Kadernani & CompanyA joint venture can give a business access to something that would take years to build alone.
That may be capital, technology, intellectual property, a customer network, industry knowledge, regulatory capability, land, distribution infrastructure or access to a new market.
The same arrangement can also create a long-term dependency on a partner whose priorities eventually change.
That is why joint venture risks in the UAE should be considered before the entity is incorporated, before intellectual property is contributed and before the parties begin operating on the assumption that today's commercial alignment will continue indefinitely.
The difficult questions usually emerge later.
What happens when the venture needs more money and one shareholder refuses to contribute?
Who controls the business if the partners disagree?
Can one shareholder appoint management but leave the other shareholder funding most of the business?
Can a partner compete outside the venture?
Who owns technology developed together?
Can the controlling shareholder enter contracts with its own affiliates?
What happens if the venture loses a regulatory licence?
Can one shareholder sell to a competitor?
And, perhaps most importantly:
how does either party leave without destroying the value they created together?
Those questions are not signs of distrust.
They are the questions that turn a commercial understanding into a durable joint venture.
The First Joint Venture Risk Is Often a Mismatch Between Economics and Control
Parties frequently negotiate equity percentages first.
One partner will own 60%.
The other will own 40%.
Everyone then assumes that the governance position is obvious.
It rarely is.
Shareholding tells only part of the story.
Actual control can depend on:
voting rights, board composition, quorum requirements, reserved matters, management appointments, signing authority, financing rights and access to information.
A shareholder contributing 60% of the capital may discover that the minority partner controls the chief executive, bank mandate and operational licences.
A 30% investor may hold a minority economic interest but possess consent rights over every material decision.
A nominal 50:50 structure may become effectively controlled by whichever party manages the day-to-day business and controls financial information.
The JV should therefore be designed by asking two separate questions:
What economic interest does each party own?
and
What decisions can each party actually control?
Those answers should be deliberate.
The 2025 Companies Law Amendments Create More Structuring Flexibility
The UAE corporate framework has become more flexible.
Federal Decree-Law No. 20 of 2025, amending the Commercial Companies Law, introduced significant changes affecting ownership structures and shareholder relationships.
One important development is the ability of limited liability companies to use multiple classes of ownership interests, subject to the applicable regulatory and implementing requirements.
This opens the door to more sophisticated JV economics.
Different interests may potentially carry different rights concerning matters such as:
voting;
profit participation;
priority on liquidation;
redemption;
or other agreed economic and governance rights.
For joint ventures, that can be valuable.
The parties no longer necessarily need to force every commercial arrangement into a simple model in which ownership percentage, voting rights and economic rights move together.
A strategic partner contributing technology may require one economic arrangement.
A financial investor providing most of the capital may require another.
A founder or operating partner may need governance rights without receiving the same economic priority.
The flexibility is useful precisely because joint ventures are rarely economically simple.
It also means that the constitutional documents deserve greater attention.
The rights attached to each ownership class should be understood clearly before capital is contributed.
The Shareholders' Agreement Is Only Part of the Structure
Many joint ventures focus almost exclusively on the shareholders' agreement.
That document is important.
It usually contains the commercial bargain dealing with governance, funding, transfer rights, confidentiality, restrictions and exit.
But the shareholders' agreement does not operate in isolation.
The venture may also be governed by:
the Memorandum or Articles;
investment agreements;
licence agreements;
shareholder loans;
management-services agreements;
IP licences;
supply or distribution contracts;
and
regulatory approvals.
Those documents should tell one coherent story.
If the shareholders' agreement says that a transaction requires unanimous approval but the constitutional documents allow management to implement it without that approval, the parties have created unnecessary risk.
If the shareholders' agreement gives one shareholder the right to appoint the general manager but the registered corporate records show another person with unrestricted authority, the operational reality may not match the private agreement.
A well-structured JV aligns the contractual rights with the company itself.
Tag-Along and Drag-Along Rights Now Deserve Constitutional Attention
The 2025 Companies Law amendments also expressly recognise the ability of LLCs and private joint stock companies to incorporate tag-along and drag-along mechanisms into their constitutional arrangements, subject to the applicable legal requirements.
This is particularly relevant to joint ventures.
A majority shareholder considering a genuine sale may need the ability to deliver the entire company to a purchaser.
That is the commercial purpose of a properly structured drag right.
The minority, however, should not remain trapped in the company after the controlling shareholder has sold its interest to a new owner.
That is where tag-along protection becomes important.
These rights should not be reduced to two short paragraphs at the end of the agreement.
The drafting should address:
what transaction triggers the right;
what ownership threshold applies;
whether all sellers receive equivalent consideration;
how warranties and indemnities are allocated;
whether minority liability is capped;
how deferred consideration is shared;
and
how the transfer is implemented through the company's constitutional and registration framework.
A tag right that cannot practically stop the majority from completing without the minority offers limited protection.
A drag right that forces a minority investor to assume unlimited warranty exposure is equally problematic.
Exit rights need operational mechanics.
A Local Partner Is Not Automatically Required
One outdated assumption still appears frequently in UAE joint venture discussions:
that a foreign investor needs a UAE national shareholder simply to establish a mainland company.
That is no longer the general rule.
Foreign investors can generally own 100% of UAE companies undertaking permitted economic activities.
The relevant question is now whether the proposed activity falls within a strategic-impact or separately regulated sector.
Strategic activities include areas such as certain defence and security activities, banking and insurance, telecommunications and other specified sectors.
In those cases, the competent regulator can impose conditions relating to foreign ownership, UAE national participation, board composition or licensing.
The commercial consequence is important.
A business should not select a local JV partner merely because somebody says:
“the UAE requires 51% local ownership.”
For most ordinary commercial activities, that is an outdated starting point.
A local partner may still add enormous value.
The partner may provide:
market access;
sector experience;
relationships;
property;
regulatory knowledge;
customers;
or
operational capability.
That partnership should be justified by the business case rather than by a legal requirement that does not apply.
Regulated Sectors Can Change the Ownership Analysis
The position is different where the JV operates in a regulated industry.
Financial services, insurance, healthcare, telecommunications, education, virtual assets, transportation, defence-related activities and other regulated businesses may require sector-specific approvals.
The regulator may examine:
shareholders;
ultimate beneficial owners;
directors;
senior management;
capital;
fitness and propriety;
foreign ownership;
or
change of control.
The regulatory analysis should therefore take place before final ownership percentages are agreed.
There is little value negotiating a 70:30 structure if the regulator will not approve that ownership configuration.
The parties should also understand what happens if a shareholder later changes control.
A transfer between two holding companies may appear to be an internal group matter while still constituting a regulatory change of control requiring approval.
Choose the Joint Venture Vehicle for the Business It Will Actually Conduct
The UAE provides several possible environments for an incorporated joint venture.
Depending on the business, the venture may be established as:
a mainland LLC;
a conventional free-zone company;
a DIFC company;
an ADGM company;
or another appropriate structure.
The correct choice depends on what the venture will actually do.
The analysis should consider:
customers;
physical location;
licensed activities;
regulatory requirements;
employees;
financing;
ownership of assets;
tax;
governing law;
and
eventual exit.
A structure should not be selected solely because incorporation is faster or the initial licence fee is lower.
The cheapest company to establish can become the most expensive company to restructure later.
An Incorporated JV and a Contractual JV Are Not the Same Thing
Not every joint venture requires a jointly owned company.
Sometimes the parties can cooperate contractually.
One party may provide technology.
Another may provide distribution.
Revenue may be shared under a commercial agreement without creating a jointly owned legal entity.
That can be effective where the relationship has:
limited duration;
limited asset ownership;
clearly separable responsibilities;
and
little need for shared corporate governance.
An incorporated joint venture becomes more attractive where the parties need a vehicle that can:
hold licences;
employ staff;
own assets;
receive investment;
borrow;
contract with customers;
or
operate as an independent business.
The legal distinction matters.
A contractual JV allocates risk through contract.
An incorporated JV introduces another legal person with its own governance, liabilities and corporate obligations.
The parties should choose intentionally rather than creating a company simply because “joint venture” sounds as though a company is required.
Control Should Be Designed Around Decisions, Not Percentages
A practical way to structure JV governance is to divide decisions into three levels.
Routine operational decisions should generally remain with management.
Material business decisions should require board approval.
A smaller number of fundamental decisions should require shareholder approval.
The distinction matters.
If every supplier contract requires shareholder consent, the business becomes difficult to operate.
If management can borrow unlimited amounts, dispose of key assets and enter transactions with affiliates without shareholder oversight, the investors have insufficient protection.
The governance architecture should reflect commercial significance.
The question should be:
At what level should this decision properly be made?
rather than:
How many veto rights can each side negotiate?
Good governance allows the venture to operate.
It does not require both partners to run the business simultaneously.
Reserved Matters Should Protect the Investment Thesis
Reserved matters are most useful when they protect decisions capable of changing the fundamental bargain.
Depending on the venture, these may include:
issuing new ownership interests;
changing ownership rights;
borrowing above agreed limits;
granting guarantees or security;
approving the annual business plan;
making a material acquisition or disposal;
entering related-party transactions;
changing the nature of the business;
appointing or removing key executives;
disposing of important intellectual property;
declaring dividends;
settling major litigation;
entering insolvency proceedings;
or
selling the business.
The thresholds should be calibrated to the venture.
A AED 1 million contract may be material to an early-stage technology company.
The same amount may be ordinary-course expenditure for a large infrastructure JV.
Generic monetary thresholds rarely age well.
They should reflect the scale and expected growth of the business.
Veto Rights Can Protect Value or Destroy It
A minority shareholder will often seek broad veto rights because it lacks voting control.
That is understandable.
There is, however, a point at which protection becomes operational control.
If the minority can block budgets, routine hires, ordinary customer contracts and working-capital expenditure, the company may be unable to function without constant shareholder negotiation.
The issue is particularly acute where the parties later become hostile.
The same veto rights designed to protect the minority can then become tools for paralysing the business.
Reserved matters should therefore focus on decisions that fundamentally alter the investment rather than ordinary management.
A JV agreement should protect both:
the investor's capital;
and
the company's ability to operate.
Board Composition Should Reflect the Commercial Bargain
Board seats are another common area of negotiation.
A 50:50 venture may appoint equal numbers of directors.
A majority investor may have more seats.
A strategic minority investor may still require representation.
The composition itself is only the beginning.
The agreement should also address:
who appoints the chair;
whether the chair has a casting vote;
what constitutes quorum;
whether each shareholder's nominee must be present;
how directors can be removed;
what happens when a seat is vacant;
and
which matters require enhanced board approval.
A casting vote can alter a supposedly equal JV dramatically.
So can quorum provisions.
A 50:50 shareholding arrangement in which one party's director can conduct a second meeting alone after the first meeting fails for quorum is not practically equal.
The procedural details determine control.
Nominee Directors Are Still Directors
A shareholder appointing a director will understandably expect that person to understand the appointing shareholder's commercial interests.
But a nominee director should not simply be treated as a voting proxy.
The applicable corporate law may impose duties on directors to the company itself.
That becomes particularly important when the interests of the shareholder and JV begin to diverge.
For example, one shareholder may want the JV to enter an agreement with another group company.
The transaction may benefit the shareholder.
The director still needs to consider whether it is appropriate for the JV.
The shareholders' agreement should not assume that a nominee director can ignore statutory duties whenever the appointing shareholder gives an instruction.
Board Observer Rights Can Sometimes Be More Appropriate
A shareholder may want information and visibility without appointing a director.
A board observer can sometimes provide that balance.
The observer may attend meetings and receive agreed information without exercising a formal board vote.
Whether that structure is appropriate depends on the applicable law and documents.
It can be useful for:
financial investors;
lenders;
early-stage investors;
or
minority strategic partners.
The agreement should define what information the observer receives and how confidentiality is protected.
Observer status should not become a vague informal role in which the individual effectively participates as a director without clarity over legal responsibility.
Information Rights Are a Form of Control
A shareholder cannot exercise meaningful governance without information.
This becomes especially important where one partner manages day-to-day operations.
The non-managing shareholder may receive a board seat but still know very little if management controls all financial reporting.
The JV documents should therefore establish a regular information framework.
Depending on the business, the parties may require:
monthly management accounts;
budget-to-actual reporting;
cash-flow forecasts;
annual financial statements;
audit reports;
banking information;
material contract reporting;
regulatory correspondence;
litigation reports;
and
notice of major customer or supplier problems.
The frequency should match the business.
A growing venture with limited cash runway may require monthly reporting.
A mature holding JV may need substantially less.
Information rights should provide visibility, not overwhelm the company with reporting that nobody reads.
Audited Accounts Can Have Corporate and Tax Importance
Audits may be required because of the company's legal form, licensing authority, financing arrangements or Corporate Tax status.
For free-zone structures, this requires particular attention.
A Qualifying Free Zone Person must prepare and maintain audited financial statements under the current Corporate Tax framework.
That applies even where the entity is below the general AED 50 million revenue threshold applicable to certain other taxable persons.
The joint venture should therefore understand its expected audit obligations before agreeing annual compliance budgets.
In a 50:50 venture, the agreement should also address appointment and replacement of the auditor.
An audit appointment itself should not become an annual shareholder dispute.
Free Zone Does Not Automatically Mean 0% Corporate Tax
Tax should be considered when selecting the JV structure.
A free-zone company does not automatically receive a 0% Corporate Tax rate.
The preferential regime is available to a Qualifying Free Zone Person on Qualifying Income only where the applicable statutory conditions are satisfied.
Those conditions include matters relating to:
adequate substance;
qualifying activities and income;
transfer pricing;
audited financial statements;
and
the level of non-qualifying revenue.
The current qualifying-activities framework is governed by Ministerial Decision No. 229 of 2025.
A JV expecting to serve mainland customers or carry on several different activities should therefore model the tax consequences against the actual business plan.
Free-zone incorporation should not be sold to the partners as automatically providing:
“0% tax.”
That conclusion depends on the facts.
Funding Is Where Many Joint Ventures Begin to Break Down
At incorporation, funding usually seems straightforward.
Each shareholder contributes an agreed amount.
The disagreement often begins when that money is no longer enough.
The company needs another AED 20 million.
One shareholder is willing to fund.
The other is not.
The agreement contains only one sentence saying that:
“additional funding shall be agreed between the shareholders.”
At that point, it is no longer a funding clause.
It is a deadlock clause.
A sophisticated JV should determine at the outset what happens when the approved business plan requires additional capital.
Capital Calls Need a Defined Process
The funding mechanism should explain:
who determines that funding is required;
whether it must be included in an approved budget;
how much notice shareholders receive;
whether contributions are proportional;
whether the obligation is mandatory;
and
what form the funding takes.
The venture may use:
equity;
shareholder loans;
bank financing;
or
a combination.
Those sources are economically different.
Equity changes ownership economics.
Shareholder debt creates creditor rights.
External borrowing can introduce security and financial covenants.
The agreement should establish an order of priority where appropriate.
For example, the parties may agree to seek third-party debt before requiring additional equity.
Another venture may intentionally avoid external leverage.
There is no universal model.
The important point is that the model should exist before the cash crisis.
Failure to Fund Needs a Proportionate Consequence
One of the hardest negotiations concerns what happens if a shareholder refuses or fails to contribute.
Possible mechanisms can include:
dilution;
default interest;
shareholder loans from the funding party;
suspension of specified rights;
a compulsory transfer;
or another agreed remedy.
The remedy should be proportionate.
A minor delay in paying a capital call should not automatically allow the other shareholder to acquire the entire investment at a nominal price.
Conversely, a shareholder should not be able to refuse all additional funding while insisting that another investor finance the company indefinitely without receiving any additional economic protection.
The consequence should reflect the funding obligation and the harm caused by default.
Distressed Funding Requires Even Greater Care
The problem becomes more difficult where the venture is already financially distressed.
An emergency capital raise may be necessary simply to keep the company alive.
The shareholder providing rescue finance may reasonably require:
priority repayment;
additional equity;
security;
or
different economic terms.
The non-funding shareholder may consider those terms dilutive or unfair.
The process should therefore document:
why the funding is required;
what alternatives were considered;
how the valuation was determined;
and
why the proposed terms are commercially reasonable.
Financial distress does not eliminate shareholder rights.
It can, however, materially change the range of commercially realistic choices.
Shareholder Loans Should Be Properly Documented
Joint ventures frequently use shareholder loans because they provide flexibility.
Those loans should not remain informal entries in the accounting system.
The documents should address:
principal;
interest;
repayment;
maturity;
subordination;
security;
events of default;
and
what happens when the shareholder exits.
Transfer-pricing requirements should also be considered.
A shareholder loan is a related-party transaction.
The Corporate Tax arm's-length framework can therefore become relevant.
A loan carrying no interest may require analysis.
A loan charging an unusually high rate may require analysis as well.
Commercial flexibility does not remove the need for defensible terms.
Personal and Parent Guarantees Can Outlive the JV Relationship
A shareholder may agree to provide a guarantee because the venture needs bank financing.
Years later, the shareholder sells its equity and assumes the guarantee disappeared with the shares.
It may not have.
The financing documents should determine how and when guarantees are released.
The JV agreement should therefore address the issue from the beginning.
If shareholders are expected to provide support proportionately, the documentation should explain:
the maximum exposure;
how guarantee fees are treated;
whether the other shareholder indemnifies disproportionate exposure;
and
what happens when ownership changes.
No party should exit the venture economically while remaining exposed to its liabilities indefinitely.
Deadlock Needs More Than a Meeting Between Senior Executives
A standard joint venture clause often provides that unresolved disputes must be referred to the shareholders' chief executives.
That is a reasonable first step.
It is not a complete deadlock solution.
If two senior executives fundamentally disagree about whether the company should borrow AED 100 million, meeting again may simply confirm the disagreement.
The agreement should distinguish between:
ordinary operational disagreement;
and
true deadlock over a fundamental matter.
The first should usually remain within normal governance.
The second needs an escalation route.
That route may include:
senior-principal escalation;
mediation;
expert determination for technical matters;
a buy-sell process;
a structured sale of the venture;
or
another exit mechanism.
The solution should fit the shareholders.
Not Every Deadlock Should Trigger a Buy-Sell Mechanism
Buy-sell clauses can be powerful.
They can also be dangerous.
A mechanism under which one shareholder names a price and the other must choose either to buy or sell at that price may appear fair mathematically.
It is not necessarily fair economically.
One shareholder may have much greater access to financing.
The better-funded party may intentionally trigger deadlock knowing that the other party cannot finance a purchase.
A family business, sovereign investor and private-equity fund should not necessarily use the same deadlock mechanism.
Before choosing one, the parties should ask:
Could both sides realistically exercise it?
If the answer is no, the clause may function less as a deadlock solution and more as a hidden control right.
Technical Disputes Should Not Become Corporate Deadlocks
Some disagreements should be referred to experts rather than boards or courts.
The parties may disagree about:
whether a construction milestone has been achieved;
the value of inventory;
completion-account calculations;
technical compliance;
or
a pricing adjustment.
An independent accountant, engineer or valuer may resolve the issue more efficiently.
The agreement should define which matters are suitable for expert determination.
It should also say whether the expert acts as an expert or arbitrator, what information may be considered and whether the determination is final subject to limited exceptions.
Corporate governance should not be paralysed because two shareholders disagree over an accounting calculation that a specialist could resolve.
Intellectual Property Should Be Divided Into Background and Venture IP
Technology-based joint ventures frequently fail to distinguish between intellectual property that existed before the venture and intellectual property created afterward.
That distinction should be explicit.
Background IP may include technology, software, patents, trademarks, know-how and proprietary processes contributed or licensed by a shareholder.
The shareholder will generally want to retain ownership while giving the JV sufficient rights to operate.
Venture IP is created during the relationship.
The parties need to decide who owns it.
Possibilities include ownership by:
the JV itself;
the shareholder that created it;
or
another agreed structure with licences back to the venture.
The correct arrangement depends on the business.
What matters is that ownership should not be left to argument after the technology becomes valuable.
An IP Licence Should Survive the Scenarios the Business Actually Fears
A licence of shareholder technology to the JV should address more than permitted use during normal operations.
It should answer:
What happens if the shareholder sells its interest?
What happens if the parties become competitors?
What happens after termination?
Can the JV sublicense?
Can it modify the technology?
Who maintains it?
Who owns improvements?
Does the licence survive insolvency?
Can the shareholder terminate it because of an unrelated shareholder dispute?
The venture should not be built on technology that one shareholder can remove overnight as negotiating leverage unless that is deliberately part of the bargain.
Likewise, the technology owner should not accidentally grant perpetual unrestricted rights when the commercial intention was much narrower.
Customer Relationships and Data Need Similar Protection
A partner may contribute customers rather than technology.
The JV should determine who owns the resulting relationship.
If the venture terminates, can each partner approach the customers?
Are they customers of the shareholder or of the JV?
Who owns customer data?
Can a shareholder use that data in another business?
Can customer information be transferred outside the UAE?
These questions can become more important than formal IP ownership.
For data-driven ventures, the privacy and data-protection implications should also be considered under the law applicable to the operating entity, including the distinct frameworks that may apply in mainland UAE, DIFC and ADGM.
Non-Compete Clauses Should Define the Venture's Actual Market
Joint venture partners are often already active in related sectors.
A generic clause saying that neither party may compete with the JV anywhere in the world is rarely the best solution.
The agreement should define the venture's actual commercial field.
That may involve:
specific products;
customers;
geographic markets;
business opportunities;
or
regulated activities.
The parties should then agree what remains outside that field.
One shareholder may have an existing regional business that the other never intended to restrict.
Another may operate globally but agree that opportunities in a specific UAE sector must first be offered to the JV.
Precision reduces future accusations of competition.
It also makes the arrangement easier to defend legally and commercially.
Corporate Opportunities Need a Clear Rule
Some of the most difficult JV disputes concern opportunities that sit close to the boundary of the venture.
A shareholder receives a customer lead.
The opportunity could be performed through the JV.
It could also be performed more profitably through the shareholder's own business.
Who gets it?
If the agreement is silent, the issue can become highly contentious.
An opportunity-allocation provision can define:
what opportunities must be offered to the venture;
what falls outside its scope;
how conflicts are disclosed;
how the JV decides whether to pursue the opportunity;
and
when the shareholder may proceed independently.
The objective is not to give the JV ownership of every business opportunity its shareholders encounter.
It is to avoid arguments over opportunities that were central to the reason the JV existed in the first place.
Related-Party Transactions Need Objective Controls
Joint ventures naturally transact with their shareholders.
One shareholder may supply technology.
Another may provide office premises.
A parent may provide treasury services.
An affiliate may act as distributor.
Those arrangements are not inherently problematic.
They do create conflicts.
The JV documents should therefore establish how related-party transactions are approved and priced.
For mainland LLCs, the existing regulatory framework contains specific related-party governance requirements, including a requirement for certain transactions exceeding the applicable 3% of company capital threshold to be presented to the General Meeting.
The contractual governance should work alongside those statutory requirements.
Material shareholder transactions should be supported, where appropriate, by:
market benchmarking;
competitive quotations;
independent valuation;
or another basis capable of demonstrating commercial fairness.**
The question should always be:
Would the JV have accepted these terms from an independent counterparty?
Dividend Policy Should Be Discussed Before the Venture Becomes Profitable
Parties usually negotiate funding intensively.
They spend much less time negotiating what happens once the venture makes money.
That can create conflict later.
One shareholder may want profits reinvested to expand the business.
Another may have invested principally to receive regular cash distributions.
Both positions can be commercially rational.
The disagreement should not first be discovered after the first profitable year.
The JV agreement can establish:
distribution principles;
reserve requirements;
debt-service priorities;
working-capital requirements;
and
the approval process for dividends.
No contractual dividend policy should require an unlawful distribution.
But within those legal limits, the parties can agree how economic returns are expected to flow.
Management Appointments Need Performance and Removal Mechanics
A strategic partner may insist that it appoint the CEO because it brings the operating expertise.
The financial partner may accept that arrangement but want protection if the CEO consistently fails.
The documents should address:
who appoints key executives;
who determines remuneration;
who assesses performance;
who can remove them;
what happens if shareholders disagree;
and
who appoints a replacement.
Management rights should not become permanent regardless of performance.
At the same time, the investor who does not operate the business should not be able to remove key executives casually and undermine the operating model.
The governance structure should reflect the reason each party was chosen.
Business Plans and Budgets Should Have a Default Mechanism
A JV agreement commonly requires unanimous approval of the annual budget.
What happens if the shareholders cannot agree?
Without a fallback mechanism, the company may enter a new year with no authorised budget.
A practical agreement can provide that, pending approval, the prior year's budget continues with specified adjustments or that only essential expenditure may be incurred.
The mechanism should not resolve the underlying strategic disagreement permanently.
It should allow the company to continue paying staff, suppliers and ordinary operating expenses while shareholders attempt to resolve the larger issue.
Continuity provisions are often more valuable than elaborate deadlock language.
Signing Authority Should Reflect Governance
A shareholder can lose practical control even where the shareholders' agreement appears strong if one manager has unrestricted ability to bind the company.
The signatory matrix should therefore align with the reserved-matter framework.
Routine contracts may require one authorised signatory.
Large commitments may require two.
Borrowing or guarantees may require specific board approval.
Bank payments may use different thresholds.
The parties should distinguish:
approval authority;
contract-signing authority;
and
bank-payment authority.
They are related but not identical.
A venture whose constitution requires unanimous approval for borrowing should not maintain a banking mandate allowing one director to incur that borrowing alone.
Competition Law Can Apply to the Formation of a Joint Venture
This is an increasingly important UAE issue.
A joint venture can itself constitute an Economic Concentration for purposes of Federal Decree-Law No. 36 of 2023 on the Regulation of Competition.
Under the current threshold rules in Cabinet Resolution No. 3 of 2025, notification can be required where either:
the combined annual UAE sales value of the relevant undertakings in the relevant market exceeds AED 300 million during the preceding financial year;
or
their combined share exceeds 40% of total transactions in the relevant UAE market.
These are alternative thresholds.
The parties should therefore assess competition requirements before completion rather than after the JV is already incorporated and operating.
The 2026 Competition Regulations Expressly Address Joint Ventures
Cabinet Resolution No. 59 of 2026, effective from 30 July 2026, introduced the current Executive Regulations to the Competition Law.
Those Regulations expressly address applications involving mergers and joint ventures.
Where notification is required, the competition filing process should therefore become a condition to completion.
The parties should allocate responsibility for:
preparing the filing;
providing market information;
responding to Ministry requests;
considering remedies or commitments;
and
deciding what happens if approval cannot be obtained on acceptable terms.
Competition clearance should not be treated as a standard regulatory condition where the transaction potentially crosses the statutory thresholds.
It can affect the entire timetable.
The Competition Filing Timeline Should Be Reflected in the Transaction Documents
The Competition Law requires a qualifying economic-concentration application to be submitted at least 90 days before completion.
The review framework includes a statutory decision period that can extend beyond that filing lead time.
That has direct implications for the long-stop date.
The JV agreement and investment documentation should not require completion in 30 days if competition approval realistically prevents it.
The parties should also avoid implementing the JV prematurely.
Operational coordination before clearance can itself create competition concerns.
Until approval has been obtained where required, the parties remain independent competitors.
Pre-Closing Information Sharing Needs Competition Discipline
JV partners often need to share information during diligence and planning.
That is legitimate.
The risk increases where the parties are competitors.
Sensitive information may include:
current pricing;
customer-specific terms;
future bids;
margins;
strategic plans;
production capacity;
or
competitive responses.
The parties should use clean-team or controlled information procedures where appropriate.
Only information genuinely needed for the transaction should be exchanged.
The planned joint venture should not become an excuse for competitors to coordinate existing businesses before the venture is lawfully operational.
Competition compliance therefore begins before closing.
Strategic Sector Approvals Need to Be Conditions Precedent
Where a JV operates in a strategic or regulated activity, the relevant licence or ownership approval should generally be addressed before completion.
The agreement should identify:
which regulator must approve;
which shareholder supplies the application information;
what ownership conditions are acceptable;
whether board composition may be restricted;
and what happens if approval comes with unexpected conditions.
A foreign partner should not contribute substantial capital before knowing whether the regulator will approve the intended control rights.
Likewise, the local or licensed partner should not be required to proceed where regulatory approval changes the economics materially.
Conditions precedent exist to ensure the commercial deal being completed is still the deal the parties originally negotiated.
Beneficial Ownership and KYC Should Be Planned at the Start
A sophisticated JV may contain several layers of holding companies.
The ultimate investors may sit in several jurisdictions.
The parties should expect to provide beneficial ownership and KYC information to:
licensing authorities;
banks;
regulators;
auditors;
tax authorities;
and
major counterparties.
The ownership chart should be capable of being explained.
Complexity may be commercially justified.
Opacity rarely helps.
Where ownership changes, the relevant corporate and beneficial-ownership records should be updated within the applicable legal timeframes.
A JV should maintain its regulatory records as carefully as its shareholder register.
Banking Should Be Treated as Part of Formation
A licence does not guarantee a bank account.
Banks will assess:
ownership;
business model;
source of capital;
countries of operation;
expected transaction flows;
major customers;
beneficial owners;
and, in some sectors,
regulatory permissions.
A JV can therefore be legally incorporated but commercially unable to operate because its banking workstream was started too late.
The parties should also agree banking governance.
Which directors can open accounts?
Who can approve payments?
What threshold requires dual approval?
Can one shareholder block ordinary payroll?
Bank mandates are corporate governance documents in practice, even if they are issued by the bank.
Employees Need a Clear Employer
Joint ventures also create employment questions.
The parties may initially second employees from their existing businesses.
That can work.
The arrangement should explain:
who remains the employer;
who directs the employee's work;
who pays salary;
who sponsors the employee;
who bears employment liabilities;
who owns work product;
and
what happens when the secondment ends.
Over time, the JV may hire directly.
That transition should be planned.
Employees should not spend years working for one company operationally while remaining undocumented employees of another group company merely because the original temporary arrangement was never revisited.
Compliance Responsibility Should Not Fall Between the Shareholders
Each shareholder may assume the other is handling compliance.
One is the local operating partner.
The other is the multinational investor with sophisticated policies.
The result can be that neither takes full responsibility.
The shareholders' agreement should make clear who is responsible for areas such as:
licensing;
AML where applicable;
sanctions;
data protection;
anti-bribery controls;
employment;
health and safety;
tax filings;
and
regulatory reporting.
The board should receive appropriate reporting.
If one shareholder provides compliance support under a services agreement, the JV remains responsible for obligations imposed directly on it.
Outsourcing a function does not automatically outsource legal responsibility.
Anti-Bribery Controls Are Particularly Important Where Partners Contribute Relationships
Some ventures are formed because one party understands the local market and has strong customer or government relationships.
That can be a legitimate commercial advantage.
The multinational partner should still understand how those relationships are managed.
The JV should maintain:
clear approval processes;
third-party diligence;
gift and hospitality rules;
payment controls;
consultant agreements;
and
accurate records.
A shareholder should never accept:
“this is how business is done here”
as a substitute for lawful conduct.
The venture should operate according to the legal and compliance standards applicable to its activities and investors.
Exit Planning Should Begin Before Incorporation
A JV without an exit plan is incomplete.
The parties may expect to remain together for ten years.
Circumstances change.
One shareholder may change strategy.
Another may be acquired.
A parent company may experience financial distress.
A founder may retire.
A regulator may require ownership changes.
A third party may make an attractive offer.
The agreement should therefore anticipate ordinary transfer and extraordinary exit events.
That does not mean predicting exactly when the relationship ends.
It means agreeing the rules before one party has an economic incentive to manipulate them.
Pre-Emption Rights Need a Workable Timetable
When a shareholder wants to sell, the other shareholder may receive the right to purchase first.
That protects against unwanted new partners.
The mechanism should explain:
what constitutes a genuine third-party offer;
how it is notified;
how long the other shareholder has to respond;
whether terms must be matched exactly;
how non-cash consideration is valued;
and
how long the selling shareholder has to complete with the third party if the right is not exercised.
A pre-emption clause should not allow one party to prevent all sales indefinitely.
Nor should it be drafted so loosely that it can be avoided by restructuring the transaction as an indirect change of control.
Indirect Changes of Control Should Be Addressed
If a shareholder is itself a company, its shares may be sold without any direct transfer of the JV interests.
Economically, the JV has a new partner.
Legally, the shareholder of record remains the same.
The agreement should therefore consider whether a change of control of a shareholder triggers:
consent;
pre-emption;
termination;
a buyout;
or
another agreed consequence.
This is particularly important where the identity of the partner was central to the deal.
A technology company may not want its principal competitor acquiring control of its JV partner.
The contractual framework should address that risk before it happens.
Transfers to Competitors Need Separate Treatment
A shareholder may ordinarily be entitled to realise its investment.
That does not necessarily mean it should be free to sell to anyone.
A JV containing valuable technology, customer information or strategic assets may need restrictions on transfers to specified competitors.
Those restrictions should be drafted carefully.
An absolute prohibition covering every company that competes anywhere with either shareholder may be too broad.
A practical provision can define:
the relevant competitors;
the relevant business field;
or
an agreed restricted transferee category.
The clause should protect the venture without making the interest effectively unsaleable.
Valuation Mechanics Matter Most When Nobody Agrees on Value
Compulsory transfers and buyouts frequently fail because the agreement says:
“fair market value shall be determined by an independent valuer.”
That sounds sufficient.
It often is not.
The provision should consider:
how the valuer is appointed;
what valuation date applies;
what information is available;
whether the company is valued as a going concern;
how shareholder loans are treated;
whether abnormal related-party transactions are adjusted;
whether minority discounts apply;
whether a control premium applies;
and
whether the expert's decision is final.
The valuation method can change the outcome dramatically.
If the clause is triggered following a shareholder default, the agreement should also distinguish between:
fair market value;
and
a contractual default price.
Any discount mechanism should be commercially defensible and carefully drafted.
Default Should Not Become an Opportunity for Confiscation
Joint venture agreements frequently provide compulsory transfer rights if a shareholder commits a serious default.
That can be appropriate.
A shareholder committing fraud, repeatedly refusing mandatory funding or materially breaching confidentiality may no longer be a viable partner.
The purchase mechanism should still remain proportionate.
A clause allowing the other shareholder to acquire the entire investment for a nominal amount after any contractual breach creates substantial litigation risk.
The agreement should distinguish:
minor remediable breaches;
material defaults;
and
fundamental misconduct.
Cure periods may be appropriate for some breaches and inappropriate for others.
The remedy should reflect the seriousness of the event.
Insolvency of a Shareholder Should Be Addressed
A shareholder's financial distress can destabilise the venture even where the JV itself remains healthy.
The insolvent shareholder's interest may become subject to creditor enforcement or insolvency proceedings.
The other shareholder may find itself dealing with:
an insolvency practitioner;
a creditor;
or
a purchaser it never selected.
The JV agreement should therefore consider the consequences of shareholder insolvency.
Potential mechanisms can include transfer rights, call options or other protections, subject to applicable insolvency law and enforceability.
A contractual provision cannot simply override mandatory insolvency legislation.
But the parties can anticipate the commercial risk.
The Dispute Clause Should Be Designed Around the JV
Joint ventures can generate several different types of dispute.
Some concern the shareholders' agreement.
Others concern the company itself.
A shareholder may bring a contractual claim.
The company may have a claim against a director.
A shareholder may seek urgent corporate relief.
A valuation question may require expert determination.
The dispute mechanism should accommodate those possibilities.
Arbitration under DIAC, ICC, SIAC or another appropriate institution may be suitable for cross-border ventures.
DIFC or ADGM Courts may be attractive where those systems are appropriate.
Onshore UAE courts may be the correct forum in other circumstances.
The decision should consider:
governing law;
seat;
language;
confidentiality;
interim relief;
location of assets;
enforcement;
and
whether all relevant parties are actually bound by the chosen forum.
A dispute clause copied from an unrelated agreement can create major procedural problems later.
The JV Company Should Be Bound Where Appropriate
A frequent drafting issue is that only the two shareholders sign the shareholders' agreement.
The company is not a party.
Certain obligations are nevertheless written as though the company itself promised to perform them.
That mismatch should be addressed.
Depending on the structure and applicable law, the JV company may need to become a party to the agreement or the relevant rights may need to be reflected through its constitutional documents and corporate approvals.
The document should distinguish clearly between:
shareholder obligations;
and
company obligations.
A shareholder cannot always promise on behalf of a company that legally exists as a separate person.
Multi-Contract JV Structures Need Consistent Dispute Clauses
A substantial joint venture may involve:
a shareholders' agreement;
technology licence;
shareholder loans;
services agreement;
supply agreement;
property lease;
and
guarantees.
If each document contains a different dispute forum, one commercial breakdown may create proceedings in several jurisdictions.
The transaction documents should therefore be reviewed together.
Where different dispute mechanisms are necessary, the boundaries should be intentional.
For example, a technical royalty calculation may go to expert determination while the broader contractual dispute goes to arbitration.
What should be avoided is accidental fragmentation.
Termination of a Commercial Agreement Can Destabilise the Corporate JV
One shareholder may license the core technology to the venture.
Another may provide distribution rights.
If either commercial agreement can be terminated easily, the shareholder may possess enormous leverage over the corporate relationship.
The parties should therefore understand the interaction between:
share ownership;
and
commercial dependency.
If the technology licence terminates automatically when a shareholder dispute occurs, the company's value may collapse precisely when the parties need to negotiate an orderly exit.
Critical intercompany agreements should therefore be drafted as part of the JV architecture, not as ordinary supplier contracts.
Tax Should Follow the Economic Arrangement
Joint ventures create several tax relationships.
The company may pay:
management fees;
interest;
royalties;
rent;
guarantee fees;
or
dividends
to its shareholders or their affiliates.
Transfer-pricing rules can apply to those related-party transactions.
The arm's-length principle therefore needs to be considered when shareholders decide where economic returns will sit.
A shareholder should not assume that it can contribute valuable technology to the venture and later determine an arbitrary royalty.
Likewise, the JV should not pay management charges that cannot be supported by actual services.
The legal agreements, accounting treatment and transfer-pricing analysis should correspond.
A Joint Venture Can Have Its Own Exit Tax Considerations
The parties should also consider how they expect to exit.
Selling the JV company's underlying assets can produce one tax outcome.
Selling ownership interests can produce another.
A free-zone holding structure may engage QFZP rules.
The Participation Exemption may become relevant to qualifying investments.
A restructuring before exit may rely on Corporate Tax reliefs with continuity or clawback conditions.
Tax should therefore form part of exit design from the beginning.
A transaction should not be structured entirely around incorporation convenience and only later ask what happens when the investors sell.
The JV Should Be Stress-Tested Before Signing
The best way to review a joint venture agreement is not to read it only in normal conditions.
The parties should test it against uncomfortable scenarios.
Suppose the company runs out of money.
Who must fund?
Suppose one shareholder refuses.
What happens next?
Suppose the managing shareholder's CEO performs poorly.
Who can replace that person?
Suppose the JV receives a highly attractive acquisition offer.
Can one shareholder block it?
Suppose one shareholder is acquired by a competitor.
Does that trigger an exit?
Suppose a regulator refuses approval.
Does the venture terminate?
Suppose the core technology licence ends.
Can the company continue?
Suppose the parties cannot approve a budget for six months.
Can the company still operate?
Suppose one shareholder becomes insolvent.
What happens to its interest?
Suppose the relationship simply becomes unworkable.
Is there a realistic exit route?
If the documents cannot answer those questions, the JV is not yet fully structured.
Governance Should Protect Value Without Replacing Trust
No agreement can make incompatible partners compatible.
No deadlock clause can manufacture strategic alignment.
No warranty can force a party to remain enthusiastic about a venture that no longer fits its objectives.
The purpose of the legal structure is more modest and more valuable.
It is to make clear:
who decides;
who funds;
who owns what;
who bears which risks;
what happens when the parties disagree;
and
how value can still be preserved if they eventually separate.
The strongest joint venture agreements do not assume failure.
They recognise that commercially successful ventures can create as much tension as unsuccessful ones.
A business that becomes valuable can create disputes over expansion, distributions, control and exit that did not matter when the company had little value.
The agreement should be designed for that success as well.
How Kadernani & Company Legal Consultants Can Assist
Kadernani & Company Legal Consultants advises UAE and international businesses, investors, founders and family groups on the structuring, negotiation, governance and resolution of joint ventures throughout the UAE and across international transactions.
For professional advice regarding joint venture risks in the UAE, shareholders' agreements, JV structuring, reserved matters, capital calls, shareholder funding, deadlock, intellectual property, related-party transactions, tag-along and drag-along rights, competition clearance, joint venture disputes or exit planning, contact Kadernani & Company Legal Consultants to discuss the commercial structure and legal framework appropriate to the proposed venture.
Our approach begins with the commercial contribution of each party.
Before selecting the entity or drafting the shareholders' agreement, the legal review should establish what each partner is bringing to the venture, what each party expects to control, what capital will be required and which assets or relationships are too important to leave undefined.
For mainland UAE ventures, the structure should reflect the Commercial Companies Law as amended in 2025.
The expanded ability to structure multiple classes of LLC ownership interests and incorporate tag-along and drag-along mechanisms into constitutional documents creates useful flexibility, but those tools should be integrated deliberately with the shareholder agreement rather than treated as standard clauses.
Where foreign investors are involved, the ownership analysis should begin with the actual licensed activity.
A mainland joint venture does not generally require a UAE national shareholder simply because it operates onshore. Where the activity is strategically sensitive or separately regulated, however, the relevant regulator may impose ownership, board or licensing conditions that should be addressed before the equity structure becomes fixed.
Governance should then distinguish clearly between ordinary management, board matters and shareholder reserved matters.
The objective is to protect each investor from fundamental changes to the bargain without making the company dependent on unanimous shareholder approval for every operational decision.
Funding requires the same discipline.
The agreement should explain not only how much capital is required at incorporation, but what happens when that capital runs out.
Equity contributions, shareholder loans, external debt, funding defaults, dilution and emergency financing should form part of one coherent model.
Where shareholders provide guarantees or other credit support, exit arrangements should address how that exposure is released.
Asset ownership should be mapped before the venture begins trading.
Pre-existing intellectual property, newly developed IP, customer information, licences, real estate, data and business opportunities should each have a clear legal home.
Where one shareholder licences a critical asset to the JV, the termination and exit provisions of that licence should be coordinated with the corporate relationship so that the underlying business cannot be destabilised inadvertently during a shareholder dispute.
Competition law should also be considered at formation.
Under the current UAE merger-control framework, a qualifying JV can constitute an economic concentration requiring notification where the statutory sales or market-share thresholds are met.
The JV timetable should therefore accommodate any required filing and standstill obligations before operational integration begins.
For free-zone structures, licensing and Corporate Tax should be analysed separately.
A free-zone licence does not itself create QFZP status or guarantee 0% Corporate Tax treatment. The company's intended activities, counterparties, substance, mainland operations and related-party arrangements should be tested against the current tax regime before the structure is selected.
Exit is then designed before disagreement exists.
Pre-emption, change-of-control protection, tag and drag rights, compulsory transfers, valuation, shareholder default, insolvency and deadlock should all work toward one objective:
allowing the venture or its underlying business to retain value when one partner eventually needs to leave.
Where a dispute has already developed, the first step is usually to reconstruct the governance record and identify exactly where the relationship has failed.
The problem may be control.
It may be funding.
It may be information.
It may be a related-party transaction.
It may be misuse of intellectual property.
Or the partners may simply have reached the point at which continued co-ownership no longer makes commercial sense.
The legal strategy should follow that diagnosis.
A joint venture should not depend on permanent agreement between its shareholders.
It should have enough governance to operate when they agree, enough protection when their interests diverge, and a credible exit route when continued partnership no longer creates value.
For boards, investors and senior decision-makers, the practical test is straightforward:
before the JV is signed, each party should know what it is contributing, what it controls, what it must fund, what it cannot do without the other party, what happens when the parties disagree and how it can eventually exit without losing the value it helped create.
Where those answers are still uncertain, a senior-led joint venture structuring review before incorporation is usually considerably less expensive than attempting to negotiate them after the venture has become valuable.