UAE Trends and Developments Contributed by: Ahmed Ibrahim, Malack El Masry and Maryam Quadri, Ibrahim N Partners
Statutory recognition of tag-along rights A tag-along right (also referred to as a co-sale right) is a mechanism that entitles minority shareholders to participate in a sale of shares by a majority share - holder to a third-party purchaser. Where the majority agrees to transfer its stake, minority shareholders may require that the buyer acquire their shares on the same terms and at the same price per share as those offered to the majority. The right is typically triggered upon a proposed transfer exceeding a specified ownership threshold and operates proportionately, meaning minority shareholders may sell all or a correspond - ing portion of their shares alongside the majority. Tag-along rights are usually set out in shareholders’ agreements and may also be reflected in constitution - al documents to ensure they bind future shareholders. Effects of codification of tag-along rights This mechanism protects minority shareholders from being left behind under new control without liquid - ity and ensures equal treatment in change-of-control transactions, aligning with international minority pro - tection standards. When paired with drag-along rights, it embeds equi - librium within the corporate framework: majority effi - ciency in executing a sale is matched by minority safe - guards. This structural balance is central to modern deal practice and underpins investor confidence in multi-shareholder companies. The express recogni - tion of both mechanisms at the federal level signals legislative intent to formalise internationally accepted shareholder-alignment tools within the UAE’s civil law environment. Interaction with contract law principles Although now recognised within the CCL, drag-along and tag-along rights continue to operate through con - tractual implementation. Shareholders’ agreements remain the primary instrument defining thresholds, procedures and warranties. General principles of UAE contract law therefore remain relevant. Freedom of contract supports exit co-ordination tools. In practice, statutory recognition enhances enforceability but does not replace careful drafting. Drag thresholds, notice mechanics, execu -
tion obligations and limitations on minority warranties must be articulated with precision. Structural consequences for corporate architecture One of the most significant consequences of the CCL reform lies in corporate structuring. Historically, international investors often established offshore holding companies, most commonly in the UAE financial free zones (such as Dubai International Financial Centre and Abu Dhabi Global Market), which would sit above mainland operating entities. The rationale was frequently linked to exit certainty and predictable enforcement of shareholder rights given that these financial free zones rely on common law principles. With drag and tag rights now embedded in the fed - eral regime, mainland entities increasingly possess the legal infrastructure necessary to support sophisticat - ed shareholder arrangements directly. This reduces the historical structural distinction between onshore companies and entities incorporated in financial free zones for the sole purpose of embedding common- law style shareholder protections. This development has several implications: • reduced structural layering solely for exit predict - ability; • increased use of mainland holding companies; • greater alignment between operating and owner - ship vehicles; and • simplified group structures for mid-market transac - tions. This shift may be particularly significant for joint ven - tures, founder-led platforms and regional expansion vehicles that require flexibility without excessive struc - tural complexity. The Competition Law: defining regulatory boundaries While the CCL strengthens internal ownership mechanics, the Competition Law defines the regula - tory perimeter of transactions.
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