Unitholder Agreement Template for the United Arab Emirates
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What is a Unitholder Agreement?
The Unitholder Agreement serves as the foundational document for investment funds operating in the United Arab Emirates, establishing the legal framework for the relationship between fund managers and investors who hold units in the fund. This document is essential when establishing or operating an investment fund in the UAE, whether it's a conventional or Islamic fund structure. It must comply with UAE Federal Law No. 32 of 2021, SCA regulations, and other relevant UAE financial regulations. The agreement typically covers crucial aspects such as subscription procedures, transfer restrictions, voting rights, distribution policies, and governance mechanisms. It's particularly important for funds seeking to raise capital from multiple investors while ensuring regulatory compliance and investor protection in the UAE market.
Frequently Asked Questions
Is a Unitholder Agreement legally binding under UAE law?
Yes, a properly executed Unitholder Agreement is legally binding in the UAE under Federal Law No. 32 of 2021 (Commercial Companies Law). The document creates enforceable contractual obligations between fund managers and unitholders, provided it complies with SCA regulations and contains all required elements under UAE securities law.
Can my investment fund operate without a Unitholder Agreement in the UAE?
No, operating an investment fund without a compliant Unitholder Agreement violates SCA regulations under Decision No. (9/R.M) of 2016. The absence of this document can result in regulatory penalties, suspension of fund operations, and potential civil liability for fund managers.
How does a Unitholder Agreement differ from a Shareholders Agreement in the UAE?
A Unitholder Agreement governs investment fund units and is regulated under SCA mutual fund regulations, while a Shareholders Agreement governs company shares under the Commercial Companies Law. Unitholder Agreements focus on subscription rights, redemption procedures, and fund-specific governance, whereas Shareholders Agreements address corporate control and management rights.
How long does it typically take to prepare a Unitholder Agreement in the UAE?
A comprehensive Unitholder Agreement typically takes 2-4 weeks to draft and finalize, depending on fund complexity and regulatory requirements. This includes time for legal review, SCA compliance verification, and any necessary revisions to meet Federal Law No. 32 of 2021 standards.
Which UAE regulations must a Unitholder Agreement comply with?
The agreement must comply with Federal Law No. 32 of 2021 (Commercial Companies Law), SCA Decision No. (9/R.M) of 2016 concerning mutual fund regulations, and any applicable ADGM or DIFC financial services regulations if operating in those jurisdictions. Non-compliance can result in regulatory action and legal invalidity.
Can unitholders transfer their units freely under UAE Unitholder Agreements?
Transfer rights depend on the specific agreement terms and fund type, but most UAE Unitholder Agreements include transfer restrictions to comply with SCA regulations. Open-ended funds typically allow redemptions, while closed-ended funds may restrict transfers or require regulatory approval for certain transactions.
Common mistakes people make when drafting Unitholder Agreements in the UAE?
The most frequent errors include inadequate SCA compliance provisions, unclear redemption procedures, insufficient dispute resolution mechanisms, and failing to address UAE-specific regulatory requirements under Federal Law No. 32 of 2021. Many also overlook mandatory Arabic translation requirements for certain regulatory filings.
About the Unitholder Agreement
A Unitholder Agreement is a comprehensive legal document that governs the relationship between investment fund managers and unitholders in the United Arab Emirates. This agreement establishes the rights, obligations, and responsibilities of all parties involved in the fund structure, ensuring compliance with UAE financial regulations while protecting investor interests.
When do you need this document?
You need a Unitholder Agreement when establishing any type of investment fund in the UAE, whether conventional or Shariah-compliant. This document is essential when launching mutual funds, hedge funds, or private equity funds that will accept investments from multiple unitholders. It's particularly crucial when your fund structure involves complex arrangements with multiple parties including fund administrators, custodians, and oversight committees. The agreement becomes necessary before accepting any investor subscriptions and must be in place to meet SCA regulatory requirements for fund operations.
Key legal considerations
The agreement must clearly define unit classes, subscription procedures, and redemption mechanisms to prevent disputes between parties. Transfer restrictions and lock-up periods require careful drafting to balance investor liquidity needs with fund stability requirements. Voting rights provisions must specify when unitholders can influence fund decisions, particularly regarding investment strategy changes or manager replacement. Distribution policies need precise language covering calculation methods, payment timing, and reinvestment options. Governance structures must clearly delineate roles between fund managers, investment committees, and oversight bodies. For Islamic funds, Shariah compliance mechanisms and the role of the Shariah board require specific contractual provisions. Dispute resolution clauses should specify UAE courts' jurisdiction and applicable arbitration procedures.
Legal requirements in United Arab Emirates
UAE Unitholder Agreements must comply with Federal Law No. 32 of 2021 (Commercial Companies Law), which governs corporate structures and shareholder rights. SCA Decision No. (9/R.M) of 2016 mandates specific unitholder protection measures and governance requirements for mutual funds. The agreement must incorporate provisions from SCA Board Resolution No. (37) of 2012 regarding investment fund regulations and investor safeguards. Anti-money laundering compliance under Federal Decree Law No. 20 of 2018 requires detailed know-your-customer procedures and ongoing monitoring obligations. Civil Code provisions under Federal Law No. 5 of 1985 govern contract formation, interpretation, and enforcement aspects. The document must include Arabic language requirements for certain disclosures and ensure all regulatory filings meet SCA standards. Fund registration with relevant UAE authorities requires the agreement to demonstrate compliance with capital adequacy, operational, and governance standards established by UAE financial regulators.
GOVERNING LAW
Applicable law
This Unitholder Agreement is drafted to comply with United Arab Emirates law. Key legislation includes:
SCA Decision No. (9/R.M) of 2016: Concerning the regulations of mutual funds, including requirements for unit holder rights and governance structures
Federal Law No. 5 of 1985 (Civil Code): Provides the fundamental principles of contract law in the UAE, including formation, interpretation, and enforcement of contracts
SCA Board Resolution No. (37) of 2012: Concerning the regulations of investment funds, including specific requirements for unitholder agreements and investor protection
Federal Decree Law No. 20 of 2018 (Anti-Money Laundering Law): Establishes requirements for investor due diligence and prevention of money laundering in investment activities
UAE Central Bank Regulations on Investment Funds: Provides additional regulatory requirements for fund operations and unitholder rights in the UAE
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