Looking to invest in one of the world’s most dynamic markets? Investors worldwide are eyeing businesses in Dubai, given its favourable legal framework and business-friendly environment.

The United Arab Emirates (UAE) and Saudi Arabia proved to be hotspots for merger and acquisition (M&A) in 2023 alone, with 305 deals worth $24.8 billion. If you’re also considering private M&A in Dubai, you’ve landed in the right spot. You’ll need to understand the common M&A structures in UAE legislation—share sale or asset sale.

Understanding the legal and regulatory landscape is crucial to ensuring a smooth transaction. If you didn’t already know the difference between the two structures, you’ll know now. Most importantly, this article helps you consider key factors when choosing between these acquisition methods in the UAE corporate environment, helping investors make informed decisions in this dynamic market.

Understanding Share Sales

The share sale is a business acquisition structure in which shares are sold to transfer business ownership. A buyer purchases shares in exchange for monetary consideration paid upon completion. The buyer may purchase the company’s entire or part of share capital, gaining control of the company in proportion to the shares bought.

The corporation retains its current assets and responsibilities as a distinct legal entity.

Given their straightforward process, share sales are the most preferred structure for private M&A in Dubai. However, you’ll be better positioned to determine that once you compare its advantages and disadvantages.

Advantages of share sale structure

• No disruption to business operations as the licenses and employment agreement continue without re-negotiation
• No new entity establishment and no need for reapplying for licenses
• A simplified negotiation as the buyer assumes all liabilities
• Maintains relationships with customers, suppliers, and partners

Disadvantages of share sale structure

• Inherits debts, potential future claims, or undisclosed risks, such as pending litigation or regulatory non-compliance as a part of liabilities, requiring comprehensive due diligence from legal consultants in Dubai
• Complex due diligence due to the limited availability of public information in the UAE
• Challenging post-acquisition integration (especially for foreign buyers) due to differences in operational, cultural, and management style

Understanding Asset Sales

An asset purchase is a business acquisition through the acquisition of specific company assets. Buyers can choose the assets and liabilities they acquire, such as real estate, equipment, inventory, contracts, intellectual property, etc.

This acquisition structure offers buyers better control over the transaction. However, when it comes to M&A in Dubai, asset sales are less preferred as they pose logistical issues. Since employee and third-party service providers don’t transfer with the asset sale, buyers face a significant hassle in replacing and negotiating new contracts, rehiring, and reapplying for visas.

At a glimpse the advantages and disadvantages of asset sale structure below.

Advantages of asset sale structure

• Buyers may leave behind unwanted liabilities or underperforming parts of the business
• Avoid inherent legal disputes, litigation, or tax concerns from the seller
• Direct ownership transfer of individual assets offering security and transparency
• Greater control over the pricing of separately identified and valued assets allows negotiating discounts for underperforming assets
• Opportunity to restructure and reorganise the acquired assets into the buyer’s existing business without taking over an entire company

Disadvantages of asset sale structure

• Complex, time-consuming, and costlier transactions due to individual identification, valuation, and transfer of each asset
• Risk of losing key employees and crucial talent as asset sales don’t automatically transfer employees and require buyers to issue new visas and contract
• Possible renegotiation of terms or contract termination with customers, suppliers, or service providers as the buyer needs to novate contracts
• Hassle of obtaining new business licenses, which must include significant regulatory compliance with specific sectors
• No brand recognition inheritance, as the entity may not get the company’s name, brand, or goodwill unless these are explicitly part of the transaction

Corporate and Regulatory Considerations of M&A in Dubai

As per UAE law, private M&A in Dubai require certain corporate and regulatory approvals, whether through a share or asset purchase agreement. We’ve given you a quick overview of the corporate and regulatory approvals for M&A in Dubai and foreign ownership considerations.

Shareholder and corporate approvals

Share and asset purchases for M&A in Dubai typically require shareholder and board approvals. The UAE Commercial Companies Law grants shareholders of a limited liability company (LLC) statutory pre-emption rights on the transfer of shares. Existing shareholders have the first option to buy shares before a transfer to an external party. Only a unanimous shareholders agreement can allow for the waiver of these rights at the transfer time of the transaction.

The shareholders of a limited liability company and/or the buyer and seller’s board of directors must approve the share and asset sales transaction. A notarized power of attorney must appoint individuals who execute the local transfer documentation on behalf of a corporate party unless authorised under the company’s constitutional documents. Execution of power of attorney outside of the UAE must be attested and legalised by:

• A Notary in the issuing country
• The UAE Embassy in the issuing country
• The Ministry of Foreign Affairs of the issuing country
• The UAE Ministry of Foreign Affairs, upon entry into the UAE

Regulatory approvals

The regulatory approvals for M&A in Dubai depend on where the company is incorporated—whether onshore (mainland) or in a free zone.

Share transfers in mainland companies require the approval of the relevant emirate’s Department of Economy and Tourism (DET). A share transfer is not legally recognised until the applicable licensing authority has updated the company’s commercial license.

A share transfer typically requires pre-approval from the relevant free zone authority in free zones. Each free zone in the UAE is industry-specific, and the requirements for share transfers vary depending on the nature of the business. For instance, companies operating in regulated sectors, such as healthcare, must obtain additional approvals from authorities like the Dubai Health Authority (DHA) and/or the Ministry of Health and Prevention (MHAP).

Share or asset transfer in both onshore and free zone transactions is incomplete until the updated company’s commercial license reflects the new ownership structure. Depending on the company’s location, the relevant licensing authority issues licenses.

Foreign ownership

Following the 2021 amendments to the UAE Commercial Companies Law, foreign investors enjoy a relaxation of ownership restrictions. As long as the acquired company does not engage in activities listed under the strategic impact category, foreign investors can obtain 100% of UAE-based business ownership.

Sectors such as defence, banking, insurance, telecommunications, and others deemed strategically important still require local ownership. In cases where full foreign ownership is not permitted, buyers must either maintain a relationship with the existing UAE partner or enter into a joint venture with a local partner to comply with ownership regulations. Additionally, foreign owned companies cannot register themselves as an agent of a company.

Check the complete list here.

Business Acquisition Transaction Process

It is recommended to consult a corporate lawyer in Dubai as they’ll draw up the process of the business acquisition transaction tailored to your needs. However, a typical process, including key steps to safeguard all the parties involved in the transaction, includes:

• Signing a Non-Disclosure Agreement (NDA) – Maintains confidentiality of sensitive information shared for the transaction
• Drafting and agreeing on a term sheet – Outlines critical terms and conditions of the deal
• Setting up data room – Houses information on target company for due diligence
• Conducting Due diligence – Assesses risk before finalizing a sound investment
• Drafting share purchase or asset purchase agreement (SPA or APA) – Legally binds to the terms of the acquisition
• Drafting shareholders’ agreement (SHA) – Defines parameters, such as voting rights and management control after acquisition when multiple shareholders are involved
• Drafting disclosure letter: Outlines any exceptions or risks discovered in due diligence
• Amending memorandum of association (MOA) – Reflects new ownership if the transaction involves share purchase

Due diligence and its importance

The complex corporate and regulatory requirements and the details of different structures of M&A in Dubai, necessitate a thorough due diligence process.

Share sales agreements: Involve an in-depth review of the seller company’s liabilities, contracts, and regulatory obligations to ensure the buyer is well-informed about what they may inherit with ownership of the entire business.

Asset sales agreements: Involve valuing each asset, identifying any associated liabilities and need for acquisition of new licenses and proper novation of existing contracts.

Work with an experienced corporate lawyer in Dubai to avoid mistakes and possible neglect. They address all the legal considerations to ensure the transaction complies with UAE regulations for a smooth transaction.

Choosing Between Share and Asset Purchase 

Choosing between a share purchase and an asset purchase for structuring an M&A in Dubai depends on the nature of the business, its liabilities, regulatory environment, and operational priorities.

A share purchase may be more efficient for companies with a large employee base, significant government licenses, or valuable contracts. Conversely, an asset purchase may be the right way for M&A in Dubai if buyers want to avoid liabilities or selectively acquire specific assets.

You must appoint financial advisors and corporate lawyers in Dubai to carefully evaluate each transaction to ensure it aligns with the buyer’s objectives and advise on the viability of such options.

Below is a comparative table with factors you should consider as you decide between choosing share and asset purchase for M&A in Dubai:

 

Factor	Share Purchase	Asset Purchase
Valuation and Liabilities	Buyer assumes all liabilities (debts, legal claims, etc.) and assets.	Buyers can selectively acquire assets and avoid unwanted liabilities.
Group of Companies	Ideal for acquiring multiple entities within a group; purchasing the holding company offers control over all subsidiaries.	More complex, as each asset in every entity must be individually transferred.
Foreign Ownership Restrictions	Suitable for structuring around foreign ownership restrictions, often using holding companies in ADGM or DIFC.	Allows foreign investors to acquire specific assets without requiring a local partner.
Government Licences and Approvals	Retains the target’s existing licenses and permits, avoiding the need for reapplication.	Buyers may need to apply for new licenses and permits, which can be time-consuming.
Business Relationships and Contracts	Existing contracts (with clients, vendors, and suppliers) remain in place; there is no need for renegotiation or third-party consent.	Contracts must be novated or assigned, requiring third-party consent and potentially renegotiation.
Employees	Employees remain with the company; no new visas or employment contracts.	Buyers must rehire employees and transfer visa sponsorships through the Ministry of Human Resources and Emiratisation, adding complexity and costs.
Intellectual Property (IP)	IP remains with the company, simplifying the transaction as no IP transfer is needed.	IP assets must be transferred individually, which may require additional approvals from the Ministry of Economy.
Transaction Complexity	Generally simpler as the company continues to operate with existing contracts, assets, and employees intact.	More complex, requiring individual asset transfers, new licenses, and rehiring of employees.

Work With The Best Corporate Law Firm In Dubai

Whether you’re going through a share or asset purchase agreement, navigating M&A in Dubai demands a solid understanding of the UAE’s legal landscape. Expert guidance is necessary when dealing with due diligence, regulatory approvals, and legal compliance complexities. Corporate lawyers in Dubai can help structure the deal, prepare transaction documents, and ensure that the acquisition aligns with Dubai’s legal framework. When you work with the best law firms in Dubai, they can mitigate risks, help you make better decisions, and get a favourable deal.

At Economic Law Partners, we believe that “in business, you don’t get what you deserve; you get what you negotiate.” Shoeb Saher, the founder of Economic Law Partners, is the best corporate lawyer in Dubai, with a proven track record of success in helping small and medium-sized enterprises navigate the complexities of M&A transactions, including:

• Due diligence
• Transaction structuring
• Negotiation and documentation
• Regulatory compliance
• Post-merger integration.

Corporate lawyers at Economic Law Partner lead each M&A with a single goal: aligning the deal with our client’s strategic objectives to maximise value and minimise risks. Visit our law firm in Sharjah or Dubai today or contact us to work with the best lawyers in Dubai.