Federal Decree-Law No. (20) of 2025, published by the United Arab Emirates, amends important aspects of Federal Decree-Law No. (32) of 2021 Concerning Commercial Companies (the “Amendment”). The modifications are part of an ongoing modernization agenda that aims to improve the integration of onshore, free zone, and financial free zone ecosystems, streamline business operations, improve corporate flexibility through shareholder arrangements and governance tools in line with common law practices, and incorporate common law concepts and principles into the UAE’s traditionally civil law-based framework. They also include new instruments for capital structuring, shareholder agreements, and business changes. We break down the headline changes and their real-world ramifications for UAE-based companies below.
The Free Zone Interface and Scope
The Amendment makes clear how businesses based in free zones are treated. The Commercial Companies Law now specifically covers international businesses with a presence in the UAE as well as branches or representative offices of free zone businesses that conduct business in the UAE outside of their respective free zones, according to the Amendment. Unless those laws allow activities outside the zone (i.e., on the mainland), free zone companies are still subject to their own laws. In that case, branches or representative offices are required to abide by the commercial companies law and any other applicable UAE laws that apply to mainland companies. A new clause in the Amendment affirms that businesses operating in the Free Zone are officially acknowledged as possessing UAE nationality.
By enabling companies to operate under a single set of rules rather than navigating separate regulations for mainland and free zone entities, this alignment reduces ambiguity for multi-jurisdiction structures, facilitates integration between onshore companies and free zone entities, and eases cross-border operational planning.
Overview of Non-Profit Organizations
Importantly, the Amendment allows for the creation of non-profit organizations whose net gains are reinvested to further their goals without being distributed to the owners. The Cabinet, along with the appropriate authorities, will also publish additional rules and regulations that will apply to these non-profit organizations. This further codifies the legal framework for businesses that function for social or public good rather than financial gain.
Connecting Common Law Practices with Civil Law Structure
In mainland limited liability corporations (LLCs), the Amendment permits shareholders to incorporate drag-along and tag-along methods into their Memorandum of Associations (MOA). They also allow for custom clauses pertaining to the shares of departed shareholders, such as the right of the company’s surviving owners to buy the shares of the deceased at a price decided upon with their heirs, with a court valuation possible in the event of a disagreement.
Similar to those used in Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) free zones, these modifications formalize market-standard M&A and succession procedures known from common law jurisdictions within UAE company constitutions, lowering transactional friction and offering clearer exit and continuity pathways while bridging civil law formality with common law contractual flexibility.
Flexibility in Capital Structure for Mainland LLC
It is now possible for mainland LLCs to classify the shares of their shareholders into distinct classes (such as Class A and Class B shares), each of which has distinct rights regarding its value, voting, redemption, dividend priority, liquidation preferences, and other privileges and restrictions. This classification must be documented in the commercial register. The types and classes of shares, the terms associated with each class, their rights and privileges, and the regulations controlling them will all be prescribed by the Cabinet.
This is a significant shift for private capital structuring in the United Arab Emirates, allowing mainland LLCs to use venture-style economics (e.g., preferred shares, enhanced voting), which is frequently employed for operational firms.
Contributions of In-kind Capital
The Amendment places emphasizes on enabling LLC shareholders to make in-kind donations of their share capital. These in-kind contributions are null and void if they are not valued by at least one valuer.
Public Proposal
According to the Amendment, only public joint stock firms are permitted to hold public offerings, and any subscription invitation published in the United Arab Emirates must have SCA approval.
Under SCA conditions, the Amendment now expressly allows private joint stock firms to offer securities through private placement on UAE markets.
These modifications facilitate pre-listing and growth-stage financing strategies by expanding private companies’ access to capital markets and permitting more flexible founder involvement regulations.
The Re-Domiciliation Concept
The Amendment made it possible for businesses to re-domicile their legal presence by introducing the new Article 15 bis. A legal procedure known as “re-domiciliation” enables a business to change its place of residence or incorporation while keeping its legal identity. Through this method, the firm can continue operating under the same shareholders, management, and activity level while retaining its entire history and track record from the date of formation.
Businesses can now move their business registration and license between competent licensing authorities, including between UAE free zones, between mainland and free zone authorities, and from nations outside the UAE to the UAE.
Subject to system capability, the lack of register blocks preventing the transfer, approval from the appropriate licensing authorities and regulators, and the publication of the Re-Domicile decision, re-domiciliation can be authorized by a special resolution or by the absolute majority of shareholders. The Cabinet, together with relevant agencies, will establish additional rules and regulations that will govern the re-domiciliation.
Businesses can transfer their registration in a manner that supports strategic, economic, licensing, or regulatory goals without losing the company’s legal identity or historical record thanks to this regulatory “portability,” which is a crucial operational enabler. Additionally, depending on their business needs, companies will be able to rent offices or warehouses in a free zone or on the mainland. They will also be able to take advantage of tax exemptions that are available to free zone entities when they re-domicile to a free zone, or, on the other hand, access GCC customs or trade treaty benefits that are exclusive to mainland companies when they re-domicile to the mainland.
Continuity of governance and changes in the board and managers
The resignation, dismissal, and continuity clauses for Mainland LLC boards and managers were highlighted in the amendment. Boards may continue to operate for up to six months after a term ends pending reconstitution; if no action is taken, resignations are considered effective after 30 days (unless otherwise specified); companies must notify the authority within 30 days of a manager’s appointment expiring and designate a successor; and the authority may designate an interim manager or board for up to one year until a general assembly elects a new board.
Useful Insights
The Amendment offers investors and corporations real flexibility and transparency. The ability to immediately incorporate succession procedures and drag-along and tag-along clauses into the MOAs of mainland LLCs simplifies transactions, minimizes conflicts, and harmonizes UAE practice with international markets, particularly common law standards. Allowing several categories and share classes benefits venture, growth equity, and family businesses looking for customized governance and economics by bringing complex capital rights into the standard operating vehicle utilized throughout the United Arab Emirates.
For regional organizations wishing to relocate their operations within the United Arab Emirates or to shift their organizational structures between the mainland and free zone jurisdictions, the Re-Domiciliation idea is very beneficial.
Overall, the Amendment preserves the UAE’s distinct legal identity and keeps it responsive to changing market structures in the region while modernizing the UAE corporate framework by incorporating common law ideas into the civil law foundation. This makes it more flexible for international corporations, institutional investors, and founders used to common law environments. Companies are able to create sophisticated corporate processes that improve investor protections and expedite corporate transitions thanks to this convergence, which also improves operational agility and legal predictability.
Connect with Klay Legal
Klay Legal integrates on-the-ground execution across all significant onshore, free zone, and financial free zone authorities with extensive knowledge of UAE company law. Our teams regularly offer structuring and governance advice for businesses in the UAE. This includes integrating drag/tag-along, share class design, and succession provisions in your company’s MOA and constitutional documents, as well as additional advice on capital markets channels like private placements. We also facilitate complicated and cross-authority registration transfers and re-domiciliation.
