UAE overhauls Companies Law in latest update to boost investment

10/12/2025 03:38 AST

The UAE has issued a new Federal Decree-Law introducing major amendments to the Commercial Companies Law, marking the latest step in a broader 2025 reform programme aimed at strengthening the country's position as a global business destination.

The new provisions modernise corporate structures, expand financing options, and create more flexible pathways for businesses operating across the UAE's diverse jurisdictions. Together, these changes are designed to increase competitiveness, support innovation and attract new investment across both commercial and social sectors.

One of the most notable updates is the formal introduction of the non-profit company - an entirely new category within the UAE's business landscape. Unlike traditional companies, non-profit entities must reinvest all net proceeds back into pursuing their stated objectives, rather than distributing earnings to shareholders or partners. By establishing this model in federal law, the UAE aims to provide a transparent and credible vehicle for social, cultural and developmental projects. It also opens the door for philanthropic organisations and mission-driven initiatives to operate with clearer governance and stronger legal protection.

The decree-law also expands how companies can structure their capital, allowing them to issue multiple classes of shares or stakes with different rights attached. These may include distinct voting rights, dividend priorities, redemption rules or liquidation preferences, as determined in the company's founding documents. This aligns the UAE more closely with international financial centres and supports businesses involved in private equity, venture capital, family enterprise structuring and corporate reorganisations. For investors, this flexibility means more tailored arrangements and better alignment between financial contribution and decision-making power.

In a major shift for financing, private joint-stock companies may now raise capital through private subscriptions on licensed UAE financial markets. Previously, companies seeking such funding often had to convert into public joint-stock firms - or look abroad for private capital structures. The new provision allows companies to access institutional and qualified investors domestically while retaining the advantages of a private corporate form. It is expected to reduce reliance on offshore funding hubs and channel more investment activity into the UAE's financial ecosystem.

Another key development is the regulation of how companies can relocate within the UAE or between onshore jurisdictions and financial free zones without losing their legal identity. The law sets out clear requirements for shifting a company's registration from one emirate to another or between mainland regulators and free zone authorities. This clarity strengthens the mobility of businesses, improves dispute prevention and ensures that the rights of minority shareholders are protected during any move. For companies expanding or restructuring across the UAE, the ability to relocate without liquidating and reincorporating represents a significant operational advantage.

The decree-law also modernises the rules governing share transfers and shareholder agreements. It formally recognises mechanisms such as tag-along and drag-along rights - tools widely used internationally to manage the sale of shares and protect investors, especially in mergers and acquisitions. By embedding these tools within corporate law, the UAE reduces the need for complex side agreements and promotes consistency in handling shareholder exits, takeovers and internal reorganisations. It also establishes procedures for handling shares when a shareholder or partner dies, offering greater continuity for family-owned businesses, which form a core part of the UAE's economic fabric.

Transparency is further enhanced through stricter controls on valuing in-kind contributions to capital. Any non-cash assets contributed to a company - whether equipment, real estate or intellectual property - must now be assessed by accredited valuers under clearly defined standards. These measures aim to prevent inflated valuations and ensure fairness for all partners and investors.

Sunil Ambalavelil, a prominent lawyer and CEO of Kaden Boriss, said while this decree-law is the most recent update, it forms part of a wider wave of reforms introduced throughout 2025 to modernise the UAE's corporate environment. "Earlier changes this year clarified how the Commercial Companies Law applies across onshore jurisdictions, free zones and foreign companies operating in the country. Free zone entities maintain their own regulatory frameworks, but when they conduct activities on the mainland - through branches, representative offices or service operations - they must comply with federal requirements. This clarification provides multinationals and regional groups with greater certainty when structuring cross-border UAE operations."

The 2025 amendments represent a significant leap in the evolution of UAE's corporate landscape, setting the stage for a more fluid, competitive, and globally integrated business environment. What stands out is the enhanced mobility for free zone entities and the ease of corporate transformations in the UAE. For businesses, this means they can restructure, scale operations across emirates, access new markets, and streamline ownership structures with far greater ease. The amendments also strengthen shareholder rights by clarifying mechanisms for share transfers, and ensuring equitable treatment of stakeholders, creating a more transparent, secure, and balanced ownership framework for business owners in the UAE.

Other adjustments in 2025 strengthened governance and reduced operational bottlenecks. Provisions were introduced to prevent management gaps, such as rules that allow a manager's resignation to take effect after 30 days if no action is taken, and measures that allow boards to continue operating for up to six months after their official term expires. Authorities also gained the ability to appoint directors in cases where shareholders cannot reach agreement, ensuring continuity in companies facing internal deadlock.

Additional updates expanded flexibility for raising capital and structuring ownership. Private joint-stock companies were granted the ability to conduct private placements, while LLCs were permitted to issue multiple share classes for the first time - an important step in aligning local companies with global investment practices. Rules around in-kind contributions were tightened through mandatory accredited valuations, balancing business flexibility with investor protection.

Ambalavelil said taken together, the latest decree-law and the broader 2025 reforms reflect a consistent strategy: to build a business environment that is globally competitive, legally transparent and adaptable to the needs of modern enterprises. "By introducing non-profit companies, enhancing capital structures, strengthening governance and enabling seamless corporate mobility, the UAE is positioning itself as a jurisdiction where businesses - from start-ups to multinational groups - can grow, innovate and operate with confidence in a fast-evolving global economy," said Ambalavelil.

Khaleej Times