Step 1: document preparation

It should be noted that the documentary requirements set out below have been prepared on the assumption that both the seller and the buyer are corporate entities.

Seller documentation

The seller of shares in the company must prepare the following documents (together the Seller Documentation):

• a board resolution approving the sale of shares in the company and calling for the appointment of an attorney to represent the seller
• initialled short form transfer agreement (STA)
• a power of attorney authorising an individual to act on behalf of the seller
• a copy of the seller’s attorney’s passport.

Buyer documentation

The buyer of shares in the company must prepare the following documents (together the Buyer Documentation):

• a board resolution approving the purchase of shares in the company and calling for the appointment of an attorney to represent the buyer
• initialled STA
• a power of attorney authorising an individual to act on behalf of the buyer
• a copy of the buyer’s attorney’s passport
• a copy of the certificate of incorporation and memorandum and articles of association or equivalent documentation of the buyer

In situations where there are multiple sellers or buyers, all parties must provide the documents referred to above.

Back to top

Step 2: obtaining initial approval for the share transfer and public advertisement

Once the documentation listed above has been prepared, the next stage will be to obtain initial approval to proceed – from the relevant Emirate’s Department of Economic Development (the DED). To obtain this approval, a standard form application (Application) for the transfer of shares will need to be submitted.

The Application must set out the following specific information:

• name(s) of the seller(s)
• name(s) of the buyer(s)
• number of shares to be transferred
• percentage of shares to be transferred by reference to the total number of shares in the company.

Both the Seller Documentation and Buyer Documentation should be attached to the Application, which needs to be signed by the representatives of the Seller, Buyer and any remaining shareholders, if applicable.

Initial approval will then be issued by the DED for the proposed transfer. Subject to the activities which the LLC is undertaking however, further government departments or bodies overseeing such elements of the company’s business may also need to be approached, with a letter from the DED to each of the relevant departments or bodies, requesting approval of, or no-objection to, the transfer of shares of the company to the Buyer. However, in a recent significant move, HH Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai has issued a new licensing law that aims to, amongst other things, organise the conducting of economic activities in the Emirate of Dubai and streamline the licensing process by facilitating coordination between the various government entities in Dubai. For further details on the new law please see the eighth of our local law series which can be accessed here.At the same time as issuing the initial approval, the DED will also provide a copy of an advertisement that must be published in a local daily Arabic newspaper (in the format provided by the DED).

Seven business days after publication of the DED required advertisement² – and assuming that no objections have been lodged – the parties will be required to appear before a notary public in the applicable Emirate to execute the documents mentioned below.

Back to top

Step 3: execution of documentation

The following documents should be executed before the notary public:

• an STA (in Arabic³, signed by the Seller and the Buyer, and any remaining shareholders) containing basic information relating to the transfer. This is a standard form purchase agreement used to effect the transfer and should not be confused with the long form share purchase agreement that may have been separately negotiated by the parties (see below)
• the Contract of Establishment⁴ Addendum (COE Addendum) (signed by the Buyer and any remaining shareholders).

Originals of the Seller Documentation and the Buyer Documentation, together with all relevant notarised and translated copies, should be available for inspection by the notary public.

Back to top

Step 4: amending the commercial licence

As a final step, the commercial licence of the company will need to be amended to reflect the change of ownership. This will involve the submission of the STA, the COE Addendum, the Seller Documentation, the Buyer Documentation and the original commercial licence to the DED, which will then proceed to issue a new licence.

Back to top

Long form share purchase agreement (if relevant)

Depending on the complexity of the share transfer, the buyer(s) and seller(s) may choose to enter into a long form share purchase agreement, in addition to the STA. This may include extensive representations and warranties and any bespoke conditions relating to such share transfer. The preparation and negotiation of such share purchase agreement would usually be dealt with before starting step 1 above. It is also usual to find that the agreed form STA is included as a schedule to the long form share purchase agreement.

Back to top

Fees

Various fees arise during this process. These vary from Emirate to Emirate and, in the case of the commercial licence, from Ministry to Ministry - depending on the LLC’s proposed activities.

Back to top

The notarisation of documents

Any proposed foreign Buyer will need to present documents for authentication at the foreign ministry of the country in which it is incorporated and subsequently to the UAE consulate. Before they can be presented to the authorities in the UAE, they must also be translated into Arabic by an official translator. The notarisation process should be commenced as early as possible as it can take a significant amount of time. Where the responsible UAE embassy is not located in the country of incorporation, the process can be delayed further.

Back to top

The alternative: acquiring the assets of the company

The complexity of an asset sale in the UAE will largely depend upon the nature of the assets which are to be sold and, most importantly, whether the commercial licence of the company comprises one of the assets to be sold.

The UAE Commercial Transactions Law (the Commercial Code) sets out some of the procedures and requirements and, at article 42, provides that any sale contract involving the transfer of a “business” must be signed before a notary public and subsequently entered in the commercial register⁵. In addition, a summary of the sale contract must be published in two Arabic daily newspapers in the UAE with an interval of one week between them. This advertisement period is intended to provide creditors time to object to the sale.

We have recently discussed the above procedural requirements of article 42 of the Commercial Code with the DED in order to ascertain what constitutes a “business” for the purposes of the Commercial Code and in what circumstances the above procedure must be followed. We understand that, if the commercial licence of the company forms part of the assets to be sold, the procedural requirements of the Commercial Code must be met.

However, if the commercial licence is not to be transferred or otherwise amended - such that the buyer is purchasing other assets such as stock, contractual arrangements, equipment and employees only - then the DED has informed us that the procedural requirements will not need to be complied with⁶.

Footnotes

1. It should be noted that: (i) the formalities and procedures are generally determined by each Emirate separately - this article has been prepared as a brief overview of the main steps and key documents common throughout the Emirates; (ii) a company may need to obtain further consents or meet additional requirements specific to the industry in which it operates; (iii) each application will be considered on its merits by the relevant government authorities and, in each case, additional requirements may be imposed or usual requirements may be waived.
2. Other government departments or bodies overseeing elements of the company’s business may have their own additional advertisement requirements although the new licensing law in Dubai should hopefully mean that such requirements are now coordinated centrally through the DED.
3. It is common practice for the STA to be in both Arabic and English.
4. LLC equivalent to memorandum and articles of association.
5. It should be noted that, while the Dubai DED maintains a separate commercial register for each company, in Abu Dhabi the commercial register currently forms part of the relevant company’s commercial licence.
6. The view of the DED may change over time and we would therefore urge caution and that the position be checked on each occasion to confirm that the procedures do not need to be complied with (a failure to do so when required would render the transaction void).

Back to top