Reinventing Capital Markets in the UAE: How New Share Structures and Exit Rights Are Reshaping Fundraising

The UAE’s recent amendments to the Commercial Companies Law (CCL) mark a significant shift in how companies can structure equity and governance to attract investment. The reforms explicitly permit multi-class share structures, drag-along and tag-along rights, and the creation of new share categories, giving companies greater flexibility while enhancing investor protections. By aligning statutory law with global corporate practices, the UAE has signalled its commitment to creating a predictable and investor-friendly business environment.

 

The amendments allow mainland companies in the UAE to issue multiple classes of shares with differing economic and governance rights, such as varying voting power, dividend priority, liquidation preferences, and other bespoke privileges. Multi-class share structures enable founders and key stakeholders to retain strategic control while offering investors tailored economic rights. This balance between control and participation allows companies to attract venture capital and institutional investors without compromising their long-term vision. Investors, in turn, benefit from greater clarity around voting rights, dividends, and exit mechanisms, strengthening confidence in corporate governance and future prospects.

 

The introduction of new share categories also allows companies to design equity instruments suited to diverse investor profiles, including preference shares, convertible shares, or shares with customised voting or dividend rights. This flexibility enables firms to raise capital efficiently without unduly diluting existing shareholders or creating governance conflicts, enhancing the appeal of UAE companies as platforms for growth and long-term strategic partnerships.

 

Drag-along and tag-along rights, now formally recognised under the amended CCL, further enhance investor certainty. Drag-along rights ensure that majority shareholders can execute exit opportunities efficiently, while tag-along rights protect minority investors by guaranteeing fair treatment during sales. The statutory codification of these rights reduces legal ambiguity and aligns UAE companies with international investment norms, making them more attractive to both regional and global investors.

 

Why this matters to investors

• Tailored investment options: Investors can negotiate instruments such as preference shares with fixed dividends or convertible equity that better match their risk appetite and return expectations.

• Sophisticated capital structuring: Companies can offer strategic incentives to key talent, founders, and institutional investors while preserving control.

• Alignment with global norms: UAE onshore entities are brought closer to international private equity and venture capital practices, which increasingly rely on complex share classes to structure deals.

• Strategic control with participation: Founders and key stakeholders can retain decision-making authority while offering investors meaningful economic participation, ensuring stability in vision and governance.

• Exit certainty and protection: Drag-along rights facilitate smooth exits by allowing majority shareholders to include minority shareholders in a sale, while tag-along rights ensure minority shareholders can exit on the same terms, safeguarding fair treatment and investment value.

 

Overall, these reforms strengthen investor confidence, streamline capital-raising processes, and position the UAE as a competitive hub for business and investment. Companies that leverage these tools effectively can access a broader pool of capital while building enduring relationships with investors, accelerating growth and reinforcing the country’s role as a leading regional investment destination.

 

For businesses and investors navigating these new opportunities, professional guidance is essential. The flexibility and complexity introduced by multi-class shares, bespoke share categories, and exit rights require careful legal structuring to maximise benefits while ensuring compliance with the amended CCL. Engaging experienced corporate lawyers can help companies design robust governance frameworks, draft tailored shareholder agreements, and implement strategies that protect both founders and investors, supporting sustainable growth in the UAE.

 

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