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Joint ventures are a common way to enter the Dubai market, particularly in sectors where foreign ownership is restricted or local licensing is required. Most are structured either through a jointly owned company or a contract between independent parties.
Each approach has its own risks and legal implications, from who controls decisions to how disputes are handled and what happens if one side wants out. This article sets out the key structural choices, where issues tend to arise, and what should be in place from the start.
Start with the right structure
Most UAE joint ventures fall into two categories: incorporated or contractual. Each carries different risks, especially when third-party liability or licensing is involved.
An incorporated JV, usually set up as an LLC, creates a separate legal entity. The company signs contracts in its own name, holds assets, and limits the personal liability of its shareholders. This setup works better for longer-term ventures, regulated activities, or where a standalone licence is required.
A contractual JV avoids incorporation. The parties remain independent and operate under a commercial agreement that sets out who does what and how profits or losses are shared. These are often used for one-off projects or when licensing and cost constraints make a separate company impractical.
Liability and enforcement differ too. An incorporated JV can enter contracts and bring claims in its own name. In a contractual setup, enforcement rights depend on how responsibilities are allocated and who holds legal standing.
Control and equity rarely match exactly
In sectors with foreign ownership limits, legal shareholding and day-to-day control are often split. A local partner might hold 51% on paper but take no active role. In other cases, the party making key decisions may not appear in the official filings at all.
These gaps need to be managed clearly from the start. The joint venture agreement should spell out who is responsible for operations, who controls spending, and how decisions are made. These terms should match what appears in the trade licence and constitutional documents. If they differ, the official record usually takes precedence in court.
Side agreements or nominee arrangements are sometimes used to reflect the real balance of control. Whether they hold up depends on how they’re written, how well they’re supported by the documents, and the forum in which they’re tested. In the UAE, offshore nominee agreements that contradict local filings or conceal effective control often carry less weight.
Defining exit and deadlock procedures
Well-drafted joint ventures set out how each party can exit and what happens if decisions cannot be reached. This includes clear procedures for buyouts, valuation, and fallback steps when agreement is not possible.
Exit clauses should define when a party can leave, how the valuation is handled, who oversees it, and how the transaction is completed. The process should work even if one side does not cooperate.
Deadlock provisions need to go beyond general intent. The agreement should lay out what happens if board or shareholder decisions cannot move forward. Common solutions include third-party mediation, external valuation, or structured buy-sell mechanisms.
Avoid open-ended terms. Language like “mutual agreement” or “best efforts” often lacks enforceability. More useful are practical, time-bound steps that provide a path forward when formal consensus breaks down.
Licensing, governance and director risk
Joint ventures that operate in regulated sectors, such as healthcare, education, media or financial services, often need approvals beyond the trade licence. These can include activity-specific permits, federal clearances, or local authority sign-offs. If these are missed, the company may not be allowed to operate as intended.
Director appointments also carry specific legal weight. Under UAE law, board members are personally liable for company conduct. Even if a director acts on instruction from a partner, liability still rests with the named individual. That includes nominee directors or informal representatives once their names appear on public records.
Regulatory filings such as UBO declarations, economic substance reports and real ownership registers now make it harder to separate formal records from real control. If agreements or internal practices do not align with what’s filed, those differences typically surface during compliance reviews, renewals, or legal proceedings.
To reduce exposure, governance terms, decision rights and public records all need to match. Any gap between them creates risk, especially when one party holds influence without accountability.
Disputes, enforcement and forum choice
Disputes often stem from mismatched expectations around control, capital and decision rights. One party funds the venture, the other handles operations, and the agreement never clearly sets out who decides what. Deadlock provisions, quorum rules and veto rights are either missing or vague. That’s when deals stall.
Most joint venture agreements refer to arbitration which is usually DIAC or the ADGM Arbitration Centre. But urgent issues like asset freezes, account access or injunctions still depend on action through the Dubai Courts. If a partner moves funds or blocks a key decision, court intervention is often the only real option.
To enforce rights quickly, the agreement must do more than name a forum. It should set out what triggers action, who can act, what evidence needs to be produced, and how each party secures standing. Delays often come down to gaps in how roles were recorded or who is officially recognised to represent the company.
Forum choice only works if the practical steps like timing, filings and access have been built into the structure from the start.
How The Knightsbridge Group can help
The Knightsbridge Group has over 20 years of experience advising on joint ventures and corporate structuring across the UAE. We help founders, shareholders and legal teams put clear agreements in place, align decision-making with regulatory requirements, and plan for control, exit and enforcement from the outset.
Whether you’re setting up a new venture, taking on a local partner, or reviewing an existing arrangement, we provide practical, sector-specific advice backed by deep regulatory and licensing insight.
To speak with an expert, contact us at [email protected].