In the dynamic and competitive business environment of the UAE, legal clarity is not just a formality—it’s a necessity. The country continues to attract startups, SMEs, and international investors who collaborate to build ventures across industries. In this climate, many business owners believe that executing a Memorandum of Association (MOA) at the time of company formation or additional investment/ merger is sufficient to protect their interests and define their relationship with other shareholders/ partners. However, this misconception, quoting from years of experience, has led to significant legal disputes, misaligned expectations, and, in some cases, a total collapse of promising ventures.
While the MOA is an essential constitutional document for any entity operating under the UAE laws, it is not designed to cover the intricate, evolving dynamics between shareholders. A standard MOA outlines the company’s name, legal structure, business activities, registered office, shareholding percentages, and basic management roles. It is submitted to the relevant authorities and forms part of the public record. While that might be enough to establish the company legally, it does little to address the “what ifs” that inevitably surface in the lifecycle of a business venture. For instance, what will be the exit mechanism for any shareholder, what if there is a deadlock in decision making, or what if one party refuses to contribute further capital? The MOA is simply not built to address such complex corporate issues, and this is where a thoroughly drafted Shareholders’ Agreement (“SHA”) becomes not only useful but absolutely critical.
An SHA, by contrast, is a legally binding contract that offers a comprehensive roadmap for shareholder relationships. It governs how the company will be operated, how decisions will be made, how profits will be distributed, and how conflicts will be resolved. Unlike the MOA, it is not filed with government authorities, making it ideal for including sensitive provisions such as dividend policies, exit strategies, valuation mechanisms, and confidentiality obligations.
In the context of UAE businesses, the SHA assumes an even more vital role. The UAE’s Commercial Companies Law, while comprehensive, leaves significant room for interpretation and customization through commercial contracts. For instance, the law does not cover extensive protection for minority shareholders. Without an SHA, minority investors may find themselves sidelined in important decisions or disadvantaged during capital calls and share transfers. A well-drafted SHA, however, can introduce crucial protections such as tag-along rights, veto powers on key matters, and mechanisms for fair valuation of shares in the event of an exit.
Another practical reality in the UAE is that many companies are closely held by founders, families, or joint venture partners. In such cases, a detailed SHA bridges the legal gap by laying down clear governance rules, voting thresholds for key decisions, and even provisions for mediation or arbitration in case of conflict. This legal foresight can make the difference between an amicable resolution and a drawn-out dispute that damages the business. For instance, consider a startup raising its first external investment. The amended MOA might record that an investor has acquired a 20% stake in the company, but it would not cover the provisions on share transfer processes, exit mechanisms, IP protection, dispute resolution mechanism, profit & loss distribution, future capital injections, share valuation methods, rights over major capital expenditures―all of which shall be addressed in an SHA.
Further, there are legal subtleties that make the SHA more flexible than the MOA. Since the MOA is filed with authorities, any change to it requires a notarized amendment and official approval, which can be time-consuming and costly. On the other hand, the SHA can be amended by the parties as their relationship evolves, without having to go through official channels. This makes it a living document—capable of adapting to growth, changes in management, or shifts in business direction.
Ultimately, the SHA is not about distrust; it’s about clarity. It enables shareholders to align their expectations, understand their responsibilities, and prepare for the unexpected. In the long run, it fosters stability, reduces the risk of litigation, and adds credibility to the business—especially when seeking funding or entering strategic partnerships. To ignore the SHA is to leave the success of your business to chance. While the MOA gets your company off the ground, it is the SHA that keeps it flying straight.
