Global Advocacy and Legal Counsel

The United Arab Emirates (“UAE") has long been a regional hub attracting businesses worldwide for its geographic location bridging between east and west, to being a global hub of innovation. What aids the UAE in attracting companies and being at the forefront of making strides and advances across varying industries is its ability to be agile and adaptable, enabling the country to foster a global environment locally. 1. Common Types of Commercial Arrangements Requirements For Parties to Contract The UAE is a federation of seven emirates. Despite its size, the UAE is one of the most attractive destinations for foreign investment and international businesses. The commercial sector and practices including companies and entities are regulated by a number of laws and legislation. This includes contracts which are some of the most widely used means to enter into and do business in the UAE. Requirements for Valid Contracts The UAE’s Federal Law No. 5 of 1985 on the Civil Transactions Law (“The Civil Code��� ) is applicable to both commercial and civil contracts and sets out the key principles and rules governing the formation, performance, and termination of contracts. To be valid and enforceable, a contract must be for a legitimate purpose, not be contrary to public policy or any applicable laws or regulations, concluded in writing, and the parties must have the capacity to contract. The Civil Code also sets out the rules governing the formation of contracts, including the requirement that the parties must have a common intention to be bound by the contract and to act in accordance with its terms. Restrictions on Types of Contracts Another legislation governing commercial contracts in the UAE is Federal Decree- Law No. 50 of 2022 on Issuing the Commercial Transactions Law  (“Commercial Transactions Law”). It also sets out restrictions on certain types of contracts, such as those relating to the sale of land or other immovable property, the sale of securities, and the import and export of goods. In addition to the Commercial Transactions Law, there are also other laws and regulations that may be applicable to certain types of contracts. For example, UAE’s Federal Law No. 32 of 2021 on Commercial Companies (“Commercial Companies Law”) regulates the formation and operation of companies in the UAE, and UAE’s Securities and Commodities Authority Decision No. 27 of 2014 Concerning the Securities Brokerage Regulation regulates the sale and purchase of securities. Moreover, UAE’s Federal Law No. 38 of 2018 on Copyrights and Neighboring Rights is significant in relation to regulating the ownership and exploitation of intellectual property rights. There are certain restrictions on contracting and dealings imposed by the UAE in light of its culture and religion. There are certain types of contracts, such as those relating to gambling activities or the sale of alcohol, that are generally not permitted unless certain requirements are met. Certain types of contracts may also be restricted by UAE’s Foreign Investment policies (part of the Commercial Companies Law). In particular, foreign investors may not be permitted to enter into certain types of contracts and industries in the UAE, such as contracts that involve the transfer of technology or intellectual property. Additionally, contracts relating to the transfer of funds abroad may also require approval from the relevant authorities. Therefore, there are a number of restrictions and considerations that businesses must take into account when entering into contracts in the UAE, especially for commercial purposes. It is important for businesses to ensure that they are fully aware of the laws and regulations that may be applicable to the type of contract they are entering into, as well as the culture and religion of the UAE. 2. Diving In – Specific Types of Commercial Contracts Doing Business in The UAE From Abroad An essential consideration in relation to engaging in commercial and corporate transactions in the UAE which contributes to growing the market in the region, are the types of contracts which ease entering into transactions between both UAE entities, as well as UAE and foreign based entities. One important aspect of commercial law practice in the UAE is the use of contracts and arrangements such as agency and distribution agreements. Businesses in the UAE are increasingly using agency and distribution arrangements to expand their operations and reach new markets. Whilst such agreements are used to regulate the relationship between parties, they also address elements that protect a company's intellectual property and other proprietary information, enabling foreign entities options to do business in the UAE remotely and facilitate the distribution of their goods and services without necessarily establishing local presence. The legal framework governing agency and distribution arrangements in the UAE is largely derived from the laws of the respective emirates, the UAE Commercial Transactions Law, the UAE Civil Code, and Federal Law No.3 of 2022 Concerning the Regulation of Commercial Agencies. The UAE Civil Code, which is applicable to all seven emirates, sets out the general principles of agency and distribution arrangements and provides the framework for the different types of agency and distribution contracts. Under UAE laws, an agency agreement is defined as a contract by which an agent is authorized to represent the principal in a certain capacity and is subject to the principal's instructions. A distribution agreement, on the other hand, is defined as a contract by which a distributor is appointed to sell products on behalf of the principal. Both arrangements allow for representation of the principal within the UAE to do business, without the requirement of physical presence. It is also important to keep in mind UAE’s Federal Law No. 4 of 2012 on the Regulation of Competition when putting in place such agreements which prohibits arrangements from being restrictive in effect. Other Types of Contracts In addition to the above, are a number of different types of contracts and arrangements available to businesses in the UAE. These include: Franchise agreements: between a franchisor and a franchisee, grants the right to use the franchisor’s trademarks, trade names and other intellectual property rights to operate a business in the UAE. Consignment agreements: between a principal and a consignee who is appointed to store and deliver the principal’s products or services to customers. Licensing agreements: between a licensor and a licensee, grants the right to use the licensor’s intellectual property rights to produce or sell products or services in the UAE. The legal framework governing contractual agreements in the UAE allows for various types of commercial arrangements to be put in place including agency, distribution, franchise, and licensing agreements. Each of these types of arrangements facilitate business dealings and allows businesses both locally and internationally to take advantage of such contracts and arrangements to expand their operations and reach new markets. 3. Background on M&A Transactions in the United Arab Emirates Mergers and acquisitions allow companies to expand their operations, increase their market share, or to gain access to new markets and technologies. The M&A practice has been in existence for many years in the UAE, with the country having a long history of such transactions. Largely fueled by the country’s commitment to diversify its economy and attract foreign direct investment, the UAE’s economic growth over the years has created an attractive environment for investors to pursue M&A deals. Additionally, the UAE’s business-friendly regulations, such as a pro-business tax regime and an efficient legal framework, have also played a role in making the UAE a desirable destination for M&A activity. Since the 1960s, the country has seen a number of major M&A transactions, such as the merger of Abu Dhabi Investment Company and Dubai Investment Group in 2002, and the acquisition of National Bank of Dubai by Emirates Bank in 2007. In 2003, the Central Bank of the UAE issued the M&A Regulations which provided the legal and regulatory framework necessary for M&A transactions relating to banking acquisitions in the UAE. The M&A Regulations allowed companies to merge with or acquire other companies, provided they complied with the relevant regulations. Since then, M&A transactions have become increasingly common in the UAE. Funding The funding of M&A transactions in the UAE is typically done through a combination of debt and equity. Debt financing is often provided by banks and other financial institutions, such as venture capital firms. Equity financing is typically provided by the investors and shareholders of the companies involved in the transaction. To complete an M&A transaction in the UAE, the parties involved need to provide adequate funding. The funding is usually provided by the buyer, but there are also cases where the seller or a third-party investor may provide the necessary funds. Parties When undertaking an M&A transaction in the UAE, the parties involved need to understand their respective roles and responsibilities. In general, the parties involved in an M&A transaction include the buyer, seller, and any third-party investors. The buyer will typically be responsible for providing the necessary funding for the transaction and will also need to ensure that all legal requirements are met. The seller is responsible for providing the necessary information about the company and its assets, as well as ensuring that the transfer of ownership is carried out in accordance with the law. Third-party investors may also be involved, depending on the type of transaction. The parties involved in M&A transactions in the UAE may also include the companies involved in the transaction, their shareholders, and their respective advisors. 4. Diving In – Acquisitions: Share or Asset Deals When looking into a possible acquisition, the parties involved need to consider whether the deal will involve a share or asset acquisition, in order to define the scope of the due diligence review. For share acquisitions, as is seen in normal global practice, a wider and more detailed due diligence process would be advised in order to acquire the business as a going concern. For asset acquisitions on the other hand, a more defined due diligence is undertaken limited to the relevant assets. Assets may include tangible assets such as buildings, land, and equipment, as well as intangible assets such as intellectual property and customer relationships. Specific Considerations There are certain considerations to be taken into account in any type of acquisition, especially in relation to licensing matters and employment. Specific licenses required for operating certain types of businesses are not transferable without the regulatory authority’s express consent. The UAE authorities set out certain licenses for specific industries and types of businesses that are regulated. Such licenses permit the relevant businesses to operate and ensure certain standards are maintained. For example, operating a medical clinic requires that both the business as well as the healthcare practitioners have specified licenses – which are obtained upon the satisfaction of certain conditions, such as specific educational and training requirements. Therefore, it is important to ensure that the relevant licenses intended to be acquired, whether for a share or asset acquisition, are transferable, and the requisite conditions to possess and operate under the licenses are met and satisfied by the buyer. Moreover, if the assets to be acquired include specific or key employees, it is important to take into consideration the non-transferable nature of an employee’s employment contract. Therefore, if an employee is intended to be “transferred” to another entity following a share acquisition, then their contract will need to be terminated and any gratuity must be settled prior to the commencement of a new employment arrangement. Similarly, in an asset acquisition where only specific assets are to be acquired and no intention for the business to continue as a going concern, the termination or intended “transfer” of employees must be considered and the parties must agree who will be responsible for settling the gratuity. In addition to the above, consideration must be made to the UAE’s federal system. Comprised of seven Emirates, the UAE has federal laws applicable across all Emirates, but also provides discretion, to a certain extent, as to the application of the laws and regulations on a local Emirate level. Therefore, in addition to the federal laws that must be abided by, local Emirate-level requirements must also be taken into account and followed. Transfer of Loans In some cases, the parties may agree to transfer certain loans or debts as part of the M&A transaction. The transfer of loans is usually done in accordance with the terms of the underlying loan agreement and may involve the transfer of both the principal and interest payments. The parties involved in the transaction will need to ensure that any applicable taxes or fees are paid, and that the transfer is carried out in accordance with the applicable laws. The Central Bank of the UAE has issued regulations governing the transfer of loans in M&A transactions, which require the approval of the Central Bank prior to the transfer of any loan – in relation to banking acquisitions. Developments In recent years, there have been a number of developments in M&A transactions in the UAE. The UAE government has taken steps to encourage foreign investment in the country, including the amendment to the UAE Commercial Companies Law which allows foreign investors to own up to 100% of UAE companies. In addition, when it comes to banking acquisitions, the Central Bank of the UAE has issued a number of regulations and guidelines to facilitate M&A transactions in the UAE. Overall, the UAE is an attractive destination for M&A transactions due to the country’s pro-business environment and the availability of regulatory frameworks and guidelines which has resulted in a number of successful M&A transactions in the UAE in recent years.