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The UAE has continued its steady programme of corporate law reform aimed at improving the attractiveness and competitiveness of its business and investment environment. A key development in this trajectory is Federal Decree-Law No. 20 of 2025, which amends certain provisions of Federal Decree-Law No. 32 of 2021 on Commercial Companies (the “Commercial Companies Law”). Among other reforms, the 2025 amendments introduce express recognition of drag-along and tag-along rights, mechanisms widely used internationally in private equity, venture capital and private M&A transactions to facilitate exits and protect minority shareholders.

An overview is provided of the key features of drag-along and tag-along rights are, together with how the 2025 amendments affect companies based in mainland UAE.  We also touch upon the practical implications for M&A transactions, shareholder dynamics and corporate structuring options, while placing the reforms within the broader context of international market practice and investor needs.

1. Legislative Context: A Continuing Reform Agenda

The UAE Commercial Companies framework has evolved through several major legislative phases, reflecting a deliberate and continuous modernisation strategy aimed at strengthening the country’s attractiveness as a global business and investment hub. The foundational Federal Law No. 8 of 1984 provided the first general framework for regulating corporate activity. The 2015 Commercial Companies introduced important enhancements to governance and transparency, marking a measured step toward international standards while maintaining the basic framework of the earlier regime. Subsequent reformsfollowed, most significantly reforms the relaxation and eventual removal of foreign ownership restrictionsfor most onshore activities, marked a material policy shift towards openness, competitiveness, and deeper integration into global capital flows. The 2021 Commercial Companies Law (Federal Decree-Law No. 32 of 2021) replaced the 2015 law in its entirety and introduced new corporate vehicles such as SPACs and SPVs, strengthening governance, and providing a more flexible foundation for sophisticated corporate and transactional structures.

Federal Decree-Law No. 20 of 2025 builds on the UAE’s modernisation agenda, introducing amendments to the 2021 law. The reforms enhance flexibility in ownership structures, expand corporate governance and shareholder-right tools, and improve mechanisms for sale and exit transactions, including statutory recognition of drag-along and tag-along rights, while also providing greater clarity on the interaction between onshore and free-zone regimes, contributing to a more predictable business environment that supports investor confidence and facilitates M&A activity.

2. What are Drag-Along and Tag-Along Rights?

Drag-along and tag-along rights are contractual mechanisms typically included in shareholders’ agreements and, in some jurisdictions, embedded into constitutional documents such as articles of association. They are designed to provide structured protections around change‑of‑control scenarios and help facilitate orderly exit processes in companies with multiple shareholders or investor groups..

2.1 Drag-Along Rights

A drag-along right allows a majority shareholder (or a specified threshold of shareholders) to require minority shareholders to sell their shares to a third-party purchaser in the context of a sale of the company. The purpose is to avoid minority holdouts and enable the sale of 100% of the company where buyers require full control.

2.2 Tag-Along Rights

A tag-along right (also referred to as a co-sale right) gives minority shareholders the ability to participate in a sale by the majority shareholder on the same terms and price. It protects minority shareholders from being left behind in a change-of-control transaction and ensures equal treatment.

3. What the 2025 Amendments Introduce for Mainland UAE Companies

3.1 Statutory Recognition

The 2025 amendments expressly regulate the relationship between partners and shareholders, including statutory recognition of drag-along and tag-along rights. Under the revised framework, majority partners or shareholders may require minority holders to sell their shares as part of a majority-led sale, while granting minority holders the right to participate in the sale on the same terms. This codification brings greater legal certainty for these mechanisms for mainland UAE companies. In practical terms, this means that exit coordination tools long used in international transactions and already embedded in DIFC and ADGM structures, are now explicitly contemplated within the UAE’s onshore corporate law regime. For investors, founders, and transaction parties, this reduces execution risk and supports cleaner sale processes and enables more predictable deal structuring.

3.2 Reducing Enforceability Risk

Statutory recognition of dragalong and tagalong rights will meaningfully reduce litigation risk and improve enforceability, especially in contested exits. Previously, these rights existed only as contractual provisions, making their effectiveness dependent on private agreements. The new statutory framework brings greater clarity, but practical application is still developing and no court precedents exist yet. In addition, onshore share transfers continue to require notarised signatures, attestations and other regulatory steps, which must still be managed carefully. Even so, the direction of reform is positive as the law now provides a stronger foundation for enforcement, and market practice is expected to mature as parties begin using these newly codified mechanisms.

4. Practical Implications for UAE Transactions and Corporate Structuring

4.1 Improved Deal Certainty in M&A Exits

A recurring challenge faced by UAE companies in relation to shareholder exits is ensuring that a buyer can acquire the desired level of control (often 100%) without being blocked by minority shareholders. Drag-along rights address this by enabling the majority to deliver full ownership to the purchaser, which can be critical in strategic acquisitions and private equity exits. The 2025 amendments strengthen the onshore regime for such outcomes by expressly regulating them in the Commercial Companies Law.

4.2 Minority Protection and Equal Treatment

Tag-along rights balance the drag mechanism by protecting minority shareholders. If the majority sells its stake, minority holders can participate on the same price and terms. This reduces the risk that minority shareholders are left in a company with a new controlling owner without having had an opportunity to exit.

4.3 Alignment with Articles, Corporate Formalities and Transfer Mechanics

Even with statutory recognition, transaction parties should continue to ensure that drag and tag provisions are carefully aligned with local share transfer mechanics, corporate approvals, and documentation requirements. In practice, the enforceability of drag/tag provisions will depend on clear drafting, procedural safeguards, and the ability to implement transfers through the company’s constitutional documents and relevant authorities.

To strengthen enforceability and ensure these rights bind future shareholders, parties should consider documenting drag-along and tag-along provisions not only in shareholders’ agreements but also, where possible, in the company’s constitutional documents.  This also insures alignment with UAE corporate formalities and share transfer mechanics. Key elements typically include the drag threshold, notice requirements, execution mechanics (including signing obligations), treatment of consideration, and limitations on minority liability (for example, limiting warranties to title and capacity). Well‑defined procedures reduce the risk of disputes and help ensure these rights operate as intended during a live transaction.

4.4. Interaction with UAE Contract Law Principles

While the 2025 amendments provide express recognition of drag-along and tag-along rights within the corporate law framework, these mechanisms continue to operate in practice through contractual drafting and implementation. The UAE Civil Transactions Law does not expressly regulate drag-along or tag-along rights, but general principles of contract law remain relevant. In particular, freedom of contract supports the ability of shareholders to agree exit mechanisms; good faith in contractual performance requires that drag rights be exercised strictly in accordance with agreed procedures; and the prohibition of abuse of rights may limit the exercise of drag rights where they are used in a manifestly abusive manner.

Accordingly, drag/tag clauses aligned with international market practice should ensure compliance with the UAE Civil Transactions Law when assessing whether the clauses they want to introduce are enforceable in UAE transactions.

4.5 Interaction with Governing Law and Dispute Resolution

In UAE transactions that involve international investors, shareholders’ agreements may be governed by foreign law and subject to foreign courts or arbitration. However, the share transfer itself is ultimately implemented within the UAE corporate framework. Parties should ensure that governing law and jurisdiction clauses are drafted with a clear understanding of how the relevant corporate acts will be carried out in the UAE.

5. International Market Practice and Global Trends

Drag-along and tag-along rights are widely regarded as standard provisions in shareholders’ agreements in private equity, venture capital, and private M&A transactions internationally. Their prevalence is particularly high in investor-backed companies where exit coordination is central to the investment decision.

International practice generally reflects the following features:

• Drag‑along thresholds between 66⅔% and 75%
• Minority shareholders sell on the same terms and price
• Dragged shareholders typically provide only limited “title and capacity” warranties
• Valuation floors, timing limitations and procedural safeguards are common

By explicitly regulating drag and tag rights in the Commercial Companies Law, the UAE aligns more closely with these global deal expectations, likely to be welcomed by international investors.

Conclusion

Federal Decree-Law No. 20 of 2025 marks another meaningful step in the UAE’s continuing corporate law modernisation. By expressly recognizing and regulating drag-along and tag-along rights, the amendments provide clear statutory grounding for exit coordination mechanisms that are central to private equity, venture capital and private M&A transactions. For mainland UAE companies, this enhances deal certainty, supports minority protection, and strengthens the overall investment environment.

The availability of these mechanisms at a federal level also encourages investors to use operating companies onshore without having to create parallel holding structures in common law jurisdictions solelyfor the purpose of securing predictable shareholder exits.  This is particularly valuable for joint ventures and small to mid-size businesses that may not require complex group structures; they can now rely on more predictable, investor friendly environment statutory framework within the UAE mainland itself.

In turn, this development positions the UAE mainland as a civillaw “holdco hub”, a jurisdiction capable of hosting operating or intermediate holding companies without relying on offshore commonlaw vehicles to provide essential shareholderrights infrastructure. With codified dragalong and tagalong rights, a much broader range of corporate and investment structures become feasable.

Further areas of potential growth emerge as the statutory toolkit expands.  Mainland companies can now support more sophisticated governance, financing, and shareholderalignment mechanisms directly onshore, enabling the creation of scalable, regionally focused groups that can grow, acquire, and consolidate businesses across the GCC while remaining anchored in the UAE’s civillaw framework.

The reforms also reflect broader global trends.  Investor-backed companies increasingly rely on well-established governance and exit mechanics, and jurisdictions seeking to attract capital have responded by modernising their corporate law frameworks accordingly. In this context, the UAE’s codification of drag and tag rights reflects continued alignment with international market practice and further solidifies its position as a competitive and well-regulated destination for investment and M&A activity.