As businesses evolve, investors, partners and employees may come and go, and transfers of share capital typically become more frequent. Any such changes must be formalised through a share transfer agreement, also known as a share transfer deed.
No new shares are created in a share transfer; the ownership of existing company shares is simply transferred from one party to another, generally for a financial consideration. A share transfer is typically triggered by a business acquisition or merger, a restructuring or as part of succession planning.
In the UAE, a properly notarised share transfer agreement is a legal requirement. Whether it’s a full or partial change in company ownership, the transfer of shares in a private limited company must be carried out in accordance with the law and the company’s Memorandum of Association (MoA) – the ‘rulebook’ by which the company is governed.
Why might a shareholder transfer shares?
There are many possible reasons for a transfer of shares. An owner may be stepping away from the business, passing it on through succession, or bringing in a new partner, investor or employee.
Mergers, exits and internal restructuring can also trigger a transfer. Existing shareholders may transfer their shares because they need the cash, they would rather someone else owned them, or because they want to leave the business.
Families can use share transfers to shift control of a family business. Shares may also transferred as part of the probate process when a shareholder dies.
Foreign direct investment in the UAE
In 2021, the UAE implemented a legislative change to the Commercial Companies Law (CCL) permitting 100% foreign ownership of certain mainland companies. This generally removed the requirement for a UAE national to own at least 51% of the shares in the capital of a UAE company.
This change applied to both new and existing companies, provided that they are carrying out activities that fall under the ‘positive lists’ that are issued by the relevant Department of Economic Development (DED) in each emirate.
As a result, many mainland companies carrying on activities where obtaining 100% foreign ownership is permitted now have the option to terminate existing agreements and restructure. This will involve the transfer of shares from UAE national shareholders to the foreign investor.
In some cases, depending on the business activities and goals of the UAE company, a local individual or corporate partner may still be required or preferred to expedite processes, access government projects, and help with liaison and third party approvals.
Where obtaining 100% foreign ownership is preferable, it is also advisable to undertake contract audits to assess the impact on key trading relationships and any change of control provisions that may be triggered in key business contracts.
Transferring ownership procedure
The procedure involves a number of legal and administrative steps which will apply to any intended transfer of shares in a private company:
The share transfer agreement sets out the key terms of the deal. It names the buyer and seller, states how many shares are being transferred, the price, and how payment will be made. In the UAE, a clear, signed share transfer agreement is essential to complete the process correctly.
Although these are the essential legal and administrative steps, the transfer process and required documents vary slightly depending on the type of company – Mainland, Free Zone or Offshore – in respect of obtaining approval from the relevant authorities.
Transferring ownership – Mainland companies
For share transfers in the UAE mainland, whether a full sale or a partial business ownership transfer, an application must be submitted to the Department of Economic Development (DED) along with the following required documents:
- Share Transfer Agreement.
- MoA duly updated with the new ownership structure.
- Copies of passports and Emirates IDs of the new and existing shareholders.
- Non Objection Certificate (NOC) from the local sponsor, if applicable.
- Proof of payment or consideration for the transfer.
The applicant must pay the applicable DED transfer fees. If approved, the DED will issue a new trade licence showing the updated shareholding.
Transferring ownership – Free Zone companies
The UAE’s free zones follow a different transfer process to the mainland. While the steps are broadly similar – shareholder approval, STA, updated MOA and regulatory approval – each Free Zone Authority has its own rules, forms and submission methods. Typically these are accessed via online portals.
Applicants are required to notify the Free Zone Authority about the intended transfer and provide the necessary documents, which will be similar to those required by the DED above.
Having paid the applicable fees and obtained an amended licence with updated ownership details, they must amend the MoA to reflect the change in shareholding, which should be duly notarised.
Free Zone companies are also required to notify the relevant authorities, including any regulatory bodies covereing their specific sector, and the Federal Tax Authority (FTA) if the company is VAT-registered.
Using the The Dubai Multi Commodities Centre (DMCC) as an example, the share transfer is effected via the Member Portal. Once logged in, the applicant selects the relevant share transfer category – between existing shareholders, to a new individual, or to a new company – and fills out the share transfer request and pays the transfer fees.
The documents required vary according to the transferee:
- Individual shareholder – passport and visa copies, Emirates ID, proof of address, specimen signature and a signed KYC form.
- Company shareholder – a board resolution, trade licence, certificate of incumbency, MoA, corporate documents and a declaration of ultimate beneficial ownership.
Once submitted, the DMCC checks the documents, carries out internal approvals and, in some cases, publishes a notice in a local newspaper for a set period. Once approved, the DMCC issues the updated MoA and share certificates to new shareholders.
While the process of company share transfer in a free zone is generally quicker than in the mainland, the share transfer in private company structures demands accuracy, especially when multiple shareholders or external regulatory approvals are involved.
Important legal and practical considerations
Capital gains tax does not apply in the UAE and there is no stamp duty on share transfer of a private company, but notarisation and DED or Free Zone Authority registration fees may apply. If the company is VAT-registered, you must ensure compliance with VAT rules.
The MoA’s of private companies often set restrictions on share transfers, including pre-emption rights for existing partners. There may also be restrictions on the type of person who can acquire shares, such as family members in a family-owned company. Where a shareholder dies, the MoA and any shareholders’ agreement may contain specific provisions as to how that person’s shares are to be transferred.
These rights and restrictions can delay or block the transfer process if not managed correctly. Professional advice is generally essential when the deal involves multiple shareholders, a regulated activity or a complex shareholding structure. This can ensure a smooth transition and help avoid delays or disputes.
How can Sovereign PPG help?
Sovereign PPG has expertise and experience in handling company ownership transfers, drafting share transfer agreements, securing necessary approvals and effecting corporate restructuring across the UAE. We also provide reliable directorship services, including acting general manager and interim general manager support, as well as complete PRO solutions.
If you need assistance with any aspect of business set up, ownership changes or corporate administration in Abu Dhabi, Dubai, the wider UAE, Oman, Bahrain, Qatar or Saudi Arabia, call us on +971 (0)4 456 1761 for Dubai or +971 (0)2 448 5120 for Abu Dhabi, email us at sovppg@sovereigngroup.com, or complete the contact form below.
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