In the UAE, companies resort to mergers and acquisitions to expand and also to restructure and enter into new markets. But behind that strategic step are some specific legal obligations many business owners overlook. The most prominent is that handling of a firm’s debts and commitments after two firms merge. An ostensibly straight forward transaction may be tainted with liabilities that by operation of law pass to the buyer or remaining entity.
This article presents the legal landscape on mergers and acquisitions in the United Arab Emirates. It clarifies the merger versus acquisition and the law that governs the merger of companies. It also covers the protection for creditors and transfer of prior obligations to the new owner of the business on completion of the deal. The goal is to provide a business owner or investor with clarity of the rules before making a deal.
Merger and Acquisition. The Core Concepts
Though the two are often used together, they are two different things. A merger is when two businesses combine to become one and will often function as partners, sharing control and resources. An acquisition occurs when a company acquires another company and gains control of it. The acquired business can retain its name or it could be merged completely. To put it simply, a merger is a coming together of equals, whereas an acquisition is a takeover of one company by another.
Typically, transactions are clustered around the relationship between the two parties. A horizontal relationship links businesses in the same sector, e.g. two competing restaurants or two airlines. A vertical deal is a linkage of businesses at different stages in the same supply chain, like a manufacturer and is distributor. Conglomerate deal is a combination of companies from completely unrelated industries and business segments to diversify the conglomerate’s portfolio and income sources.
Acquisitions are also said to be friendly or hostile. A friendly acquisition is one where the target’s management welcomes the acquisition and where they cooperate. A hostile takeover occurs when management does not agree, and the takeover can become a legal battle. A joint venture is a separate entity from both. Two or more firms join forces on a specified project but maintain their own separate identities.
The Governing Legal Framework
The UAE mergers and acquisitions market is a multi-tiered market. At the base is federal company law, above is emirate level and sector specific law, and separate regimes for emirates’ financial free zones.
The basic law is Federal Decree Law No. 32 of 2021 regarding Commercial Companies. It regulates the mergers of all types of companies – limited liability, limited partnerships, private joint stock companies and holding companies. Public joint stock companies are not subject to the general company law process for acquisition and merger but are subject to the rules of the Securities and Commodities Authority for such acquisitions and mergers.
Now there are two additional federal laws that govern nearly all deals. Federal Decree Law No. 47 of 2022, which implemented corporate tax and rendered the decision on the deal structure more of a tax than legal one. The previous voluntary system was replaced by the new mandatory merger control system that came into operation with the Federal Decree Law No. 36 of 2023 on competition on 31st March 2025. These two additions are recent and all structures designed based on the older position should be rethought.
The financial free zones have their own common law based framework. Each of the companies operating in the Dubai International Financial Centre and the Abu Dhabi Global Market has its own regulator and courts. When a transaction is done with an entity in either of the zones, the transaction process of that zone is followed and not the mainland process.
How a Merger Works Under the Company Law
In other than public joint stock companies, the Commercial Companies Law provides a specified order. It is significant to understand because a missed step or a hurried step can put the deal up for grabs.
Þ The merger contract. The company which elects to merge, under a special decision of the general assembly, issues a merger contract. The contract sets the conditions and how the merger will proceed. This includes the memorandum of association of the company that survived or the new company and the names and addresses of its board of directors or managers. It also establishes the procedure to determine the number of shares of the surviving or new company for the shares of the merged companies.
Þ Approval by the general assembly. The draft merger contract is submitted for the approval of the board or managers of each company concerned and is then submitted to the general assembly for majority approval needed to amend the memorandum of association. Invitation to convene shall contain a copy or summary of the contract.
Þ Shareholder objection rights. The right of appeal of the competent court against the merger must be provided in the contract before the general assembly by any shareholder or shareholders representing at least twenty per cent of the capital, who objected to the merger. An objecting partner of the company which is not a joint stock company may be given opportunity to withdraw and recover value of shares by making written application within 15 working days from the date of the merger decision. If the value is not agreed then the matter is referred to a committee constituted by the department of economic development.
Þ The holding company exception. Without a merger contract, a holding company can merge with one or more companies it 100% owns into a single entity. Such fusion takes place by a special resolution of the companies, which is a resolution that requires majority approval to change the memorandum of association of each company.
Creditor Protection and the Right to Object
Creditors are a protected class under the law in any merger. Their identity may shift as a result of a merger, as may the assets behind the claims. The protections are procedural and they have definite timelines.
All companies involved in the merger shall give notice in writing to their creditors within 10 working days after the general assembly approves the merger. Notice is to be served and published stating the company’s intention to merge in two newspapers published daily in the community, one of which must be in Arabic. The notice provides a rights of objection for creditors, holders of loan bonds or sukuk and any interested party, “at the main office of the company. They are also allowed to file a copy of the objection with the Ministry of Economy or the Securities and Commodities Authority within a period of 30 days from the moment when the notice is received.
Any creditor may request the court of competent jurisdiction to stay the merger if he or she does not receive the notice or payment and objects to the merger within 30 days after receiving the notice. If the court finds that the merger would harm the objecting party’s interests it may hold the merger on any conditions it considers appropriate. The merger is not consummated until the objection is waived or the court by final judgment or the company pays the debt and gives adequate security for the same. A period of time is allowed for anyone to object to the merger, silence is considered consent.
What Happens to Prior Obligations After a Merger
This is the one area that the business owner fails to see. The registrar’s records are changed and the department of economic development records the termination of the merged company once the merger is approved. The merger then causes the legal entity of the merged company to cease to exist and in its place the surviving or new company assumes its rights and obligations. The legal successor of the merged company is the company that survives the merger. The liabilities and the existing debts are not eliminated. They are transferred in their entirety to the surviving entity.That is the idea behind full succession, and hence the importance of the structure of a deal.
In a share sale the buyer acquires the complete corporate history of the target company. That history may comprise of undisclosed tax obligations or evaluations by the Federal Tax Authority and all of that is transferred with the shares. When it comes to an asset sale, the buyer is only buying assets selected before and taking a “cleaner” position. The transfer of some assets can also result in value added tax. A buyer will often opt for an asset sale where due diligence shows there is potentially some tax exposure.
Regulatory Approvals and Merger Control
Under the merger control regime effective from 31 March 2025[1] and further strengthened by Cabinet Decision No. 59 of 2026, a transaction must be notified to the Ministry of Economy before completion where it meets the thresholds. The notifications shall be made, where the overall turnover of the parties in the previous financial year is over AED 300 million. It is also mandatory, where their market share in the relevant market is more than 40 per cent in aggregate. Each of the two thresholds activates the duty.
The Ministry reviews the document for 90 days from the date of filing. The framework allows this period for review to be further increased by 45 days if needed. If it does not make any decision within that period, then the merger is deemed to have been refused. This automatic rejection feature makes the question of competition filing no longer a closing formality, but instead must be planned in advance.
Some industries require approvals in addition to the competition clearance. Deals with banks or other financial institutions do need to be approved by the Central Bank of the United Arab Emirates or the relevant financial services regulator in the Dubai International Financial Centre or the Abu Dhabi Global Market. For the telecommunications deals, clearance from the Telecommunications and Digital Government Regulatory Authority is required while for healthcare and education deals, approvals from the relevant local authorities are required. The share transfers in the free zone are subjected to the requirements set by the particular freezone, while the share transfers in the mainland need to be approved by the Department of Economy and Tourism.
Due Diligence and Common Pitfalls
Commercial risk becomes legal risk measurable by due diligence, allowing the buyer to accurately price the deal, and make a decision as to whether or not to continue with the deal. It deals with the legal ground of the target and its financial and tax status and activities. A deal with proper diligence is much more likely to be successful and the results are incorporated in the allocation of risk in the sale agreement.
In UAE transactions, the following issues will be occurring repeatedly. In a share sale, undisclosed liabilities to the Federal Tax Authority may be transferred with the shares, which may diminish the value that the buyer is receiving. Some financial statements may not be audited and may require extensive normalisation in order to be able to be valued reliably. In trading businesses, inventory is often overstated and fixed assets may not actually belong to the business that is being sold. Where the revenue is personally dependent on the founder, it may be the case that the revenue is not transferable in practice, even if it is transferable in theory.
These risks are allocated in a sale and purchase agreement. Representations and warranties are the seller’s statements of fact about the business and a breach gives the buyer a claim for damages. Indemnities are for a known factor, like a known tax liability. A liability cap is a muchnegotiated limitation on the seller’s liability. An escrow is an account that is set up to hold a portion of the purchase amount with a third party until any outstanding claims are made after closing.
Conclusion
Merger or acquisition in UAE is a well defined legal procedure and not a mere handshake. The Commercial Companies Law establishes the procedures for combining and provides protection for creditors and objecting shareholders by fixed notice periods and by objection windows. It states that the rights and obligations of the company that disappears will pass to the surviving company. The latter is emphasized, as previous debts do not disappear in a merger. They are transferred completely to the remaining entity.
It is early decisions that will have the greatest impact. Depending on the nature of the sale, either a share sale or an asset sale, the buyer incurs the liabilities associated with the sale. It is determined by thorough due diligence whether those liabilities are known before signing or discovered afterwards. By paying attention to the filing of a merger petition, the deal will not fall on the automatic rejection calendar.
The framework now covers federal company law, corporate tax, and a mandatory competition regime and separate free zone laws that are still developing. Therefore, it is important to seek advice with qualified legal and tax advisors against the current law before the parties commit. Such a transaction has the best chance of achieving the growth that the parties are looking for.
