Preferred Stock Agreement for United Arab Emirates

Preferred Stock Agreement Template for United Arab Emirates

This document governs the issuance of preferred stock in a UAE company, establishing the rights, preferences, and privileges of preferred stockholders in accordance with UAE Federal Law No. 32 of 2021 (Commercial Companies Law) and related regulations. It details crucial elements such as dividend rights, liquidation preferences, voting rights, conversion mechanisms, and anti-dilution protections, while ensuring compliance with UAE corporate governance requirements and foreign ownership restrictions. The agreement serves as a fundamental instrument for capital raising and investment structuring in the UAE business environment.

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What is a Preferred Stock Agreement?

The Preferred Stock Agreement is a crucial document used when a UAE company seeks to raise capital by issuing shares with preferential rights and privileges. This agreement becomes necessary during funding rounds, corporate restructuring, or when establishing strategic partnerships that require specialized share classes. Under UAE law, particularly the Commercial Companies Law and related regulations, the document must carefully balance investor protections with local compliance requirements. The agreement typically follows after initial term sheet negotiations and requires various corporate approvals, including board resolutions and potentially regulatory clearances. It contains detailed provisions for dividend preferences, liquidation rights, voting powers, and conversion terms, while addressing specific UAE requirements regarding foreign ownership and corporate governance. The document serves as the cornerstone for investment relationships and must be structured to accommodate both onshore UAE companies and free zone entities, where applicable.

What sections should be included in a Preferred Stock Agreement?

1. Parties: Identification of the company issuing preferred stock and the preferred stockholder(s)

2. Background: Context of the preferred stock issuance, including corporate authorizations and capital structure

3. Definitions: Key terms used throughout the agreement, including specific financial and legal terminology

4. Authorization and Issuance: Details of the authorized preferred stock, including number of shares, par value, and issuance terms

5. Purchase Price and Closing: Terms of payment and closing mechanics for the preferred stock purchase

6. Dividend Rights: Specifications for preferred dividend rates, payment terms, and priority

7. Liquidation Preference: Priority and amount of payment to preferred stockholders in case of liquidation or sale

8. Voting Rights: Scope and nature of voting rights attached to preferred shares

9. Protective Provisions: Special approval rights and veto powers of preferred stockholders

10. Conversion Rights: Terms and conditions for converting preferred shares to common shares

11. Anti-dilution Protection: Mechanisms to protect preferred stockholders from dilution in future rounds

12. Information Rights: Rights of preferred stockholders to receive company information and financial reports

13. Transfer Restrictions: Limitations on transfer of preferred shares and right of first refusal provisions

14. Representations and Warranties: Company's and investors' representations regarding the transaction

15. Covenants: Ongoing obligations of the company and preferred stockholders

16. Governing Law and Jurisdiction: Specification of UAE law application and dispute resolution mechanisms

What sections are optional to include in a Preferred Stock Agreement?

1. Tag-Along Rights: Optional provision giving preferred stockholders the right to join in sale of shares by other stockholders - included when requested by investors

2. Drag-Along Rights: Optional provision allowing majority stockholders to force minority participation in a sale - included for investor exit flexibility

3. Registration Rights: Rights related to future public offerings - included if IPO is contemplated

4. Board Representation: Rights of preferred stockholders to appoint board members - included for larger investments

5. Redemption Rights: Right to require the company to repurchase preferred shares - included based on investor requirements

6. Preemptive Rights: Rights to participate in future financing rounds - optional based on investment size

7. Most Favored Nation Provision: Protection against more favorable terms in future rounds - included for early-stage investments

What schedules should be included in a Preferred Stock Agreement?

1. Schedule A - Share Certificate: Form of preferred stock certificate

2. Schedule B - Capitalization Table: Current and post-investment capital structure

3. Schedule C - Corporate Resolutions: Board and shareholder resolutions authorizing the preferred stock issuance

4. Schedule D - Disclosure Schedule: Exceptions to representations and warranties

5. Schedule E - Conversion Calculations: Detailed methodology for conversion price adjustments and anti-dilution calculations

6. Appendix 1 - Articles Amendment: Form of amendment to articles of association reflecting preferred stock terms

7. Appendix 2 - Investor Rights: Detailed terms of information and registration rights

8. Appendix 3 - Warranties: Detailed list of company warranties

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Publisher

Genie AI

Document Type

Purchase Agreement

Cost

Free to use
Relevant legal definitions
Clauses
Relevant Industries

Technology

Real Estate

Financial Services

Healthcare

E-commerce

Manufacturing

Telecommunications

Energy

Transportation

Retail

Professional Services

Biotechnology

Infrastructure

Education Technology

Relevant Teams

Legal

Finance

Corporate Development

Compliance

Investment

Executive Leadership

Board of Directors

Corporate Governance

Treasury

Investor Relations

Relevant Roles

Chief Executive Officer

Chief Financial Officer

Chief Legal Officer

Corporate Counsel

Investment Director

Venture Capital Partner

Private Equity Manager

Company Secretary

Corporate Governance Officer

Board Director

Investment Manager

Legal Counsel

Financial Controller

Compliance Officer

Corporate Development Manager

Investment Banker

Managing Partner

Industries
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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