Share Purchase Agreement in the UAE: What You Need to Know

A share purchase agreement is a commonly used legal document to facilitate the buying and selling of company shares in the UAE. It is a contract between the buyer(s) and seller(s) of the shares and is utilized for transactions involving existing company shares. This agreement spells out the terms and conditions for the transfer of ownership of the company share(s) in question. Let’s explore the purpose of a share purchase agreement in the UAE, the various scenarios that necessitate its preparation, and the different elements it covers.

Purpose of a Share Purchase Agreement

As a share purchase gives the buyer a certain amount of control over the business, it is necessary to ensure that the scope and terms of this transaction are outlined correctly. A share purchase agreement details the rights, obligations, and liabilities of the buyer and seller. Additionally, it also ensures that the sale of shares is compliant with relevant laws in the UAE.
This way, a share purchase agreement significantly reduces the chances of misunderstandings and legal disputes.

Scenarios Requiring a Share Purchase Agreement

Below we have listed examples of some instances that usually require drafting of a share purchase agreement:

Venture Capital Investments

A venture capital firm purchasing equity shares in a startup

Mergers and Acquisitions

A company acquiring another business through a share purchase

Private Equity Transactions

A private equity firm acquiring full or partial shares in a company

Corporate Restructuring

Change in corporate structure by reconfiguring its ownership structure through the sale of shares

Common Elements of a Share Purchase Agreement

Definitions

A share purchase agreement includes the legal terms and their definitions, usually right at the beginning of the document. This section is necessary to avoid any ambiguities while interpreting the legal terms, and minimizing the possibilities of confusion and disputes.

Details of the Buyer and Seller

Usually, the buyer and seller information will be included as one of the initial sections in a share purchase agreement. The key information related to both parties is included within this. This section specifies crucial information like the names, passport numbers, nationalities, and addresses if the buyer/seller is an individual. If the buyer/seller is a company, the details usually include the company name, the emirate where it is incorporated, the registration number, and the address of the office. Other details like the paid-up share capital and the number of shares are also included.

Purchase Price

The share price as agreed upon between the buyer and the seller and the mode of payment are also mentioned within the document.

Execution Responsibilities

The share purchase agreement states the responsibilities for the buyer and seller to complete the transfer of the share ownership. The seller’s responsibility can include something like the execution of the share purchase agreement and Amendment to the Memorandum of Association before the Notary Public. The seller must also ensure cooperation with any additional formalities that may be required to be completed with the DED or other relevant department.

Warranties

Warranties must be included as a protection assurance to both parties against the potential risk of liabilities or issues that may follow the transaction. An example of such a risk/issue for the buyer can be impending litigation, undisclosed debt, or other financial obligations.

Seller Restrictions

This section includes clauses that prevent the seller from creating legal or financial burdens on the shares during the period between the signing of the agreement and the completion of the sale of the shares in question. This also acts as an assurance to the buyer that the seller will not transfer any of the shares that have been declared to be sold to some other party.

Confidentiality

The share purchase agreement lays out the confidentiality clauses regarding the transfer of share ownership. This is to ensure that key information regarding the transaction and the terms of the agreement stay between the two parties and are not leaked to outsiders. Also, the conditions under which the information is to be disclosed or announced must be included.

Due Diligence Before Purchase

Due diligence is a necessary step for the buyer before proceeding with the transfer. It is imperative to gather as much detail as possible about the shares in question as well as the entity selling them. This way, the buyer will be aware of any potential consequences that may follow the transaction and have enough insights to back out of the deal. The due diligence can pertain to the price at which the shares are being sold, the seller’s ownership, or any risks associated with the transaction. All the information and documentation given by the seller must be carefully evaluated. The due diligence must be conducted from both legal and financial perspectives of the shares.

As a share purchase agreement in the UAE is a legally binding document, it is always advisable to seek professional legal advice while making one. An agreement that has discrepancies or is not compliant with UAE laws will result in serious consequences. Legal Inz is a UAE-based legal firm and can offer you all advice and assistance in relation to share purchase agreements.