Preference Share Agreement Template for the United Arab Emirates

A Preference Share Agreement is a specialized corporate document that governs the issuance of shares with preferential rights in UAE companies. Under Federal Law No. 32 of 2021, this agreement establishes the terms and conditions for preference shares, which typically offer investors priority in dividend payments and capital returns while often restricting voting rights. You'll need this agreement when your company seeks to raise capital through equity financing while maintaining existing management control structures.

When do you need this document?

You require a Preference Share Agreement when your UAE company plans to issue shares that carry special rights or privileges. This commonly occurs during private equity investments, where investors demand preferential treatment in exchange for capital. The agreement is essential when restructuring your company's capital structure, bringing in strategic investors who require guaranteed returns, or when existing shareholders want to dilute their voting control while retaining economic benefits. Investment rounds for startups and established companies frequently use preference shares to attract funding while protecting founder control.

Key legal considerations

Your agreement must clearly define the preference share rights, including dividend preferences, liquidation priorities, and conversion mechanisms. You need to specify whether dividends are cumulative or non-cumulative, as this affects payment obligations during lean periods. Anti-dilution provisions protect preference shareholders from value reduction in future funding rounds, while redemption clauses allow the company or shareholders to buy back shares under specified conditions. Tag-along and drag-along rights ensure fair treatment during ownership transfers. Board representation clauses often grant preference shareholders director nomination rights proportional to their investment.

Legal requirements in United Arab Emirates

Under UAE Federal Law No. 32 of 2021, your preference share agreement must comply with the Commercial Companies Law provisions governing different share classes. The Securities and Commodities Authority (SCA) Board Resolution No. 3 of 2000 regulates the issuance and trading of preference shares in public companies. You must ensure compliance with foreign ownership restrictions under UAE Federal Decree-Law No. 19 of 2018, particularly if international investors are involved. The agreement requires approval from your company's board of directors and may need extraordinary general meeting resolutions depending on your articles of association. All share issuances must be registered with the relevant UAE authorities, and preference shares typically cannot exceed certain percentages of total issued capital as specified in your company's memorandum of association.