UAE Drag-Along and Tag-Along Rights: What the 2025 Law Mea

What changed under the UAE Commercial Companies Law?

Federal Decree-Law No. 20 of 2025 amended several areas of the UAE Commercial Companies Law, including shareholder relationships and ownership transfers. The Ministry of Economy and Tourism has specifically identified forced-sale arrangements and drag-along and tag-along rights among the reforms introduced under the updated framework.

The Ministry describes the arrangements as permitting a majority shareholder to require minority holders to participate in a sale while also allowing minority holders, where applicable, to join a transaction under the same terms. It states that the provisions apply to limited liability and joint-stock companies, subject to the necessary legal approvals.

For shareholders, this creates a clearer statutory basis for exit mechanisms already familiar in international investment transactions.

It does not mean, however, that every majority shareholder automatically gains an unrestricted power to sell another shareholder’s interest. The relevant corporate documents, agreed conditions, company type, competent authority requirements and transaction terms still need to be considered.

Statutory recognition makes drag-along and tag-along rights easier to place within the UAE corporate framework, but the commercial protection still depends heavily on how the shareholder documents are drafted. — Consulting Journal observation

What is a drag-along right in the UAE?

A drag-along right is an agreed mechanism that can allow a qualifying shareholder or group of shareholders to require other shareholders to sell their interests as part of a specified third-party transaction. Its main commercial purpose is to prevent an agreed whole-company exit from being blocked by shareholders who hold a smaller interest.

Consider a company with three shareholders.

• Shareholder A owns 60%.
• Shareholder B owns 25%.
• Shareholder C owns 15%.

A strategic buyer offers to acquire 100% of the business but does not want to purchase only Shareholder A’s controlling stake.

Where the company’s valid arrangements include an enforceable drag-along mechanism, and the required threshold, approvals and other conditions have been satisfied, Shareholders B and C may be required to participate in the sale.

The mechanism can therefore give a prospective purchaser greater confidence that it can acquire the required level of ownership.

Example 1:

A fictional Dubai mainland technology company has a founder holding 65%, an early investor holding 25% and a senior executive holding 10%.

A regional buyer wants to acquire the entire company rather than inherit two minority shareholders. If the shareholders previously agreed an appropriately structured drag-along clause and the legal requirements are satisfied, the majority holder may be able to trigger the agreed sale process.

Without clear documentation, disagreements over price, notice, liability or completion could delay the transaction even where the commercial intention appears straightforward.

What is a tag-along right?

A tag-along right generally gives eligible shareholders the option to participate in a qualifying sale initiated by another shareholder. It is commonly used to protect minority investors where a controlling shareholder intends to transfer its stake to a new owner.

Suppose the 60% shareholder in a company receives an attractive offer from an outside buyer.

Without a tag-along provision, shareholders owning the remaining 40% could potentially remain invested after control passes to someone they did not choose.

An agreed tag-along mechanism may instead allow those shareholders to participate in the transaction according to the conditions established in the company’s shareholder or constitutional arrangements.

This can be particularly relevant where the new controlling shareholder may have a different approach to management, financing, dividends, growth or the timing of a future exit.

Example 2:

Consider a fictional UAE family-owned trading company in which one family branch owns 70% and another owns 30%.

The majority owners receive an offer to sell their controlling stake to an external investor. The minority branch does not want to remain invested under an unrelated controlling shareholder.

A properly structured tag-along provision could provide the minority owners with an agreed opportunity to participate in the sale, subject to the applicable terms and approvals.

What is the difference between drag-along and tag-along rights?

Drag-along and tag-along provisions deal with the same broad issue—shareholder exits—but they operate in different directions. A drag right can require eligible shareholders to participate in an agreed qualifying sale. A tag right generally gives eligible shareholders an opportunity to join a sale initiated by another shareholder.

For business owners, a simple distinction is useful:

• Drag-along: another shareholder may be required to sell.
• Tag-along: another shareholder may choose to participate in the sale.

Drag-along provisions are therefore often associated with transaction certainty for majority shareholders and prospective buyers.

Tag-along provisions are more closely associated with protecting eligible minority shareholders from being left invested after a significant ownership change.

In practice, shareholder agreements frequently address both because investors usually want clarity on both sides of a future exit.

Why do these rights matter for UAE M&A and investment?

Drag-along and tag-along provisions can make the exit position clearer before an investment or acquisition occurs. This matters because disagreements over shareholder transfers often emerge precisely when a buyer, founder or investor is trying to complete a time-sensitive transaction.

The Ministry of Economy and Tourism has linked the 2025 amendments with smoother ownership transfers and stronger shareholder protections within the UAE business environment.

From a transaction perspective, the reforms can support several practical objectives.

More predictable exits

A buyer seeking full ownership may be reluctant to proceed if a small shareholder can remain outside the transaction.

A properly drafted drag mechanism may reduce that uncertainty where the required conditions are satisfied.

Minority shareholder protection

A minority investor may be uncomfortable remaining in the company after the controlling shareholder exits.

A tag mechanism can provide an agreed route for that shareholder to participate in a qualifying transaction.

Clearer investment negotiations

Founders and investors can address exit rights when negotiating an investment rather than attempting to resolve them after a buyer appears.

For venture capital, private equity and strategic investors, this can be an important part of assessing the commercial terms of an investment.

Better transaction planning

Clear transfer provisions help financial, legal and management teams understand what approvals, notices and documentation may be required before completion.

That can also improve due diligence readiness when a prospective purchaser begins reviewing the company.

Which UAE companies should review these provisions?

The Ministry states that the relevant reforms extend to limited liability and joint-stock companies, subject to required legal approvals.

Businesses should nevertheless avoid assuming that every UAE company is governed by precisely the same company-law regime.

A Dubai mainland LLC and a company incorporated within a UAE free zone may have different constitutional, regulatory and registration requirements. Financial free zones can also operate under distinct corporate frameworks.

The first practical question should therefore be:

Which legal and regulatory regime governs the company?

The answer may affect where the drag-along or tag-along arrangement needs to appear, how amendments are approved and what procedures apply when shares are ultimately transferred.

What should a UAE drag-along or tag-along clause address?

Statutory recognition does not replace careful drafting. Shareholders should establish how the mechanism will operate before an actual sale creates pressure between the parties.

Depending on the business and ownership structure, provisions should typically consider:

1. The percentage of ownership or voting rights required to trigger the provision.
2. What type of share sale qualifies.
3. Whether a change-of-control transaction is required.
4. The price or valuation treatment for participating shareholders.
5. How different share classes will be treated.
6. The notice period and information that must be provided.
7. The documents shareholders will be expected to sign.
8. Representations and warranties expected from minority sellers.
9. Limits on individual shareholder liability.
10. Allocation of transaction and advisory costs.
11. Procedures where a shareholder fails to cooperate.
12. Required corporate, regulatory or competent authority approvals.

The clause should also be reviewed alongside pre-emption rights, reserved matters, transfer restrictions and other shareholder protections.

What common mistakes do UAE business owners make?

One common mistake is treating a short drag-along or tag-along paragraph as sufficient without checking how it interacts with the rest of the company’s documents.

Other issues businesses should watch for include:

• Setting a trigger threshold without clearly defining the qualifying transaction.
• Failing to address whether shareholders receive equivalent economic treatment.
• Leaving notice procedures unclear.
• Ignoring different rights attached to different share classes.
• Creating inconsistencies between the shareholder agreement and constitutional documents.
• Failing to consider pre-emption or existing share transfer restrictions.
• Not addressing liability for representations, warranties or indemnities.
• Assuming federal-law recognition automatically applies in the same way to every free-zone entity.
• Waiting until an acquisition offer has arrived before reviewing exit provisions.
• Failing to obtain advice on competent authority approvals and transfer formalities.

These problems can turn an otherwise commercially attractive transaction into a documentation dispute.

What documents should shareholders prepare or review?

Companies considering an investment, restructuring or future exit should consider reviewing the following documents before relying on drag-along or tag-along provisions:

• Current memorandum of association.
• Articles of association, where applicable.
• Shareholder agreement.
• Existing investment agreements.
• Cap table and current ownership records.
• Details of different share or ownership classes.
• Pre-emption rights.
• Existing share transfer restrictions.
• Reserved matters provisions.
• Previous shareholder resolutions.
• Relevant authority registrations.
• Commercial licence and company incorporation records.
• Existing financing arrangements containing change-of-control conditions.
• Side letters or agreements affecting shareholder rights.
• Draft transaction documents where a sale is already being considered.

Financial and Accounting records may also become relevant during a wider M&A process because buyers will typically assess financial performance, liabilities and ownership information alongside the legal share-transfer arrangements.

Should existing UAE shareholder agreements be reviewed?

Existing companies should consider reviewing their shareholder arrangements rather than assuming the legislative amendment automatically creates the exit rights they want. The more useful exercise is to compare existing contractual provisions with the amended company-law framework and the requirements applying to the specific company.

Older agreements may contain drag-along or tag-along provisions drafted under a different legislative environment.

Others may omit the mechanisms entirely.

A review should focus on whether the existing documents remain commercially appropriate and internally consistent.

For example, a shareholder agreement might permit a particular sale while the memorandum contains a separate transfer process. Even if each document appears reasonable when read alone, conflicting procedures can create uncertainty when an actual transaction occurs.

How can KPM Global Services UAE assist?

KPM Global Services UAE can support businesses with the commercial, Financial and Accounting preparation surrounding shareholder transactions, corporate restructuring and investment readiness.

Depending on the engagement, this may include:

• Reviewing corporate and financial documentation for transaction readiness.
• Supporting financial due diligence preparation.
• Organising Accounting records required during investor or buyer review.
• Reviewing management accounts and financial reporting quality.
• Identifying documentation gaps before an investment or sale process.
• Supporting business valuation and financial analysis where appropriate.
• Coordinating with the company’s legal advisers where corporate documentation requires legal review.
• Assisting management teams with transaction-related financial information.

Drag-along and tag-along clauses themselves require careful legal drafting and interpretation. Businesses should therefore involve qualified UAE legal counsel when creating, amending or exercising these rights.

What should founders and investors do next?

Founders and investors do not need to wait for an acquisition offer before reviewing exit mechanics. The better time to identify gaps is usually when relationships are cooperative and commercial expectations can still be documented clearly.

A practical review can start with four questions:

1. Which UAE legal regime governs the company?
2. What do the current shareholder and constitutional documents say about transfers?
3. Are drag-along and tag-along mechanisms already included and internally consistent?
4. What approvals and procedures would apply if a sale occurred?

The UAE Ministry of Economy and Tourism continues to list Federal Decree-Law No. 20 of 2025 among the current Commercial Companies legislation and describes the amendments as part of the development of the country’s corporate framework.

For owners and investors, the practical benefit of the reform is greater clarity around mechanisms that can shape one of the most commercially important moments in a company’s life: the shareholder exit.

This article is for informational purposes and does not constitute legal, tax, accounting, or financial advice.