7 Rights of Shareholders of Companies in UAE

Shareholders and investors who acquire corporate stock have certain rights with regard to their ownership. In a partnership, business owners are also often the primary business managers. This is not the same with corporations as the business owners generally don’t run the business operations. Shareholders in corporations in UAE are shielded entirely from personal liability with the corporations’ debts and liabilities. Shareholders, however, can lose their ownership or investments should the companies fail.

Laws that govern corporations in UAE are fairly standard. Rights of shareholders provided by the UAE Commercial Companies Law and substantive revisions are supplemented by provisions in the charter and the by-laws of the corporations. Shareholders in UAE in general enjoy these types of rights:

1. Voting rights of shareholders

Shareholders have the right in electing, removing, and replacing directors and voting on certain acts of the corporations in accordance to UAE Commercial Companies Law and company memorandum and articles of association. Cumulative voting is used in an election of directors and directors can’t be removed without any reasonable cause when a minority of shareholders of the Board deny the removal.

One objective of corporate governance, applicable to all companies in UAE, is to maintain fairness to all shareholders. But, there are corporations that issue Dual stocks. This challenges the equality and fairness of the shareholders which corporate governance tries to protect.

Dual stocks aren’t available for all investors. There are different kinds of rights that are associated with each one. An example is when a certain class of stocks is issued for the common investors and another class is made available for founders, company executives, and their families. It is possible that shareholders with common stock ownership will have less voting rights or power in comparison to those that have ownership in another class.

2. Preemptive rights of shareholders

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All shareholders in UAE corporations have preemptive rights unless they’re denied of such in the companies’ articles of association or on amendments. All stockholders have the right in subscribing to a company’s capital stock. Articles of association or incorporation in UAE lay down the rights and powers conferred to shareholders with regards to particular shares that are held, which are protected under the UAE local legislation so long as they’re not in conflict with UAE Commercial Companies Law.

3. Shareholders’ power of inspection

Subject to reasonable limitations in accordance with UAE Commercial Companies Law and jurisprudence, shareholders of corporations are allowed in inspecting company records and corporate books, including stock registries and minutes of the Board meetings. Shareholders are to be furnished with regular reports including the company financial statements without any additional cost.

4. Shareholders’ right to information

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The shareholders are provided, when they are requested, periodic reports that disclose professional and personal information regarding company officers and directors, as well as certain matters such as holdings of officers and directors of company shares, relationships among key officers and directors of the company, aggregate compensation of officers and directors, and dealings with the companies.

As for minority shareholders, they’re given the right in proposing the holding of shareholders’ meetings, as well as the right in proposing items in each meeting’s agenda provided that items in the meeting agenda are for business purposes and considered legitimate. Legitimate business purposes include information on certain matters that are under immediately succeeding subsection.

The minority shareholders have access to all information in relation to matters where the management of the company is accountable for, as well as obligated to disclose to company shareholders.

5. Shareholders’ right to dividends

All shareholders of UAE companies have the right in receiving dividends, which are subject to the Board’s discretion. Companies are also compelled in declaring dividends when retained earnings are in excess of a hundred percent of the paid-in capital except for the following cases: when justified through definite corporate expansion programs or projects that are approved by the Board; when a company is prohibited due to a loan agreement with a creditor or financial institution, whether foreign or local, from that does not allow declaration of dividends without proper consent with such not been secured accordingly; and when retention seems necessary due to special circumstances of a company e.g. when there’s a need for special reserve that is for probable contingencies.

6. Shareholders’ appraisal right

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The shareholders have appraisal right, also referred to as the right to dissent as well as demand payment for the fair value of shares in a way provided under UAE Commercial Companies Law, under any of these circumstances: in case of a lease, transfer, pledge, mortgage, exchange, sale, or any other disposition of corporate assets and property as provided in local legislation; in case of a consolidation or merger; and in case of an amendment to company’s articles of association has the impact of changing or restricting rights of shareholders or class of shares.

7. Right to Sue

Shareholders that feel that they have been wronged also have the right in suing the company. For instance, when a shareholder did not receive his or her entitled share of the dividends or was denied access to the financial information of the corporation, the individual can take legal action against the company. A shareholder that seeks to suing a corporation has to check with the local authorities and corporate lawyers to find out how to proceed.

Shareholders also have the right to file a derivative suit, a lawsuit that is against any third party on behalf of the company. A third party is usually a director or executive officer for allegations of fraud and/or mismanagement.

Memorandum and Articles of Association in UAE

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The memorandum and articles of association of companies in UAE are very important as the documents hold the by-laws, regulations, and rules for shareholders and company management. These documents are essential for a company’s internal management.

Powers of directors, shareholders, and other officers are all described in the documents. Rights and obligations, in particular, are under a company’s articles of association. Restrictions are also established. Provisions regarding shares are mentioned under a company’s articles of association as well. When there’s internal conflict, these legal corporate documents are referred to.

To ensure corporate documents are valid and legal in UAE, they are to be notarized by a certified public/private notary in Dubai like Notary Public Dubai. Consult with experts to find out more about the process of notarization.