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Transfer Shares of a Free Zone Establishment

How to Transfer Shares of a Free Zone Establishment in UAE - fze

If you’re a shareholder of an establishment in any of the UAE free zones, then you may want your shares to be sold or transferred at some point. For instance, you’re one of the founders of an establishment operating in a UAE free zone and you wish to depart from the business. It can be agreed by the co-founders that you sell a part or all your shares as it’s no longer appropriate to own a huge percentage of the free zone establishment (FZE).

In some instances, an agreement is reached for shares to be transferred onto a third party that is unrelated currently to the FZE. But, it’s common for company shares to be taken by existing shareholders or the company itself.

Share transfer to another FZE shareholder

If you have come to an agreement with another shareholder and your shares will be purchased, then you’ll need to follow these steps:

Step 1: Obtain the necessary consents and approvals.

If a business has a shareholder’s agreement or constitution, then it’s very important to review it first to see if there’s any consent or approval that is required to obtain prior to a share transfer transaction taking place. For instance, you may need the following consents and approvals:

  • The Board of directors may need to create a board resolution that approves the transfer of shares;
  • Other shareholders may have to waive rights which they may have onto the shares that will be transferred

 It’s very important that the FZE’s board of directors is notified with regards to the intent of transferring share ownership as the company will have to prepare specific secretarial documents and notify the free zone authority.

Read also: Process of Share Transfer for Company in UAE

Step 2: Create a share sale agreement.

Whether you need a formal agreement for a share sale will depend on the transaction’s value and the risk involved.  for instance, if the price of the purchase is high with the buyer of the shares taking on lots of risks, then the buyer would want a formal agreement for the share sale. This is so the seller provides appropriate warranties and representations that can mitigate the risk of the buyer.

  • The key terms of an agreement for share sale include:
  • Details of the seller and the buyer
  • Purchase price
  • How the purchase price will be settled
  • Any conditions in which a seller has to satisfy prior to the shares being bought
  • Process of completing share sale
  • Indemnities, warranties, and representations

Step 3: Perform the secretarial steps for share transfer.

There are certain secretarial steps that have to be taken in order to properly effect a share transfer. Here’s some of them:

  • The buyer and the seller both need to sign a form for the share transfer;
  • The company must issue new share certificates for the buyer;
  • Shares’ previous owner or the seller of the company shares must destroy the old share certificates;
  • The company is to record in the members register the fact that the shares are transferred

Last step: Notify the free zone authorities.

As soon as the transfer of the shares is completed, free zone authorities have to be notified regarding the share transfer. This should be done within a few days following the share transfer in order to avoid getting penalized for the late submission of notification.

Read also: Free Zones in the UAE

Share transfer to the company itself

The legal process in transferring shares back to the free zone establishment is referred to as a buyback of shares. As part of the process, the FZE purchases the shares of the relevant shareholder and cancels them. This process must follow what’s required in the UAE Companies Law.

It’s important for you to consider the type of company share buy-back that’s being undertaken as it will have an impact on the process. The most common are as follows:

  • Selective company share buy-back
  • Employee share scheme
  • Equal access

If it’s only your company shares that will be bought by the FZE, then a selective company share buy-back will apply. The process will entail the following:

  • Seeking shareholders’ approval – shareholders of the FZE will have to agree regarding the selective company share buy-back. It can be done via a shareholders’ meeting with a written resolution that’s signed by all the shareholders.
  • Compilation of requirements – documents required include the share buy-back formal agreement.
  • Notifying the free zone authority – relevant free zone authorities must be notified regarding the proposed buyback.
  • Completing the holding period – as soon as the authorities are notified, the FZE is to wait until they hear from the authorities as they may have issues or queries regarding the share buy-back.
  • Canceling of shares – as soon as the buy-back of shares is completed and shares are canceled, authorities will have to be notified again.

If you want to know more about corporate laws and processes in UAE, call us here in FAR Consulting Middle East!