The End of the Nominee Era: Transitioning from "Silent Partner" Side Agreements to Multi-Class Equity

The enactment of Federal Decree-Law No. 20 of 2025 constitutes a foundational recalibration of the corporate legal architecture within the United Arab Emirates. By introducing substantial amendments to Federal Decree-Law No. 32 of 2021 regarding Commercial Companies, the federal government has effectively signalled the end of a rigid, pro-rata equity era and the commencement of a sophisticated, rights-based governance regime for mainland Limited Liability Companies (LLCs). This legislative pivot is designed toharmonisee the onshore commercial environment with international best practices and common-law standards, providing High Net Worth Individuals (HNWIs) and Family Offices with the structural flexibility historically reserved for free-zone entities or foreign jurisdictions.

The transition from the 2021 framework to the 2025/2026 regime is not merely incremental, it represents a qualitative leap in how capital is defined, how control is allocated, and how exits are secured. Central to this transformation is the decoupling of economic participation from governance authority, a mechanism enabled primarily through the revision of Article 76.

1. Structural Analysis of Article 76: The Advent of Multi-Class Equity

The revision of Article 76 marks the definitive end of the "one-size-fits-all" capital requirement for mainland LLCs. Historically, the law mandated that the capital of a Limited Liability Company be divided into quotas of equal value, which implicitly forced a linear relationship between capital contribution, profit sharing, and voting power. The 2025 amendments, specifically through the introduction of Article 76(4), dismantle this restriction by authorising the classification of shares into different categories with bespoke rights and obligations.

2. Differentiated Voting and Economic Rights

Under the amended Article 76(4), a company’s Memorandum of Association (MoA) may now stipulate the issuance of multiple share classes, each possessing unique attributes regarding governance and financial returns. This allows for the creation of sophisticated capital stacks that include different classes of partners’ quotas with differentiated rights, including voting rights, redemption rights, and priority in profit or liquidation distributions.

Dividend priority permits a specific class of shareholders to receive profit distributions ahead of other classes, a mechanism critical for Family Offices seeking to provide fixed income to non-active family members while retaining growth equity for active managers. Liquidation preference provides a safeguard for institutional investors, ensuring they recover their initial investment, or a multiple thereof, before any capital is distributed to common shareholders during a winding-up or sale event.

3. The Technical Mechanism of Nominal Value Variation

Article 76(4) also hints at the flexibility of nominal values within different classes. While the standard practice has been to maintain a uniform nominal value for all quotas, the new law permits variations in the nominal value of shares across different classes, provided these details are recorded in the Commercial Register and the company’s MoA.

4. Weighted Voting: Proportionality vs. Strategic Control

The question of "Weighted Voting" is central to the new regime’s flexibility. Under the historical 2021 law, voting rights were strictly proportional to shareholding percentages. The 2025 amendments radically depart from this principle by allowing voting rights to be decoupled from ownership.

5. StatutoryAuthorisationn and Executive Limits

A primary technical inquiry for corporate counsel is whether a minority shareholder holding 10% of the capital can legally exercise 90% of the voting power. Federal Decree-Law No. 20 of 2025 provides the statutoryauthorisationn for such an arrangement through Article 76(4), which permits thecategorisationn of shares into classes with different voting rights. However, the law stipulates that the "classes, conditions, and governing rules" will be determined by a subsequent Cabinet Resolution.

While the statute enables the divergence of votes and ownership, practitioners must anticipate that the implementing regulations may impose certain caps or "sunset clauses" on extreme weighted voting structures to prevent governance abuse or the disenfranchisement of minority investors. Current market analysis suggests that while the law permits significant flexibility, the final Cabinet decisions will likely set the maximum ratio of votes-per-share for specific classes of companies.

6. The "51% Myth" vs. Reality: The Obsolescence of Side Agreements

For decades, the UAE mainland was characterised by a reliance on "Silent Partner" or "Nominee" side agreements. These extra-statutory arrangements were used to bypass the requirement for 51% local ownership while transferring economic control to the 49% foreign "minority" owner. The 2020 FDI reforms began the dismantling of this system by allowing 100% foreign ownership in most sectors.

7. Integration into the Constitutional Framework

The 2025 amendments allow the complex economic and governance arrangements previously hidden in side-agreements to be integrated directly into the company’s Memorandum of Association. By creating different classes of shares, a company’s profit distributions may be structured differently from capital ownership, subject to the statutory rules governing profit participation.

This move from "Contractual" to "Constitutional" rights is a significant victory for HNWIs and Family Offices. It removes the risk that a local partner’s heirs might challenge a side agreement in court, as the rights are now publicly registered with the competent licensing authority in the relevant Emirate and are a matter of public record in the Commercial Register.

8. Statutory Exit Rights: Drag-Along, Tag-Along, and Succession Planning

A persistent challenge for mainland LLCs has been the enforcement of exit rights. Historically, if a majority shareholder wanted to sell the company, they relied on a private Shareholders’ Agreement (SHA) to force a minority shareholder to sell (drag-along). However, if the minority

refused to sign the transfer documents at the Notary Public, the majority was forced into years of litigation, as the Notary often refused torecognisee the SHA without a court order

9. Codification of Exit Mechanisms in the MoA

The 2025 amendments, through the introduction of Article 14(4), allow drag-along and tag-along rights to be embedded directly into the company’s Memorandum of Association or Articles of Association. This is a transformative development for two reasons:

• Enforceability: By sitting within the company’s constitutive documents, these rights become a matter of statutory corporate mechanics rather than mere contractual obligation.
• Notary Recognition: The inclusion of these rights in the notarised MoA provides a clearer mandate for the Notary Public or the competent authority to process share transfers even in the event of a shareholder default, provided the pre-agreed conditions in the MoA are met.

10. Preemption Rights and Strategic Disapplication

A technical nuance remains regarding the preemption rights regime in LLCs. The Commercial Companies Law grants existing partners a statutory right of first refusal on any share transfer. To ensure that a drag-along right is effective, the MoA must be precisely drafted to include an express waiver of these preemption rights during a drag-along event. The 2025 law permits this level of advanced drafting, enabling shareholders to "pre-approve" the waiver of their preemption rights under specific commercial conditions.

11. Succession Planning and the Death of a Shareholder

To mitigate the risk of corporate paralysis upon the death of a major shareholder, a frequent concern for family-owned businesses, the law now permits the MoA to contain pre-agreed succession mechanisms. These provisions may include:

• Right of First Refusal for Surviving Partners: Allowing remaining shareholders to acquire the deceased's shares at an agreed price or a price determined by a court-appointed expert.
• Company Acquisition of Shares: Interestingly, the law now contemplates that the company itself could acquire the relevant shares, effectively treating them as treasury shares or cancelling them to consolidate ownership among the survivors.

12. The Role of Accredited Valuers

Under Article 78, any in-kind contribution must be precisely evaluated by one or more valuators approved according to the applicable regulations. If an accredited valuation is not obtained, the contribution is considered invalid. This closure of a historical loophole ensures that the capital stated on the trade license represents real value, protecting creditors and minority shareholders from the dilution effects of "inflated" asset valuations.

Furthermore, the partners are held personally liable for any discrepancy between the stated value and the actual value of the in-kind contribution at the time of the transfer. If the competent authority determines an overvaluation, the partners must provide a cash "top-up" to the company’s capital.

13. Transition for Existing LLCs

Existing mainland LLCs are not automatically grandfathered into the new regime with multi-class shares. They must actively "upgrade" their Memorandum of Association through the competent licensing authority in the relevant Emirate.

14. UBO Implications: Decoupling Ownership from Control

The introduction of multiple share classes and weighted voting has profound implications for Ultimate Beneficial Owner (UBO) reporting. Since August 2020, UAE companies have been required to disclose the natural persons who ultimately own or control them under Cabinet Resolution No. 109 of 2023 regulating Real Beneficiary procedures (which repealed Cabinet Resolution No. 58 of 2020).

Previously, UBO identification was relatively simple: anyone owning 25% or more of the shares was a UBO. With the 2025 amendments, the definition of "Control" must be applied with much greater nuance :

• Voting Rights Threshold: A natural person who holds 25% or more of the voting rights is a UBO, even if they own 0% of the capital.
• Indirect Control: If no individual meets the 25% ownership or voting threshold, the "Control by Other Means" test applies. This includes individuals who have the right to appoint or remove the majority of directors/managers, a power often tied to specific share classes under the new Article 76.
• Transparency Obligations: Companies must now maintain a "Partners or Shareholders Register" that specifically tracks the "Share Class" and "Voting Rights" of each individual to ensure the UBO declaration accurately reflects the new governance reality.

Any change in the share class rights, such as converting a non-voting share to a voting share, triggers a mandatory UBO update within 15 days from the date the company becomes aware of the change.