Transfer of Shares in UAE
The governing of transfer of shares in a company is done by Federal Law Number 2/2015 on Commercial Companies Law (CCL) in the United Arab Emirates (UAE). The different types of companies that can be set up under the CCL comprise of a joint liability company, simple commandite company, limited liability company, public joint-stock company and private joint-stock company. In this article, we aim to discuss the assignment or transfer of shares pertaining to all the varied forms of companies that can be incorporated under CCL. The memorandum of association (MOA) or the articles of association (AOA) are the constitutional documents of a company laying out the corporate governance of the company alongside the administrative structure and management of the corporation. The transfer of shares is categorized as an internal affair of the company and is demarcated by the MOA or AOA. Through the MOA or AOA, a contract is thereby regulated between the shareholders or members of the company and the company itself, prescribing regulations and management structure for the company. Article 10 (1) provides that except for JLC’s and simple commandite companies, any other company shall have to have one or more UAE partners with owning a minimum of 51% of share capital in the company. Any transfer of title to any share of a partner deeming otherwise or hampering with the prescribed percentage shall be considered to be untenable (Article 10(3)). The transfer of shares has been discussed in the different form of companies below.
Joint liability company
If there is to be any provision of assignment of shares, then the same has to be specified in the MOA of the joint liability company (JLC) and the same has been laid out in Article 42, clause (i) of the CCL. Any assignment or transfer of shares shall be accepted only after receiving the consent of all partners of the company, provided that the same is of course done with respect to any limitations (if any) in the MOA (Article 56 of CCL). The same must be registered with the competent authority in the registrar else the assignee shall not be deemed to be a partner in the company until such registration of assignment of shares. It is also mandated that any agreement to the contrary of shares being assigned without limitation shall be null and void. However, a partner may be allowed to transfer the rights attached to his shares to a third person in the company, and such agreement shall be restricted to an effect only amongst themselves.
Simple commandite company
Assignment of shares where consent is to be acquired from all the partners or else by a majority of partners if the same has been set out in the MOA in order to proceed with the assignment of shares in the company to a third party, such registration of s assignment has to be recorded with the registrar via the competent authority for it to be valid (Article 70 of CCL).
Limited liability company
A limited liability company (LLC) consists of a minimum of two shareholders to a maximum of 50 shareholders where the partners shall be accountable to liability pertaining to the extent of shares in capital owned by them. A single person LLC can also be incorporated where the holder shall not be liable for the company’s obligations other than to the extent of share capital owned by him as laid out in the MOA. In an LLC, a partner may assign or transfer shares owned by him in such a company to another partner or a third party. It is imperative that the assignment or pledge of shares be made in accordance with the MOA of the company and not otherwise or else such a transaction shall be unenforceable. The same has been mandated in Article 79 of the CCL. It is highly essential that the entry of such transfer of shares be set out in the commercial register with the competent authority or else such a transaction will be rejected. A company is not entitled to reject the entry of the transfer of shares unless in violation of the MOA or CCL. Article 80 of the same law addresses the procedure for the assignment of shares of a partner in the company, which is outlined below:
- For the assignment of shares to lead, a partner in the company will do so to a person who is not a partner and the same shall be notified to all the other partners of the company through the manager of the company. The manager shall be informed of the said assignee/purchaser and the prescribed terms of such transfer/sale who will in further notify the partners after receiving such notice.
- Every shareholder is granted a right of pre-emption, where such shareholder decided to transfer shares. Pre-emptive rights give the shareholder of a company the right to buy additional shares in the future, first before being offered to any other person or entity. The shareholder proceeding with the assignment of shares has up to 30 days from the date of notifying the manager of the agreed price, to initiate such pre-emption rights. In case there is any clash that arises on the price, then such share will be assessed by experts with financial and technical experience, appointed by the competent authority.
- If more than one partner ends up using the right to pre-emption, then the sale shall be divided among them on pro-rata basis to their respective shareholdings, which is that they will receive the sale in proportion to the shares held by them.
- After the lapse of 30 days and no declaration to the pre-emption right being made, the partner shall be free to dispose of his share.
The procedure for the assignment of shares has been addressed above, and such pledge or assignment is to be carried out in accordance with this procedure and in accordance with the MOA of the company. MOA shall always prevail over any assignment or transfer of shares being carried out.
In a joint-stock company (JSC), the transfer of shares is practised by the transfer of title to shares that are listed in the markets, shares not listed in the markets and transfer of title to shares by inheritance, will or court judgment. In a JSC, a register known as the share register of a joint-stock company is held by the company recording the shares held by shareholders and the rights attached to such shares in the company. The transfer of title to the shares that are listed in the markets is undertaken by the entry of such transfer in a share register that is held by the company and the procedure for the same has been mandated in Article 211 of CCL. The prescribed procedure for transfer of title to shares of the company in accordance with the financial market where such shares are listed is to be carried out. Article 212 pursues transfer of title of shares not listed in the markets. It is only from the date of such entry in the share register that the transfer shall be effective against the company or any third party. Such entry marks out the share to be transferred and any rights thereby attached with it. There are certain circumstances, whereby a company may not enter the disposal of shares and such events would include where such disposal was in contravention or violation of CCL or where decisions were issued contrary to the MOA or articles of association of the company. If by order of the court, the shares in question are attached or mortgaged pursuant to the court order, then such shares shall not be deemed fit for transfer. The certificate of shares is misplaced, and the company issued no substitute of such certificate; if the company is holding any debt on the shares then the company is entitled to suspend any registration of transfer of shares until the clearance of such debt on the shares and if any contracting parties are incapacitated, are not fit for such transfer or declare bankruptcy or insolvency, then in all such events the company shall not enter into the disposal of shares of the company. Transfer of title to shares by inheritance, will or court judgment is carried out under Article 213 of CCL where a title to a share is transferred by inheritance or will and the heir shall demand to enter such transfer of title in the register of shares. If the transfer is applicable by a court judgment, then such transfer shall be entered in the share register in accordance with such judgment passed and the assignee shall be deriving such rights of share transfer from the date of registration.
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