Federal Decree-Law No. 20 of 2025

What does this mean for Companies?

April 2026

Federal Decree-Law No. 32 of 2021, commonly referred to as the UAE Commercial Companies Law, has recently been subject to a number of important amendments. Federal Decree-Law No. 20 of 2025 is not a standalone law but a decree-law that amends specific provisions of the 2021 legislation by replacing and revising certain articles.

This article considers the impact of some of those changes, focused on shareholding in Mainland LLC’s, and what they may mean for companies operating in the UAE going forward.

Background: Evolution of the Commercial Companies Law

The UAE Commercial Companies Law is periodically updated to reflect changes in business practice and investor expectations. The 2021 law replaced the earlier 2015 legislation and introduced several significant reforms. One of the most notable developments at that time was the move toward allowing 100% foreign ownership in many mainland companies, bringing the mainland regime closer to free zone structures, where full foreign ownership had long been permitted.

Despite these reforms, mainland companies continued to differ from free zone entities in certain respects. One key difference concerned the classes of shares that could be issued. Mainland LLC companies were limited to issuing ordinary shares only, which meant that all shareholders were treated equally in terms of voting rights and dividend entitlement based on their percentage shareholding. All shareholders were also required to be listed on the trade licence of the company.

This position differed from a number of other jurisdictions and certain free zones, where companies can issue multiple classes of shares, including preferential shares. Preferential shares are often used in investor structures because they can offer priority dividend rights or other economic advantages.

Ordinary shares provide equality among shareholders according to their shareholding percentage. By contrast, preferential shares can offer greater flexibility. In many jurisdictions, preferential shareholders may be entitled to a guaranteed fixed or priority dividend and, if that dividend is not realised in a given year, it may be carried forward into future years. This differs significantly from dividends payable to ordinary shareholders, which depend entirely on the company declaring profits. If there are no profits, no dividend is payable; there is no guaranteed return and no possibility to carry forward into future years.

However, this guaranteed return often comes with a trade-off. In many jurisdictions, preferential shareholders accept reduced or no voting rights and may not participate in company decision-making to the same extent as ordinary shareholders.

New Flexibility in Share Classes – Article 76

Federal Decree-Law No. 20 of 2025 replaces Article 76 of the Commercial Companies Law and introduces an important shift by expressly permitting different classes of shares in mainland companies.

Article 76(4) now provides that partners’ shares may be classified into different categories in terms of value, voting rights, redemption rights, priority in the distribution of profits or liquidation, or other rights, privileges or restrictions, in accordance with the Memorandum of Association. The details of each share class, including its rights and restrictions, must be recorded in the Commercial Register.

This represents a significant development for mainland companies. The amendment introduces flexibility that previously existed primarily in free zones and international jurisdictions. Mainland companies may now structure share capital in a way that reflects commercial realities and investor expectations.

This change allows companies to attract different types of investors without necessarily giving up control. It also creates opportunities for implementing employee share incentive schemes, such as employee stock ownership plans (ESOPs), allowing companies to offer shares to employees as an incentive and align them more closely with the success of the business. Such schemes were initially popular in the technology sector but are now increasingly used across a range of industries.

Contributions in Kind

Another notable amendment relates to the nature of capital contributions. Historically, share capital in mainland companies was based solely on cash contributions. Federal Decree-Law No. 20 of 2025 introduces, for the first time in a structured way, the concept of contributions in kind for mainland companies.

This does not extend fully to what is commonly referred to as “sweat equity”, but it does allow non-cash contributions. In many jurisdictions, such contributions may include tangible assets such as machinery, vehicles and equipment, as well as intangible assets such as intellectual property, including patents, trademarks and copyrights.

Sweat equity remains specifically restricted. Article 17(2) provides that a partner shall not contribute by way of work unless he is a joint partner, and a partner’s contribution may not consist of reputation or influence. Accordingly, contributions must consist of cash or property capable of valuation. 

While Article 17 allows for certain limited scenarios involving work contributions in joint partnerships, it does not extend beyond those circumstances and does not recognise personal characteristics or influence as a valid contribution. The intention behind Articles 17 and 78 is to ensure that contributions consist only of assets that can be objectively valued.

This amendment is nevertheless significant because it allows greater flexibility in how shareholders capitalise a company. Contributions in kind must be transferred in ownership to the company in order to be recognised and must be valued at the contributing partner’s expense. If a contribution is overvalued, the partner who made the contribution may be liable to the company for the difference between the valuation and the actual value.

Drag-Along and Tag-Along Rights

Historically, the Commercial Companies Law allowed shareholders to transfer their shares subject to the company’s constitutional documents and statutory thresholds. In practice, this meant that minority shareholders could potentially block a sale of the company if required approval thresholds, often 75%, were not met. This has long been a challenge for companies and has given minority shareholders considerable leverage in certain situations.

Federal Decree-Law No. 20 of 2025 introduces amendments to Article 14 that now provide for drag-along and tag-along rights. These rights, sometimes referred to as “come-along rights”, are common in many jurisdictions and are designed to ensure that business decisions, particularly sales of shares, are not unduly restricted.

Drag-along rights generally favour majority shareholders. Where the majority wishes to sell its shares to a third-party purchaser, these provisions allow the majority to require minority shareholders to sell their shares on broadly similar terms. This ensures that the purchaser can acquire the entire share capital if required.

Tag-along rights favour minority shareholders. They allow minority shareholders to participate in a sale initiated by the majority and require a third-party purchaser to offer the same terms to all shareholders at the same price per share. While similar in concept, tag-along rights provide minority shareholders with the ability to participate in an exit, whereas drag-along rights enable the majority to proceed with a sale even if the minority would otherwise prefer not to.

The amended Article 14 introduces Article 14(4)(a), which allows these rights to be incorporated into a company’s Memorandum of Association. This is a welcome development that provides greater clarity and flexibility when structuring share transfers and exits. It allows companies to determine the circumstances in which such rights apply and the conditions attached to them.

These provisions help ensure that majority decisions are not unnecessarily delayed while still offering protection to minority shareholders.

Are these changes automatically applied?

Whilst Federal Decree-Law 20 of 2025 provides for these changes they are not automatically incorporated into a company’s constitution. In order for companies to benefit from these new provisions they will be required to formally amend their current constitutional documents, Memorandum of Association/Article of Association. Amendments to the Memorandum of Association/Article of Association require a Special Resolution and companies will need to follow their current governance in this respect.

In addition, it is often the case that separate shareholders agreements are in place. These agreements may not provide for the recent changes and these will need to be amended, assuming that the companies Memorandum of Association/Article of Association is amended via special resolution, to reflect any changes. This however needs to be mutually agreed between the parties and companies will not be able to force a shareholder into accepting any amendment that dilutes, restricts or removes their current benefits.

Conclusion

The amendments introduced by Federal Decree-Law No. 20 of 2025 represent an important evolution in the UAE Commercial Companies Law. By allowing different classes of shares, recognising contributions in kind and introducing drag-along and tag-along rights, the law now offers mainland companies greater flexibility in structuring ownership and investment.

These changes bring mainland company structures closer to those available in free zones and international jurisdictions and reflect the UAE’s continued effort to align its corporate framework with global best practice. Companies should consider reviewing their Memorandum of Association and shareholder arrangements to determine whether amendments may be appropriate in light of these developments.