A share transfer for a UAE company to another shareholder, either as a gift or by sale, is very common. Private companies can expect the transfers of company shares to rarely occur; however, various circumstances lead to assignment of shares. These include:
- Assignment of shares to a spouse
- Transfer of shares to a pension scheme or any other tax-efficient vehicle
- Assignment of shares to children as a part of an implemented tax strategy or handing over the business to the new generation
- Share transfer upon the existing shareholder’s death
- Agreement of share transfer between two shareholders or business partners
- Part of a transition in the corporate structure
- To free up cash for an intended purpose
- Assignment of shares on separation, civil partnership dissolution or divorce
Read also: Guide On Notary Of Documents In UAE
Prior to agreeing to purchase or acquire company shares, most especially if amount asked by the existing shareholder is signification, a share transfer agreement in UAE has to be drafted, and it must include terms of the termination of the company that other shareholders must also agree to.
Key provisions to include:
- Price and payment
- Completion arrangements
- Conditions precedent with the sale
- Warranties and indemnities
- Non-competes and restraints
- Miscellaneous or other provisions
What isn’t covered in a share transfer agreement?
If only a certain portion of the shares of a company are being sold, then the buyer or assignee has to enter into an agreement with the existing shareholders. It’s usually done with a contract or deed or accession wherein the buyer is bound by the existing agreement of the company shareholders. It is also possible to create a brand new shareholders’ agreement.
The shareholders agreement will explain the relationship between the shareholders and the shareholder with the company following the sale. More often than not, the share transfer agreement will not set out all the details of the sale. Instead, a share transfer agreement in UAE will be utilized as the instrument which allows the transfer of company shares. The document will be what the business or company will be relying on when registering change of ownership with the local authorities. Still, the terms of the sale of company shares can be included in the share transfer agreement.
Read more: Important Points To Know About Sale And Purchase Agreements (SPAs) For Company Shares
Is there a need for completion arrangements with a UAE share Transfer agreement?
Sometimes, sale completion occurs upon the signing of a share sale agreement, but it can also occur later on during the time when the shares are actually transferred. When the seller has to perform certain tasks prior to the completion of the sale, the completion will take place a few weeks following the share transfer and share sale agreements are signed.
Regardless of when the completion is planned by relevant parties, the agreement has to have an explanation when the completion is going to occur. In the provision of completion arrangements in a share transfer agreement, there also has to be details on what the contracting parties are required or expected to perform upon the completion.
For instance, the seller may be required in providing any share certificates or statutory declarations and the buyer may be required in paying all or a portion of the purchasing price. Various other things can also happen before and after the completion like the singing of company resolutions, as well as the filing of necessary regulatory notifications.
You should know : Essential Clauses Of Share Purchase And Assignment Agreements In UAE
What are warranties and indemnities for share Transfer agreements in UAE?
Aside from the necessary provisions such as terms of payment and assignment of shares to a new owner, warranties and indemnities in a share transfer agreement in UAE are the other important provisions. The they give the assignee or buyer of shares certainty regarding the company shares.
Warranties and indemnities cover a wide range of areas such as the following:
- Title – the seller owns the company shares to be bought and has rights in selling or assigning them;
- Business warranties – that there’s nothing that was left undisclosed by the seller to the buyer which can affect materially the value of company shares that are being sold;
- Share capital – company share capital that’s promised by the assignor or seller of shares
The warranties can address several different aspects of a company. There can be warranties on the accounts, assets, key contracts of the company, and the fact that there’s no litigation ongoing that affects the company. There is also usually a mention in the provision regarding the transfer of shares not an act that breaches any existing contract between the shareholders and the company.
Although it’s normal for buyers or assignees to seek from the seller or assignor warranties and indemnities, it’s also advisable for the seller in seeking to qualify them. To ensure the proper creation of corporate documents, especially the share transfer agreement notarization in UAE, call us here in Notary Public Dubai today!
Hassan Humaid Al Suwaidi is a UAE Citizen and the founder of the firm HHS Lawyers. He has a vast experience of 20 years of dealing with high-value and complex notary requirements. Hassan has been involved in some of the largest legal settlements in the UAE and is commended for his ability to attain the most favourable outcomes for his clients.
