Almost every joint venture, private equity investment, or closely held company in the UAE has a shareholders’ agreement. Very few have one that actually works when it matters.

The reason is not lack of documentation. It is misplaced confidence in documents that look comprehensive on paper but collapse under pressure—precisely when relationships deteriorate, commercial interests diverge, or a regulatory or financial crisis hits.

This article examines the most common failure points in UAE shareholders’ agreements and why they surface only at the worst possible moment.

1. Boilerplate Agreements in Bespoke Businesses

Many shareholders’ agreements used in the UAE are adapted from templates originally designed for very different markets, risk profiles, and enforcement environments. They are often drafted quickly at the deal-closing stage, when alignment is high and appetite for hard conversations is low.

The result is a document that:

• looks technically complete, and
• contains familiar concepts and labels, but
• is not calibrated to the actual business, ownership dynamics, or jurisdictional realities.

In practice, these agreements fail because they do not reflect:

• The true balance of power between shareholders.
• The operational role (or non-role) of minority investors.
• The fact that some shareholders control management, information, and cash flow from day one.

When disputes arise, the agreement does not rebalance power. It merely records assumptions that were never tested.

2. Deadlock Clauses That Do Not Break Deadlocks

Deadlock provisions are often treated as a checklist item rather than a commercial mechanism.

Typical problems include:

• Deadlock thresholds set so high they are never triggered.
• Issues defined so narrowly that real disputes fall outside them.
• Resolution mechanisms that require cooperation precisely when cooperation no longer exists.

Common examples include:

• Escalation to boards or shareholders who are already entrenched.
• Cooling-off periods that delay rather than resolve.
• Buy-sell mechanisms that assume equal financial strength when none exists.

In reality, many deadlock clauses are drafted to create comfort at signing, not to function in an adversarial environment. When invoked, they either cannot be triggered or lead to prolonged paralysis rather than resolution.

3. Drag and Tag Rights That Do Not Deliver Exits

Drag-along and tag-along rights are central to exit planning, particularly in private equity and structured joint ventures. Yet they are among the most frequently defective provisions in UAE shareholders’ agreements.

Typical failure points include:

• Ambiguous definitions of a “bona fide offer”.
• Conditions precedent that cannot realistically be satisfied.
• Conflicts between the shareholders’ agreement and the company’s constitutional documents.
• Silence on valuation mechanics, payment timing, or minority protections.

In some cases, drag rights technically exist but are unenforceable in practice. In others, tag rights fail to protect minorities against structured exits that technically comply with the letter of the agreement while defeating its commercial intent.

An exit right that cannot be executed is not an exit right. It is an illusion.

4. Governing Law and Enforcement Mismatches

One of the most overlooked weaknesses in UAE shareholders’ agreements is the disconnect between governing law, dispute resolution clauses, and real-world enforceability.

Common issues include:

• Foreign governing law with no clear enforcement pathway.
• Arbitration clauses that conflict with interim relief needs.
• Injunctive remedies assumed to be available when they are not.
• Parallel proceedings risk due to poor drafting alignment.

In closely held companies, disputes are rarely only contractual. They often involve:

• Management control.
• Access to information.
• Board composition.
• Share transfers and voting rights.

If the dispute resolution framework does not allow for swift and effective relief, the stronger party gains leverage long before a tribunal or court is reached.

5. Ignoring the UAE Regulatory and Corporate Law Overlay

Shareholders’ agreements do not operate in a vacuum. They sit within a framework of UAE corporate law, licensing conditions, regulatory approvals, and—increasingly—tax and substance requirements.

Failures occur where agreements:

• Assume absolute contractual freedom where statutory constraints apply.
• Conflict with mandatory company law provisions.
• Ignore approval requirements for share transfers or control changes.
• Do not align with the company’s articles or constitutional documents.

When conflict arises, statutory rules and constitutional documents typically prevail. A shareholders’ agreement that contradicts them offers little protection, regardless of how carefully it is drafted.

6. The Real Issue: Agreements Drafted for Harmony, Not Conflict

The common thread across failed shareholders’ agreements is not poor drafting technique. It is a mindset issue.

Many agreements are drafted:

• When relationships are strong.
• When trust is high.
• When exit, deadlock, or enforcement feels hypothetical.

Effective shareholders’ agreements are drafted with the opposite assumption:

• That interests will diverge.
• That power will be exercised.
• That enforcement may be required.

They are designed not to preserve harmony, but to manage conflict in a controlled, predictable way.

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A shareholders’ agreement should not be judged by how comprehensive it looks at signing, but by how it performs under stress.

In the UAE, where joint ventures are common, ownership structures are concentrated, and enforcement dynamics are nuanced, the gap between a “standard” agreement and an effective one can be decisive.

The true value of a shareholders’ agreement emerges only when it is needed most.
By then, it is too late to discover that it was never built to work.

For further information, please contact:

Ahmed Hadeed
a.hadeed@hadeedpartners.ae

This article is current as of January 2026 and is intended for general information purposes only. It does not constitute legal advice. For specific guidance on your transaction, please contact our team.

© Hadeed & Partners 2026