The Great Convergence: How the UAE’s 2025 Company Law Reforms Are Bringing Mainland Business Closer to the Free Zones

For years, the UAE operated two parallel corporate regimes. Onshore, the mainland Commercial Companies Law provided a relatively rigid menu of corporate structures, reflecting a civil law tradition and a preference for uniform rules across companies. In the financial free zones, most notably the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), investors had access to the flexible, common law mechanisms they were familiar with internationally, including bespoke share rights, sophisticated shareholders’ agreements and the exit mechanisms that underpin venture capital and private equity transactions.

The result was a persistent divide. Sponsors seeking greater flexibility often had to structure investments through the financial free zones or offshore holding companies, even where the underlying business operated entirely on the mainland.

Federal Decree-Law No. 20 of 2025, issued on 1 October 2025 and effective from 15 October 2025, the day after its publication in the Official Gazette, is the clearest indication yet that this divide is narrowing. Rather than replacing the 2021 Commercial Companies Law, the Decree-Law amends it, weaving internationally recognised corporate mechanisms into the legal framework governing approximately 760,000 registered companies. The result is a significant convergence, with mainland company law increasingly resembling the free zone regimes from which it once differed.

Share Classes and More Flexible Capital Structures

The most significant reform is that limited liability companies (LLCs) may now issue multiple classes of shares. Under the amended Article 76(4), an LLC can create different classes of shares carrying varying voting rights, dividend entitlements, redemption rights or liquidation preferences, mechanisms previously available only to public joint stock companies or companies incorporated in the financial free zones.

The importance of this change cannot be overstated. Preference shares, weighted voting rights and tailored economic interests are fundamental tools for institutional investors. Without them, mainland LLCs struggled to accommodate the preferred equity structures typically required by venture capital and private equity investors. The amendment makes such arrangements possible directly under mainland law for the first time.

The reform, however, is not yet fully operational. Until the Cabinet issues detailed implementing regulations specifying the permitted classes of shares and the conditions governing them, the default principle of equal treatment among shares remains in force.

The amendments also permit shareholders to contribute assets instead of cash as capital contributions, subject to valuation by accredited valuers and review by the competent authority. This broadens the ways in which companies may be capitalised, making it easier to contribute intellectual property, equipment or an existing business to a newly established company.

Stronger Exit and Succession Rights

Alongside greater capital flexibility, the amendments strengthen shareholder exit mechanisms.

For the first time, UAE law expressly recognises drag-along and tag-along rights, long-established features of international shareholders' agreements but previously without statutory recognition under mainland law.

A drag-along right enables qualifying shareholders to compel the remaining shareholders to participate in a sale to a third party once agreed conditions are satisfied, ensuring that a buyer can acquire the entire company without being blocked by minority holdouts. Conversely, a tag-along right allows minority shareholders to participate in a sale on the same terms as the selling shareholder, protecting them from being left behind.

By allowing these rights to be embedded in a company's constitutional documents, rather than existing solely in private contractual arrangements, the amendments provide them with a firmer legal foundation. Nevertheless, detailed shareholders' agreements will continue to govern many commercial issues, including valuation methodologies, confidentiality obligations and put and call option arrangements.

The reforms also introduce a statutory framework governing what happens to a shareholder's interest upon death. Companies or the remaining shareholders may now be given priority to acquire the deceased shareholder's shares at an agreed value. This is particularly significant for closely held and family-owned businesses, where the automatic transfer of shares to heirs has often created uncertainty and disputes.

Greater Corporate Mobility and New Organisational Structures

The amendments also make companies more mobile while expanding the range of corporate vehicles available.

A new provision allows companies to transfer their registration between competent authorities, including between emirates, from the mainland to a free zone and vice versa, and between different free zones, while preserving their legal personality, contracts, licences and operating history.

This enables businesses to align their corporate domicile with evolving commercial strategies, regulatory requirements or investor expectations without dissolving and re-incorporating or undertaking complex asset transfer exercises. Transfers involving the DIFC and ADGM, however, remain subject to further Cabinet decisions and local regulatory frameworks.

For the first time, the law also formally recognises non-profit companies as a distinct legal form. These entities provide an onshore corporate vehicle for charitable, social, cultural and mission-driven activities, with any surplus required to be reinvested in the organisation's stated objectives rather than distributed to members. The reform fills a long-standing gap for social enterprises and ESG-focused founders.

The amendments further confirm that companies incorporated in free zones and financial free zones possess UAE nationality, removing any lingering uncertainty over whether such entities could be regarded as foreign in contractual or litigation contexts.

In addition, amended Article 32 allows private joint stock companies to raise capital through private placements on UAE financial markets without undertaking a full public offering, creating a domestic fundraising route that previously encouraged many pre-IPO investments to be structured offshore.

What the Reforms Mean — and What Remains to Come

Taken together, these amendments move mainland UAE company law decisively towards the flexibility that investors have long associated with the financial free zones and other leading international jurisdictions.

The direction of travel is unmistakable. Multiple share classes, drag-along and tag-along rights, corporate re-domiciliation and private placements are all internationally recognised corporate tools that are now being incorporated into the mainland's civil law framework.

Founders, boards and investors now have a considerably broader toolkit for structuring investments, governance arrangements, financing transactions and exit strategies directly under mainland law, reducing the need to rely on free zone or offshore holding structures.

Existing companies should review their memoranda and articles of association to determine how best to take advantage of the new framework and whether existing provisions remain appropriate under the amended law.

The legislative architecture, however, is not yet complete. Several of the most significant reforms, particularly those governing multiple share classes and the licensing and governance of non-profit companies, still depend on implementing regulations from the Cabinet and the relevant authorities. Likewise, the new corporate mobility regime requires additional rules to facilitate transfers involving the DIFC and ADGM.

Until those measures are introduced, the convergence remains a framework awaiting full implementation rather than a fully operational system. Even so, the trajectory is now unmistakable. Mainland UAE company law is moving closer than ever to the sophisticated corporate environment long associated with the financial free zones.

 

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