A shareholders’ agreement records the rules owners agreed on while they still agreed. When one shareholder breaks those rules, the others usually want three answers: what they can claim, which forum will hear the dispute, and what to do first.
This guide answers those questions for companies established on the UAE mainland, with notes on where free zone, DIFC and ADGM companies differ. It reflects two recent changes: the amendments to the Commercial Companies Law made by Federal Decree-Law No. 20 of 2025, and the new Civil Transactions Law issued by Federal Decree-Law No. 25 of 2025, in force since 1 June 2026.
What a shareholders' agreement does, and what it cannot do
A shareholders’ agreement (SHA) is a private contract between some or all of a company’s shareholders. It typically covers:
- voting rights, board appointments and matters that need shareholder approval
- capital contributions and future funding
- dividend policy
- restrictions on transferring shares, including rights of first refusal, drag-along and tag-along
- confidentiality and non-compete obligations
- deadlock, valuation and exit
- how disputes will be resolved
One limit matters more than any single clause. In a mainland company, the memorandum of association (MoA) is the registered constitutional document. The SHA binds the people who signed it; the MoA binds the company and every shareholder, including those who join later. Where the two conflict, the MoA generally prevails.
In practice, a right that exists only in the SHA can be enforced against the shareholder who signed it, but it may not stop the company or a third party from acting. Since the 2025 amendments, limited liability companies and private joint stock companies can include drag-along and tag-along rights in their constitutional documents. If your SHA protections matter to you, check that the MoA says the same thing.
Common breaches
- transferring shares without the consent or pre-emption process the SHA requires
- failing to make an agreed capital contribution
- voting contrary to an agreed arrangement, or acting on a reserved matter without approval
- ignoring an agreed buyout, valuation or exit mechanism
- breaching confidentiality or non-compete obligations
- using company funds or assets for personal benefit
The last of these can raise issues under company law, and in some cases criminal law, as well as under the contract.
Which law governs the claim
The new Civil Transactions Law replaced Federal Law No. 5 of 1985 on 1 June 2026. It does not apply retroactively: rights and obligations that arose before that date remain under the old law. Where an SHA signed earlier is amended, restated or renewed after 1 June 2026, whether the new law applies needs case-by-case analysis.
If your SHA predates June 2026, establish which regime governs the breach before deciding what to claim.
The remedies
Which remedy is available depends on the wording of the SHA, the MoA, the nature of the breach, the governing law and the agreed forum.
1. Compensation for loss
A shareholder who suffers loss because of a breach can claim compensation. The claimant must prove the breach, the loss and the link between them. Keep contemporaneous records: correspondence, minutes, bank statements and a clear calculation of each figure claimed. Claims for lost profit or a fall in share value usually need expert valuation evidence.
2. Performance of the obligation
UAE civil law allows a court to order a party to perform what it promised, such as completing a share transfer or following an agreed process. In practice, mainland courts often award compensation instead, and they give significant weight to the registered MoA and to the statutory powers of the company’s general assembly and managers. Share transfers in a limited liability company must also be notarised and registered to take effect.
If you will need performance rather than money (for example, a forced transfer on default), build the mechanism into the documents at the drafting stage, including matching provisions in the MoA.
3. Agreed compensation clauses
Parties can fix in advance the compensation payable for a breach. Article 340 of the new Civil Transactions Law keeps that freedom but also keeps the court’s control over it. A court can reduce agreed compensation that is exaggerated or where the obligation was partly performed, reduce or refuse it where the claimant contributed to the breach, and increase it in cases of fraud or gross negligence. A clause that tries to exclude this control is at high risk of being void.
The practical point: draft agreed compensation as a genuine estimate of likely loss, not as a deterrent figure.
4. Termination of the agreement
A serious breach may justify terminating the SHA, after formal notice where the agreement or the law requires it. Terminating the SHA does not by itself change who owns the shares: the parties remain co-owners under the MoA. It may also release the other side from obligations you still want to rely on, such as non-compete or confidentiality. Take advice before sending a termination notice.
5. Negotiated settlement
Where the owners will keep working together, a negotiated outcome often protects more value than proceedings. Common terms include repayment of withdrawn funds, revised management roles, new approval thresholds, stronger financial controls or a structured buyout. Record any settlement in writing and, where it changes ownership or governance, reflect it in the MoA.
6. Mediation
A neutral mediator helps the shareholders reach their own agreement. Mediation suits disputes where the relationship still matters and where creative solutions (a restructured shareholding, new decision rules, a staged exit) are more useful than a judgment. Check whether your SHA makes mediation a required step before arbitration or court.
7. Arbitration
If the SHA contains a valid arbitration clause, a mainland court must dismiss a claim covered by it, provided the defendant raises the arbitration agreement before making any submission on the merits (Article 8, Federal Law No. 6 of 2018 on Arbitration). A defendant who answers the merits first may lose the right to insist on arbitration.
The Arbitration Law was amended by Federal Decree-Law No. 15 of 2023, which among other things extended confidentiality from hearings to the arbitral proceedings. Where several shareholders or related contracts are involved, the DIAC Arbitration Rules 2022 allow related arbitrations to be consolidated and additional parties to be joined.
Whether arbitration is faster or cheaper than court depends on the clause, the rules chosen, the number of parties and the evidence. One onshore point is easy to miss: the person who signs an arbitration agreement for a company needs specific authority to do so. Check the signatory’s authority when the SHA is signed, not when the dispute starts.
8. Court proceedings
Without a valid arbitration clause, the dispute goes to the competent court. For mainland companies, and for companies in most free zones such as DMCC or JAFZA, that is the onshore court of the relevant emirate unless the parties have agreed on the DIFC or ADGM Courts. Companies established in the DIFC or ADGM fall under those common law courts.
Court proceedings produce an enforceable judgment and allow urgent precautionary measures where assets are at risk. They are also public, conducted in Arabic in the onshore courts, and can take time.
9. Buy-sell and exit mechanisms
A pre-agreed exit mechanism is often the most effective way to stop a dispute from becoming permanent. A well-drafted buy-sell clause sets out when a shareholder can or must exit, who may buy, how the shares are valued, how the price is funded, and what happens if the parties cannot agree on value.
In a mainland limited liability company, any transfer under these clauses still needs to respect the partners’ statutory pre-emption rights and the notarisation and registration requirements.
Deadlock
Companies with equal or near-equal shareholders are most exposed to deadlock, where no side can pass decisions the business needs. The Commercial Companies Law did not previously contain a standalone deadlock procedure. Federal Decree-Law No. 20 of 2025 added tools, including the appointment of a third party to the board of a limited liability company in a deadlock, so the company can keep operating.
The statutory tools are a backstop. A good SHA sets its own escalation path:
- Direct negotiation between the shareholders, within a fixed period
- Referral to designated senior representatives or the board
- Mediation
- A buyout or buy-sell mechanism
- Arbitration or court proceedings as the final step
If your SHA was drafted before the 2025 amendments, review its deadlock and transfer provisions against the current law.
What to do after a breach
- Preserve the evidence. Secure the SHA and every amendment, the MoA, resolutions, minutes, emails, financial records and transaction documents.
- Identify the exact clause. Name the obligation that was breached, then check whether the MoA says the same thing.
- Check the date. Establish whether the breach falls under the old Civil Code or the new Civil Transactions Law.
- Read the dispute clause. Note any required negotiation or mediation step. If you are served with a court claim and the SHA has an arbitration clause, raise it before filing any defence on the merits.
- Consider urgent protection. If company funds, shares, confidential information or assets are at risk, ask about precautionary measures straight away.
- Avoid unplanned escalation. A termination notice, a frozen bank mandate or a public accusation made without advice can weaken your position and, in the case of public statements, create separate legal exposure.
- Quantify, then choose a route. Compensation, performance, governance changes, mediation, a buyout or formal proceedings each fit different facts.
Frequently Asked Questions
What counts as a breach of a shareholders' agreement?
What is the difference between compensation and performance?
Compensation pays for a proven loss caused by the breach. Performance is an order requiring the defaulting shareholder to do what the agreement requires, such as completing a transfer. Mainland courts can order performance, but in practice often award compensation instead.
Does it matter where my company is established?
Yes. Mainland companies, and companies in most free zones such as DMCC and JAFZA, go to the onshore courts by default and are governed by UAE civil law. The DIFC and ADGM have their own English-language common law courts and laws, and parties elsewhere can agree to use those courts.
My SHA has an arbitration clause. Can the other side still take me to court?
They can file a claim, but the court must dismiss it if you raise the arbitration agreement before making any submission on the merits, unless the court finds the agreement void or unenforceable. Courts still play a role in arbitration, for example in recognising and enforcing the award.
What if there is no shareholders' agreement?
Can a shareholder dispute affect the company's banking relationships?
It can. Changes in ownership or management, or signs of internal conflict, may prompt a bank to ask for updated information before continuing with facilities or new transactions.
What is a shotgun clause?
A pre-agreed exit for a deadlock. One shareholder names a price for the other’s shares. The recipient must then either sell at that price or buy the offering shareholder’s shares at the same price. In a mainland company, the transfer still has to meet statutory pre-emption and registration requirements.
My SHA was signed before 1 June 2026. Does the new Civil Transactions Law apply?
Generally not to rights and obligations that arose before that date. If the SHA was amended or restated afterwards, the answer depends on the change made.
How MAAF Legal can help
Our corporate and disputes teams advise shareholders on reviewing and updating SHAs and MoAs, assessing a breach, negotiating settlements and buyouts, and acting in mediation, arbitration and court proceedings.
This article is general information on UAE law as at October 2026. It is not legal advice on any particular situation.
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