Side Agreements Uae

Apr 12, 2021 by     No Comments    Posted under: Uncategorized

The introduction of the new DL law is a welcome development for foreign investors. With its introduction, for companies that are able to take advantage of its benefits, a lighter approach to investments in the United Arab Emirates, with a reduction in the need for ancillary agreements, will likely be more frequent. In order to overcome the inconveniences associated with foreign ownership restrictions in the United Arab Emirates, many foreign investors are conducting transactions on the UAE mainland by hiring a UAE national to hold 51% of the UAE company`s share capital, effectively as a shareholder name, on behalf of the foreign investor (UAE Nominee) , the foreign investor holding the remaining 49%. As a general rule, separate private “ancillary agreements” are concluded between the foreign shareholder and the candidate in the United Arab Emirates, which are not subject to the usual registration and formalities of a company`s constitutional documents. While the MOA and the company`s commercial license may reflect de jure ownership, ancillary agreements can help the foreign shareholder protect its interests and ensure that it has control of the business. A recent Federal Court of Justice decision has shown a unique position on the issue of ancillary agreements. A shareholder of the United Arab Emirates (who owns 51% of the shares under the law) has filed a lawsuit and asked the court to confirm his right to 51% of the profits in accordance with the shareholder`s agreement. Subsequently, the Omani shareholder (which held 24% of the shares according to MOA) claimed that the company`s shareholders signed an ancillary agreement and entered into an agreement whereby VaE`s partner held 37.5% of the shares, the Omani partner 37.5% and the US company 25% against 24% of the previous shares. The Bundesgerichtshof decided that there was sufficient documented evidence to prove the existence of the subsidiary agreement, as the Omani partner argued. After reviewing all the documents provided by the Omani partner, the court concluded that there was sufficient evidence to demonstrate the existence of the ancillary agreement between the parties (and that the shares were distributed on the basis of 37.5% to the partners of the United Arab Emirates and grannies and 25% to the American company). Given the legal scenario, foreign investors have used secondary structures to maintain their controlling financial interests in their UAE businesses. As a result, it is customary in the United Arab Emirates for shareholders to make “nominated shareholder agreements” (NSA) or “Side Agreements” between the parties.

Under the NSA, a UAE national agrees to waive all rights of the LLC, exercise votes at general meetings and collect the proceeds from the sale of the shares. In short, the provisions of the NSA circumvent uae corporate law. The NSA or the tacit agreement prevents the majority shareholder of the United Arab Emirates from participating in the activities of the LLC, making the foreign partner the sole beneficiary and sole decision maker of the company.

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