Get Professional Assistance for Share Transfer in Dubai, U.A.E.
Get Professional Assistance for Share Transfer in Dubai, U.A.E.
Meaning of Share Transfer
Every shareholder of a Limited Liability Company (LLC) is the owner of a part of the business. In case they decide to sell their shares or increase or reduce the percentage of their ownership or maybe add some new shareholders, then the process of transferring those shares which are already in existence is termed as a Share Transfer.
To ‘change local partner’ one needs to do a share transfers of 51% of a company’s shares to some new local partner. Presently, as per the UAE law, a Local Emirati National should hold at least 51% of the shares of an LLC or 100% shares of an Emirati company, which means the 49%:51% ratio of shareholding should be maintained. Please note that the new FDI rules would now allow to apply for a higher percentage or share of foreign ownership.
Defining a Corporate Shareholder
When is a Share Transfer needed?
Share Transfer in case of an LLC
In case of an LLC that is located in the mainland of UAE, then please note that the mainland companies in the UAE are managed under the provisions of Federal Law 2 of 2015 and its amendments (the ‘Commercial Companies Law’).
In the scenario, if this company is an LLC, then there should be a Memorandum of Association (MoA) and its contents should be in agreement with Article 42, 43 and Article 73 of the Commercial Companies Law. The Memorandum of Association of an LLC specifies the provisions regarding the transfer of shares and the process of liquidation of a company. In addition, Article 79 of the Commercial Companies Law enables a partner to transfer his or her shares to other partners or maybe to some other third party. It mentions that:
- A partner can assign or pledge his part or share in the company to other party or also to a third party. This assignment or pledge needs to be made in accordance with the conditions of the Memorandum of Association of the company and under an official document, in compliance with the provisions of this law. This assignment or pledge would not be valid against third parties till the date of its entry in the commercial register and that too when done by the competent authority
- The company cannot reject the entry of such an assignment or pledge in the register except in case the transfer or pledge is violating the provisions mentioned in the Memorandum of Association or this Law
Want to learn more about Share Transfer in Dubai, U.A.E.?
Article 80 in the Commercial Companies Law lays down the Processes related to assignment of shares in an LLC
- If a partner wants to assign his share to an individual who is not a partner currently, with or without consideration, then he should notify all the other partners via the manager of the company of the assignee or through the purchaser and as per the terms of the assignment of sale. The manager should notify the partners too as soon as he receives the notice.
- Every partner could demand to pre-empt the share as is mentioned in Clause 1 of this Article within the time-limit of 30 days from the date of informing the manager of the agreed price. In case of any dispute on the price, such share should be evaluated by one or more experts who possess technical and financial experience particularly in the subject matter of the share, as nominated by the competent authority especially on demand by the applicant for pre-emption and that at his expenses.
- If the right of pre-emption is utilized by over one partner, then the share(s) offered for sale would be divided among these partners on a pro rata basis as per their respective shareholdings, depending on the provisions of Article 76 of this law.
- If the time-period which is set forth in Clause 2 of this Article has already lapsed without using the pre-emption right by a partner, then the relevant partner should be free to dispose of his share.
Depending on the above-mentioned provisions of law, in case your uncle’s partner is not eager to buy the shares that are owned by him, then he could sell the shares in the company to some third party. Additionally, the company can be liquidated according to the provisions specified in the Memorandum of Association of the company. This is as per Article 306 of the Commercial Companies Law, which says that if the Memorandum of Association or Articles of Association of the company stipulates the procedure to liquidate or the partners agree or else upon the dissolution of the company, then the provisions of this law would apply to the liquidation of the company.
Conversely, the company may also be liquidated depending on a court order. This is as per Article 308 (2) of the Commercial Companies Law, which says that in case liquidation is done as per a judgment, then the competent court would point out the method of liquidation and also appoint the liquidator. In all such events, the job of the liquidator would not be terminated by the death, in case of declaration of bankruptcy, insolvency or interdiction instructed against the partners, even if he has been appointed by the partners. It is further advised to approach the concerned Economic Department in the Emirate and also the Amicable Settlement Center of the competent court that has the relevant jurisdiction for hearing this matter for any more clarifications. In case the right of pre-emption is utilized by more than one partner, then the share(s) that have been put up for sale would be divided among such partners on a pro rata basis to their respective shareholdings.
Types of Transfers
- Transferring shares between existing shareholders
- Transferring shares to a new individual shareholder
- Transferring shares to a new company shareholder
JAFZA Share Transfer
The JAFZA has recently announced the New Regulations regarding share transfer. Though the New Regulations do not set out the exact enforcement date, the JAFZA has given a verbal confirmation that a specific date would be announced in the updated version of the New Regulations. The recent New Regulations have introduced some reformist and liberal new legislative provisions and repeal the JAFZA Offshore Companies Regulations 2003 (“Old Regulations”).
The New Regulations offer foreign investors with various new and attractive methods of structuring their investments in the UAE and enable in mitigating against some probable risks related to carrying out business in Dubai.
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