UAE Corporate Governance: Key Legal Duties, Shareholder Rights and 2025–2026 Companies Law Updates

Corporate governance is often treated as a secondary issue when a business is first established. Founders are usually more concerned with obtaining a licence, deciding ownership percentages, raising capital and starting operations. Governance documents are sometimes adopted in a standard form without carefully considering how the company will actually be managed.

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That approach can become expensive as the business grows.

Questions that appear simple at incorporation can later become major sources of shareholder disputes:

Who can sign contracts on behalf of the company?
Who can operate company bank accounts?
Who can appoint or remove a manager?
Which transactions require shareholder approval?
What happens when shareholders disagree?
Can a shareholder sell shares to an outsider?
What happens to a shareholder’s interest after death?
How should a deadlock between shareholders be resolved?
Who bears responsibility when a director or manager abuses corporate authority?
Can a company or shareholder challenge a conflicted transaction?

These questions are at the heart of UAE corporate governance.

The principal federal framework for mainland companies is Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended, together with the company’s Memorandum of Association (MOA), Articles of Association where applicable, shareholders’ agreements and relevant regulations. Companies established in free zones may instead be governed by the applicable free-zone legislation where that legislation contains a special rule. Article 5 of the Commercial Companies Law expressly recognises this distinction.

The UAE has also continued to modernise its corporate framework. Federal Decree-Law No. 20 of 2025 amended important provisions of the 2021 Commercial Companies Law, with changes addressing areas including shareholder arrangements, share classes, succession, corporate mobility and governance flexibility. The Ministry of Economy and Tourism lists the 2025 amendments alongside the current Commercial Companies Law as part of the UAE’s companies legislation framework.

For businesses operating in the UAE in 2026, corporate governance should therefore be viewed not merely as a compliance exercise but as a practical system for preventing disputes and protecting the company’s long-term value.

What Does UAE Corporate Governance Mean?

In practical terms, UAE corporate governance means the system through which a company is directed, controlled and held accountable.

It determines the relationship between:

shareholders and partners;
directors and managers;
the company itself;
auditors and other professional advisers;
related parties;
creditors and other stakeholders; and
regulatory authorities.

The Commercial Companies Law places responsibility on boards and managers to comply with applicable governance standards. Article 6 provides for governance regulations and makes the company’s board of directors or managers responsible for applying the relevant governance rules and standards.

Good governance therefore begins long before a dispute reaches a court or arbitral tribunal.

Why Corporate Governance Disputes Arise

Many corporate disputes are not caused by the complete absence of law. They arise because the parties never clearly agreed how the business would be controlled.

For example, two founders may initially agree that both will manage the business. But their documents may never specify whether both signatures are required for:

borrowing money;
purchasing substantial assets;
entering long-term contracts;
hiring senior executives;
transferring intellectual property;
opening or closing bank accounts; or
selling a substantial part of the business.

As the company’s value increases, an informal understanding can become inadequate.

A carefully drafted MOA and shareholders’ agreement can reduce this risk by establishing a clear decision-making framework from the beginning.

Statutory Duties of Directors and Managers in the UAE

One of the most important principles of UAE corporate governance is that managerial authority comes with legal responsibility.

Article 22 of the Commercial Companies Law provides that a person authorised to manage a company must preserve the company’s rights and exercise due care and diligence expected from a prudent person. Management acts must also be consistent with the company’s objectives and the authority granted to the manager.

This means that managerial power is not an unrestricted personal right.

A manager who has authority to run the company’s ordinary business cannot simply treat corporate assets, information or opportunities as personal property.

The distinction between company interests and personal interests becomes particularly important when dealing with:

related-party transactions;
conflicts of interest;
company funds;
competing businesses;
confidential information;
corporate opportunities; and
transactions involving directors, managers or connected persons.

Personal Liability Can Arise

Article 24 is particularly important. It provides that a provision in the company’s MOA or Articles of Association purporting to release a current or former officer from personal liability arising from their position is void, subject to the provisions of the Commercial Companies Law.

For an LLC, Article 84 also imposes liability on managers for specified misconduct, including fraudulent acts and other forms of improper management identified by the law.

The practical lesson is straightforward:

Corporate status does not give directors and managers unlimited protection from personal liability.

Conflicts of interest are among the most sensitive corporate-governance issues.

A director who has a personal or competing interest in a transaction must not treat the board as merely a formality.

Article 150 requires a director of a joint-stock company who has a common or conflicting interest in a transaction submitted to the board to disclose that interest and have the disclosure recorded in the minutes. The director cannot vote on the relevant resolution. Failure to disclose may allow the company or a shareholder to seek judicial relief, including invalidation of the transaction or recovery of profits or benefits obtained from it.

Article 152 also regulates related-party transactions and restricts related parties from exploiting information obtained through their corporate position for personal benefit. The current statutory framework includes approval requirements for specified transactions, including transactions up to 5% of capital requiring prior board approval under the provision cited above.

For businesses, this makes proper documentation extremely important.

A company should maintain a clear process for:

identifying related parties;
declaring conflicts;
recording disclosures;
obtaining the required approval;
excluding conflicted decision-makers from voting where required; and
maintaining an appropriate audit trail.

UAE Corporate Governance and Financial Distress

Governance becomes even more important when a company starts experiencing financial difficulties.

For an LLC, Article 308 provides that when losses reach 50% of capital, the managers must place the question of dissolution before the partners at a General Assembly. If losses reach 75% of capital, partners holding at least 25% of the capital may call for dissolution.

This is not merely an accounting issue.

It can become a governance issue because directors and managers must ensure that the company responds appropriately when its financial position deteriorates.

A board or management team that ignores serious financial deterioration can expose the company and potentially individuals to increased legal and regulatory scrutiny.

Companies facing financial distress should therefore obtain legal, financial and restructuring advice early rather than waiting until creditors or shareholders initiate proceedings.

Supervisory Protection in Larger LLCs

The Commercial Companies Law also provides a specific governance mechanism for larger LLCs.

Where an LLC has more than 15 partners, Article 88 requires the appointment of a Supervisory Board consisting of at least three partners.

Under Article 89, the Supervisory Board can examine company books and records, request management reports and review matters including:

the balance sheet;
annual reports;
profit distribution; and
management activities.

It must submit its report to the General Assembly within the statutory period before the meeting.

This creates an additional layer of internal oversight and can be particularly valuable where ownership is divided among numerous partners.

Who Has Authority to Agree to Arbitration?

Arbitration clauses are common in UAE commercial contracts and shareholders’ agreements. But an arbitration clause is only useful if it has been validly agreed.

Article 4 of Federal Law No. 6 of 2018 on Arbitration provides that an arbitration agreement may be entered into by a natural person having capacity or by a representative of a legal person who is authorised to conclude the arbitration agreement. Otherwise, the agreement is null and void.

This creates an important corporate-governance question:

Did the person signing the arbitration agreement actually have authority to bind the company?

For joint-stock companies, the Commercial Companies Law contains additional requirements concerning the authority of the board to agree to arbitration.

Therefore, when drafting a shareholders’ agreement, investment agreement or commercial contract containing arbitration provisions, lawyers should examine both:

the arbitration clause itself; and
the internal corporate authority supporting the person who signs it.

A beautifully drafted arbitration clause can still become vulnerable if the underlying corporate authority is defective.

Shareholder Remedies Under UAE Law

Corporate governance is not only about management responsibilities. It is also about protecting shareholders when corporate decision-making goes wrong.

Article 166 permits a shareholder of a joint-stock company to bring a claim against the company, its board or executive management where the shareholder suffers damage resulting from an act that violates the Commercial Companies Law. The law also provides a mechanism for recovery of qualifying legal expenses, subject to statutory conditions.

There is also a significant mechanism for claims involving related parties.

Under Article 167, a shareholder or shareholders holding at least 10% of the company’s capital may, subject to the statutory requirements, bring proceedings in their own name and on behalf of the company against a related party for damage suffered by the company. Before proceeding, the shareholder must make a written request to the board seeking that the company bring the claim. The board must reject the request or fail to respond within 30 days before the shareholder can proceed.

Importantly, compensation recovered in such a representative action belongs to the company, while qualifying legal expenses may be recoverable by the shareholders who incurred them.

This illustrates an important principle of UAE corporate governance:

Shareholder rights are not confined to voting at annual meetings. In appropriate circumstances, the law provides mechanisms for shareholders to challenge conduct that harms the company.

Major 2025 Changes to UAE Corporate Law

Federal Decree-Law No. 20 of 2025 represents one of the most significant recent developments in the UAE’s corporate-law framework.

The Ministry of Economy and Tourism identifies the decree as an amendment to Federal Decree-Law No. 32 of 2021. The reforms are aimed at further developing the UAE’s corporate and investment environment.

Among the changes particularly relevant to governance and shareholder arrangements are provisions dealing with:

greater flexibility in corporate structuring;
different classes of shares in LLCs;
shareholder exit arrangements;
drag-along and tag-along style rights;
succession arrangements following the death of a shareholder;
management continuity and deadlock-related issues;
non-profit companies; and
mechanisms supporting corporate mobility and restructuring.

Professional commentary on the amendments has highlighted the introduction of multiple share classes, statutory recognition of certain exit rights and mechanisms for dealing with succession and deadlock.

These changes make it even more important for companies to review their constitutional documents rather than relying indefinitely on documents prepared at incorporation.

One notable development is the increased flexibility surrounding different classes of shares in LLCs.

This can be particularly relevant where a company has:

founders who want to retain voting control;
investors seeking preferential economic rights;
strategic investors requiring particular protections;
different categories of shareholders; or
future financing rounds requiring differentiated rights.

The precise rights attached to each class must, however, be structured in accordance with the applicable law and implementing requirements.

This is where professional drafting becomes important.

A company should not merely create different share classes because they appear commercially attractive. It should determine precisely how voting, dividends, economic participation, redemption, liquidation and other rights interact.

Drag-Along and Tag-Along Rights

The 2025 amendments also provide a statutory basis for incorporating certain sale and exit arrangements into constitutional documents of LLCs and private joint-stock companies. Article 14, as amended, permits provisions concerning sale rights and arrangements relating to the interests or shares of a deceased partner or shareholder.

These mechanisms can help solve a common problem in private companies.

Suppose a majority shareholder receives an attractive offer to sell the company, but a minority shareholder refuses to cooperate.

A properly structured drag-along right can, subject to the applicable legal requirements, help the majority complete an approved sale.

Conversely, a tag-along right can protect minority shareholders by allowing them to participate in a sale by a controlling shareholder.

These provisions can significantly reduce uncertainty during an exit or acquisition.

Succession Planning Is Now a Corporate-Governance Issue

The death of a shareholder can create considerable uncertainty, particularly in closely held companies.

The 2025 amendments allow greater scope for constitutional documents to address arrangements concerning the transfer or treatment of shares or interests following the death of a partner or shareholder.

Companies should therefore consider succession provisions before a crisis occurs.

A well-designed governance framework can address questions such as:

Who can acquire the deceased shareholder’s interest?
Do existing shareholders have a purchase right?
How is the value of the shares determined?
Is an independent valuation required?
What happens if heirs disagree?
Can the business continue without interruption?
How will management authority be maintained during the transition?

For family-owned companies, these questions can be particularly important.

Deadlock: The Problem Every Founder’s Agreement Should Address

A 50:50 ownership structure may look fair when a company is established.

It can become dangerous when the shareholders stop agreeing.

If the MOA and shareholders’ agreement do not contain an effective deadlock mechanism, the company may become unable to make fundamental decisions.

A strong governance agreement should consider:

Notice of deadlock – defining when a deadlock formally arises.
Management discussions – requiring the parties to attempt an internal solution.
Escalation – referring the dispute to senior representatives or independent advisers.
Mediation – providing an opportunity for settlement.
Buyout mechanisms – allowing one shareholder to purchase another’s interest in appropriate circumstances.
Valuation methodology – establishing how the shares will be valued.
Final dispute resolution – specifying litigation or arbitration where appropriate.

The 2025 amendments’ increased flexibility around corporate structures make it particularly worthwhile to review these arrangements rather than assuming that generic incorporation documents will adequately address future deadlocks.

The MOA and Shareholders’ Agreement Must Work Together

One of the most common governance mistakes is drafting the MOA and shareholders’ agreement as if they were completely independent documents.

They should instead be reviewed as part of one governance architecture.

The MOA should clearly establish matters that need to operate at the constitutional level, while the shareholders’ agreement can provide detailed contractual arrangements concerning matters such as:

funding obligations;
confidentiality;
information rights;
business plans;
reserved matters;
transfer restrictions;
valuation mechanisms;
exit arrangements;
non-compete obligations where legally enforceable;
deadlock procedures; and
dispute resolution.

A shareholders’ agreement should not contain provisions that contradict mandatory UAE law or create an inconsistent governance structure.

Corporate Governance in Mainland and Free-Zone Companies

The phrase ‘UAE corporate governance’ does not describe one identical regime for every company.

Mainland companies generally operate under the federal Commercial Companies Law, subject to applicable sector-specific rules.

Free-zone and financial-free-zone companies may be subject to separate legal and regulatory frameworks where special rules apply. Article 5 of the Commercial Companies Law expressly recognises the special treatment of companies established in free zones and financial free zones.

Accordingly, before advising on governance, it is important to identify:

the company’s legal form;
the emirate in which it is registered;
whether it is mainland or free zone;
the applicable free-zone authority;
whether it operates in a regulated sector;
whether it is a public or private joint-stock company; and
whether additional regulator-specific governance rules apply.

A governance structure suitable for a mainland LLC may not automatically be suitable for a company established in a specialised financial free zone.

The 2026 Legislative Environment: Why Companies Should Review Their Documents

The UAE’s corporate-law environment continues to evolve.

The official UAE legislation platform describes itself as the government’s unified and updated source for federal laws, regulations and regulatory resolutions.

The UAE also introduced a new Civil Transactions Law in 2025/2026, with the government stating that the updated framework modernises civil transactions and harmonises company-related provisions with the wider commercial legislative framework.

For companies, the message is clear: incorporation documents should not be treated as documents that are drafted once and then forgotten.

A company experiencing a major investment, acquisition, ownership change, management transition or dispute should consider whether its existing governance documents still reflect the current legal and commercial position.

Practical UAE Corporate Governance Checklist

Every UAE company should consider reviewing the following areas:

Governance Area	Key Question
Management authority	Who can bind the company?
Banking authority	Who can operate bank accounts and approve payments?
Reserved matters	Which decisions require shareholder approval?
Board powers	What can directors approve without shareholder consent?
Share transfers	Can shares be sold to outsiders?
Pre-emption rights	Do existing shareholders have first-refusal rights?
Exit rights	Are drag-along and tag-along provisions required?
Succession	What happens when a shareholder dies?
Deadlock	What happens if shareholders cannot agree?
Related parties	How are conflicts disclosed and approved?
Financial distress	What happens when losses become substantial?
Arbitration	Does the signatory have authority to agree to arbitration?
Information rights	What financial and operational information can shareholders obtain?
Dispute resolution	What happens before litigation or arbitration?
Document consistency	Do the MOA and shareholders’ agreement say the same thing?

Conclusion: Good Governance Is a Business Protection Tool

UAE corporate governance is not simply a legal compliance requirement. It is a mechanism for protecting the company, its shareholders, directors, managers and investment value.

Most serious governance disputes do not begin with a dramatic breach of law. They often begin with an unanswered question.

Who has authority?
Who gets to decide?
Who must disclose a conflict?
Who can sell?
Who can remove the manager?
What happens if the shareholders disagree?
What happens when the founder dies?
What happens when the company starts losing money?

The UAE Commercial Companies Law provides an increasingly sophisticated framework for addressing these questions. The 2025 amendments have added further flexibility in areas such as share classes, exit rights, succession and corporate structuring.

The practical challenge, however, is translating those statutory possibilities into documents that actually work for the particular company.

Companies should therefore periodically review their:

Memorandum of Association;
Articles of Association, where applicable;
shareholders’ agreement;
management and board authorities;
related-party transaction procedures;
share-transfer provisions;
succession arrangements;
deadlock mechanisms;
financial-distress procedures; and
arbitration and dispute-resolution clauses.

A well-designed governance structure cannot eliminate every business dispute. It can, however, make the company’s decision-making process clearer, reduce uncertainty and give shareholders and management a defined legal framework when disagreements arise.

In a rapidly developing business environment such as the UAE, good corporate governance is ultimately an investment in corporate stability.

Frequently Asked Questions

1. What is UAE corporate governance, and why is it important for companies?

UAE corporate governance is the system used to regulate how a company is managed, controlled and held accountable. It defines the powers of shareholders, directors and managers, decision-making procedures, conflict-of-interest rules, shareholder rights and dispute-resolution mechanisms. Strong corporate governance helps prevent shareholder disputes and protects the company’s long-term interests.

2. What are the legal duties and liabilities of directors and managers in the UAE?

Under the UAE Commercial Companies Law, directors and managers must exercise appropriate care and diligence, act within their authority and comply with the company’s constitutional documents and applicable law. Managers may face personal liability for fraud, abuse of authority, legal violations and serious management errors. Companies should therefore clearly define management powers in their corporate documents.

3. What shareholder rights and legal remedies are available under UAE corporate law?

UAE corporate law provides shareholders with several protections, including rights relating to company management, information, certain transactions and legal challenges. In eligible joint-stock company cases, shareholders may bring claims concerning harm caused by unlawful conduct and, subject to statutory requirements, may bring representative actions on behalf of the company against related parties.

4. How do the 2025 amendments to the UAE Commercial Companies Law affect corporate governance?

The 2025 amendments introduced greater flexibility into several areas of UAE corporate governance and company structuring. Among other developments, the reforms address share classes, certain shareholder sale and exit arrangements, succession-related provisions and corporate management issues. Companies should review their Memorandum of Association and shareholders’ agreements to ensure that their governance structure reflects the amended law.

5. Can a UAE company include arbitration in its shareholders’ agreement or commercial contracts?

Yes, a UAE company can agree to arbitration provided that the arbitration agreement satisfies the requirements of UAE Arbitration Law and the person signing it has the necessary legal and corporate authority. For certain companies, additional approval requirements may apply. Companies should therefore verify the signatory’s authority and required corporate approvals before entering into an arbitration agreement.

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