articles 32 and 266 modernise the capital-raising framework for private joint stock companies. They strike a balance between regulatory oversight and commercial flexibility, enabling companies to tap new investment channels while ensuring that shareholder protection and market integrity remain intact.

Share classes and shareholder rights

Historically, the CCL imposed a strict principle of equality among shares in companies, providing that all shares conferred identical rights and obligations unless expressly permitted otherwise. This limitation posed challenges for private companies seeking to introduce differentiated share structures, such as preferred shares, founder shares with enhanced voting power, or classes of shares with distinct economic rights. While Article 208 of the CCL continues to anchor the default rule of equality, the Amendment removes the explicit provision restricting companies from issuing different classes of shares. However, the Council of Ministers has the discretion to issue the resolution which will specify the other categories of shares, the conditions for their issuance, the rights and obligations thereof and the rules and procedures regulating them. The Amendment opens the door to differentiated share classes, but only once the Cabinet issues implementing resolutions. Until such resolutions are issued, the legal position remains that all shares are equal unless another article of the CCL provides otherwise.

Once the implementing resolution is issued, it will likely allow greater flexibility in structuring investments for companies, especially in growth sectors which often rely on preferred share structures to attract outside capital while preserving founder control. Further, differentiated share classes can be used to structure drag-along rights, liquidation preferences or staged participation rights.

Corporate governance and continuity of management

The amended Article 85(4) now expressly provides that if the board's term expires and the General Assembly fails to appoint a new board within six months, the competent authority, in coordination with the relevant regulatory bodies, may appoint a temporary director or temporary board from among the partners or others for a period not exceeding one year. The ability to appoint individuals from outside the shareholder base represents a marked departure from the previous regime, which implicitly required board members to be drawn only from among shareholders. This introduces a statutory solution to governance paralysis arising from shareholder deadlock. It ensures that the company is not left without the authority necessary to manage its affairs, execute contracts, or comply with regulatory obligations merely because the shareholders cannot agree on board composition. By providing a temporary governance bridge, Article 85(4) enhances operational stability and reduces the risk of protracted disputes bringing corporate activity to a standstill. The temporary nature of the appointment, coupled with the requirement to convene a General Assembly to elect a new board within the one-year period, preserves shareholder primacy while ensuring continuity.

Conversion to a Joint Stock Company

The amendments to Article 275 substantially streamline the process for converting a company into a joint stock company, removing several procedural requirements that previously prolonged and complicated the transformation. Under the earlier version of the law, the text merely stated that companies could convert from one form to another while retaining their legal personality, leaving the details of the conversion process to implementing regulations. The amended Article 275 replaces this minimal framework with a detailed set of rules designed to expedite the transition to joint stock company status. The new Article 275(2) provides that when a company transforms into a joint stock company, it is no longer required to submit a new incorporation application or form a founders' committee. Instead, the existing executive management is empowered to carry out all necessary procedures for the conversion, unless the General Assembly appoints a different person or committee. This removes two procedural bottlenecks that previously added time and cost to conversions and often created uncertainty about who was authorised to manage the transition. Article 275(3) introduces a further simplification by allowing the company to complete its conversion and registration in the Commercial Register without first appointing a new board of directors, an auditor, or the stock registry secretariat. Instead, the General Assembly must be convened within 30 days from the date of registration of the new legal form to elect the board, appoint the auditor, and formalise the registry arrangements. Under the prior regime, these appointments were preconditions to registration, resulting in delays whenever shareholders were slow to agree on board composition or audit appointments.

Taken together, these amendments reduce friction in the transformation process and facilitate more efficient movement into the joint stock company structure, a form often required for capital raising, regulatory licensing, and eventual listing. They also shift responsibility from newly formed organs (such as founders' committees) to the company's existing management, who are typically better placed to handle procedural and regulatory coordination. The changes will be particularly useful for companies preparing for private placements or longer-term capital markets strategies, as well as for groups restructuring in anticipation of mergers or acquisitions. Article 275 now offers a more practical and predictable pathway to joint stock company status.

Transfer of Registration and Corporate Continuation

The introduction of Article 15 (repeated) in the CCL establishes a unified statutory regime allowing companies to migrate, or continue, from one UAE jurisdiction to another, including between Emirates, between the mainland and free zones, and into or out of financial free zones, while preserving their legal personality without interruption. Under the amended framework, a company may, by special resolution or by the approval of an absolute majority of its shareholders, transfer its commercial registration from one competent authority to another. The law expressly affirms that the company's legal capacity, rights, obligations, assets and liabilities continue seamlessly following the transfer. The migration process is subject to compatibility between the registries of the transferring and receiving authorities, the absence of prohibitive annotations on the commercial register, and the procurement of all necessary regulatory approvals, including those of the Ministry of Economy or the SCA in the case of joint stock companies. Companies migrating into or out of financial free zones will also be subject to additional rules to be issued by the Council of Ministers.

By permitting continuation across UAE jurisdictions, the Amendment reduces the cost and complexity traditionally associated with restructuring, enables companies to move into jurisdictions that better suit their regulatory or commercial needs, as well as shifting economic activities, and ensures the uninterrupted preservation of corporate identity, licences, contracts and banking arrangements. It provides a meaningful tool for regulatory optimisation and facilitates internal group reorganisations without disrupting ongoing operations. However, further procedural detail will be required through implementing regulations, marking a step toward a more flexible and integrated corporate landscape within the UAE.

Conclusion and impact on changing UAE landscape

The Amendment to the CCL mark a significant milestone in the ongoing evolution of the UAE's corporate framework. While the CCL laid the groundwork for a more flexible and internationally aligned corporate environment, the latest reforms sharpen that foundation by addressing structural gaps, modernising shareholder and governance mechanisms, and introducing tools that better reflect the needs of a diversified, investment-driven and business- transfer and succession planning economy.

The clarification of the CCL's applicability to foreign companies and free-zone entities operating mainland/onshore enhances regulatory transparency and reduces longstanding ambiguity in cross-jurisdictional operations. The introduction of non-profit companies expands the corporate landscape and aligns statutory structures with the UAE's broader social and economic objectives. Amendments to Articles 14, 17 and 78 strengthen internal corporate governance by enabling the constitutionalising of widely used shareholder protections and by enhancing the integrity of in-kind capital contributions. The recognition of private placements in Article 32 reflects a mature capital markets strategy, while the adjustments to Article 266 facilitate more practical pathways into the private joint stock company structure.

Equally important are the governance reforms under Article 85, which address the risk of board-level deadlock by empowering regulators to intervene where necessary to preserve managerial continuity. The amendments to Article 275 streamline the process for corporate transformation, removing procedural obstacles that previously impeded conversions. Finally, the introduction of Article 15 (repeated) establishes a long-awaited, comprehensive regime for transferring registration between UAE jurisdictions, enabling companies to migrate without interrupting their legal personality. Together, these amendments represent a deliberate legislative shift toward greater flexibility, efficiency and investor confidence. They reinforce the UAE's position as a competitive and attractive jurisdiction for domestic enterprises, international investors and multinational groups seeking a stable base for regional operations. As implementing regulations are issued and practice develops, the full impact of these reforms will become clearer. For now, the Amendment stands as a significant step in the UAE's continued trajectory toward a sophisticated, dynamic and globally integrated corporate legal system.

this article is first published with LexisNexis Middle East

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