Partnership Agreement or Company Purchase in Dubai or Other Emirates

Many investors and capital holders in the United Arab Emirates consider joining an existing company as a partner or buying an existing company outright as a faster alternative to starting from scratch, since it provides a ready-made licence, an active commercial registration, and sometimes an established client base and market reputation. Yet this route carries legal and financial risks no less significant than those of a new incorporation, as the target company may carry debts, contractual obligations, or disputes undisclosed by the seller. This article explains the difference between joining as a new partner and acquiring the entire company, the mechanisms available for each path, the importance of due diligence, and the legal procedures that must be followed to ensure a sound transfer of ownership.

🤝The Difference Between Joining an Existing Partnership and Acquiring the Entire Company

Joining an existing partnership means the investor becomes one of the partners alongside the existing ones, either by purchasing a share from one of them or by contributing new capital that increases the company's share capital, with the original partners remaining part of the structure. Acquiring the entire company, on the other hand, means the ownership of all shares transfers to the buyer, who effectively steps into the place of all previous partners and becomes the sole owner, or brings in their own partners after completing the deal. The fundamental difference between the two lies in the scope of liability and negotiation: in a partial entry, the original partners remain liable for part of the obligations, whereas in a full acquisition, most of the risks and liabilities transfer to the new buyer.

⚖️Mechanisms for Joining an Existing Partnership

1. Purchasing a share from an existing partner: carried out through a transfer of the share, subject to the approval of the other partners and their pre-emption right to redeem the share on the same terms offered to a third party before it transfers to the new buyer.

2. Joining through a capital increase: the company may increase its capital and issue new shares subscribed to by the incoming partner. In this case, the ownership of the existing partners is not transferred; new shares are instead added to the ownership structure.

3. Joining as a strategic partner: in some companies, a strategic partner is invited to join with capital or expertise in exchange for an agreed share, and this type of deal usually requires the approval of the general assembly.

🔍Due Diligence Before Joining or Buying

No investor should proceed to join a partnership or buy an existing company without conducting comprehensive due diligence, covering at least:

✔️ The company's financial position (financial statements, outstanding debts, obligations toward third parties).

✔️ Ongoing contracts with clients and suppliers, and whether they can be assigned to the new owner.

✔️ Existing or potential litigation whose liability may pass to the new owner.

✔️ The validity of licences and government approvals, and the status of the commercial registration.

✔️ Employee entitlements and outstanding labour dues under labour law.

💰How Is the Company or Share Valued?

Net asset valuation: based on calculating the value of the company's assets after deducting its liabilities, best suited to companies with significant tangible assets.

Discounted future cash flow valuation: based on estimating the company's expected future profits and cash flows, and is the most common method for companies with ongoing operations.

Valuation by an accredited expert: where the price is disputed, an accredited financial and technical expert is engaged to determine the fair value, and it is preferable to agree on the mechanism for selecting the expert in advance within the memorandum of understanding.

📋Procedures for Transferring Ownership and Registering the Change

1. Sign a preliminary memorandum of understanding setting out the essential terms of the deal and requiring the parties to negotiate in good faith.

2. Complete due diligence and obtain a detailed report on the company's financial and legal position.

3. Document the share transfer or company purchase agreement through a notarized official instrument in accordance with the legal provisions.

4. Notify the other partners of the terms of transfer and observe any pre-emption right of redemption, where applicable.

5. Register the change with the commercial register at the competent authority and amend the memorandum of association to reflect the new ownership structure.

6. Update licences, bank accounts, and authorized signatory records with the relevant authorities.

⚠️Common Risks and How to Avoid Them

Among the most common risks when joining an existing partnership or buying a company: undisclosed debts or obligations, the new owner's continuing liability for prior litigation, disregard of the other partners' pre-emption right, which may later invalidate the transfer, and a failure to update licences following the ownership transfer. To avoid this, it is advisable to include clear representations and warranties in the purchase agreement, holding the seller liable for any undisclosed obligations for a specified period after the deal is completed.

💡Practical Tips Before Joining or Buying

📚Legal References

• Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended.

• Federal Law No. 5 of 1985 promulgating the Civil Transactions Law of the United Arab Emirates, as amended.

• Federal Law No. 11 of 1992 promulgating the Civil Procedure Law, as amended.

❓Frequently Asked Questions