Mergers and acquisitions process entail several key businesses, intellectual property, human resource, financial and legal issues. To successfully navigate a sale of a company, it is very important to understand the dynamics and issues that could arise and are expected to be encountered throughout the process.
In this article, we provide guidance on key points to consider in mergers and acquisitions (M&A) law in United Arab Emirates.
UAE Commercial Companies Law sets out the rules for transformations, merger and acquisitions of companies. In addition, Corporate Governance Code and other circulars and regulations issued by Security and Commodities Authority is being observed by listed companies in UAE. However, some onshore companies adhere to regulations that may differ from Commercial Companies Law. For instance, companies that are:
- Wholly owned companies of federal and local government
- Those are expressly excluded by resolution issued by the federal cabinet; and
- Energy or infrastructure companies wherein 25% of the capital is directly or indirectly being held by federal or local government
It is also important to note that, Free Zone companies are not necessarily governed by the Commercial Companies Law, as they are established and granted by virtue of different levels of legislative authority – the competent free zone authority generally have precedence over laws applicable thereof.
Nevertheless, one of the most pointed out issue being considered in M&A are questions in regard to restrictions on share transfer. Under Federal Law No. 2 of 2015, shareholders of limited liability companies (LLCs) are given a leeway to invoke statutory pre-emption rights for share transfers – rights granted cannot be waived, unless otherwise approved and agreed upon by all shareholders at the time of transfer. On the contrary, private joint stock companies (JSCs) and shareholders of free zone entities do not enjoy the same statutory pre-emption rights on transfer of shares. However, shareholders in free zone companies can agree and reduce these restrictions in the company’s articles, memorandum of association or shareholder’s agreement. In addition, transfer of share in free zone companies requires approval from the relevant free zone authority.
In passing, most common way of acquiring private owned company is through share purchase or asset purchase. It can also be done through statutory merger which is usually not commonly resorted to. Main advantage of share purchase could be the target company remain as it is, and the process of transferring shares is generally straightforward.
In M&A, another commonly asked question pertains to the duration of the process and how much time it takes to effectuate private M&A transaction – to larger extent, this depend on the parties. As an overview, the administrative procedure may require notarization of transfer agreement, registration of amendments to the articles of association with competent authorities, in which case both actions can be handled at rather short period. Not unless, the process requires legalising documents issued by foreign authorities.
Negotiating and executing the transaction agreement will likely be the central part of the M&A transaction. Hence, we have listed the main and relevant documentation needed:
- Submission of notarized shareholder’s resolution approving a share of asset transfer agreement to the commercial register
- Identification documents (e.g. passport for individuals whereas constitutional documents for corporate entity along with certificate of good standing and shareholder resolution approving the transaction). These documents must be legalized according to the procedures agreed between UAE and the country of origin of the buyer.
M&A process entails very extensive process that requires input from specialist legal experts. The office of Reliance offers our expertise in all aspects of M&A practice from preparation and negotiation process, including legal advice on end deal structures and assistance in conducting legal due diligence down to the merger filings with the relevant authorities and the implementation of pre-closing restructuring.