M&A Legal Due Diligence In The UAE: Key Checks Before A Merger Or Acquisition

Buying a business is not only about agreeing on a price. A company may appear profitable and well-established, but the buyer could also be taking on unpaid liabilities, contractual restrictions, employment disputes, regulatory problems or pending claims.

This is why legal due diligence is an important part of mergers and acquisitions in the UAE. It gives the buyer a better picture of what is actually being acquired before the transaction becomes binding.

What Is M&A Legal Due Diligence?

Legal due diligence is a structured review of the target company, its legal documents, obligations and potential risks.

The extent of the review usually depends on the nature of the transaction. In a share acquisition, the buyer generally acquires the company together with its existing rights and liabilities. In an asset acquisition, the buyer may select particular assets or parts of the business, although liabilities can still arise depending on how the transaction is structured.

The review therefore helps the buyer understand whether there are issues that should affect the purchase price, transaction documents or even the decision to proceed.

1. Corporate Structure and Ownership

One of the first steps is confirming that the target company legally exists and that the proposed seller has the authority to transfer the relevant shares or assets.

The review may cover:

• Trade licences and commercial registrations
• Articles of Association and Memorandum of Association
• Registers of shareholders and owners
• Shareholders’ agreements
• Corporate resolutions and approvals;
• Associate Companies and Affiliates
• Restrictions on share transfers
• Ultimate beneficial ownership information

For UAE companies falling within its scope, Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended, provides the main federal framework governing company formation, management, restructuring and other corporate matters.

Beneficial ownership information should also be reviwed. Cabinet Resolution No. 109 of 2023 sets out the procedures for the identification and maintenance of information on the beneficial owner or ultimate beneficial owner of legal entities.

2. Reviewing Important Contracts

Contracts can have a major impact on the value of a business. Due diligence should identify the company’s major commercial contracts and assess whether they will continue following the acquisition.

These may include supplier agreements, customer contracts, distribution arrangements, financing documents, leases, franchise agreements and joint venture arrangements.

Particular attention should be given to change-of-control clauses. Some contracts allow the other party to terminate the agreement or require prior consent if ownership of the company changes.

A buyer should therefore know whether a valuable customer contract or important commercial arrangement could be lost because of the acquisition.

3. Debts, Claims and Litigation

A company may have liabilities that are not immediately visible from its financial statements.

Legal due diligence should cover existing court proceedings, arbitration cases, execution proceedings, regulatory investigations, guarantees, pending settlements and significant legal notices.

The aim is not simply to identify whether a dispute exists. The buyer should understand its possible financial effect and whether the risk will remain with the company after completion.

Depending on the findings, the transaction documents can include specific warranties, indemnities or other protections.

4. Employees and Management

Employees often form an important part of the business being acquired.

The review should therefore consider employment contracts, salaries, benefits, end-of-service entitlements, employee disputes, incentive arrangements and obligations towards senior management.

Employment matters in the UAE private sector are principally governed by Federal Decree-Law No. 33 of 2021 concerning the Regulation of Labour Relations and its implementing regulations.

Special attention may also be needed where the acquisition involves restructuring, changes in management or the transfer of employees to another entity.

5. Licences and Regulatory Approvals

Holding a trade licence does not necessarily mean that every activity carried out by a company is properly authorised.

Companies in regulated sectors may need to obtain additional approvals from government authorities or industry-specific regulators. Examples include financial services, insurance, health care, education, telecommunications and certain professional activities.

Legal due diligence should confirm that the company’s licences and approvals are valid and whether any regulator must approve the proposed acquisition.

This is particularly important because a transaction can be commercially attractive but difficult to complete if regulatory approvals have been overlooked.

6. AML and Compliance Checks

In addition, due diligence should include a review of the company’s compliance history, and identifying its beneficial owners and persons exercising control.

The current UAE federal anti-money laundering regime is set out in Federal Decree-Law No. 10 of 2025, together with its Executive Regulations, set out in Cabinet Resolution No. 134 of 2025.

Depending on the industry and transaction, enhanced checks may be necessary to understand the source of funds, ownership structure and any regulatory concerns.

What Happens After Due Diligence?

Due diligence should lead to practical decisions rather than simply producing a list of documents.

A serious problem may justify reducing the purchase price, requiring the seller to resolve an issue before completion or obtaining additional contractual protection. In some situations, the findings may show that the proposed acquisition carries more risk than the buyer is prepared to accept.

Mrs. Awatif Al Khouri’s approach to commercial matters reflects the importance of examining both the legal position and the practical consequences of a transaction. In an M&A deal, identifying a problem is only the first step. The buyer must also decide how that problem should be dealt with in the transaction.

Conclusion

M&A legal due diligence allows buyers and investors to understand what lies behind the commercial value of a UAE business. Corporate records, contracts, disputes, employment matters, licences, regulatory compliance, intellectual property and competition issues can all affect whether a transaction succeeds.

The process is most useful when it is carried out before the buyer becomes fully committed to the deal. Proper due diligence can also help shape the purchase agreement, identify conditions that must be satisfied before completion and reduce the possibility of unexpected liabilities later.

Mrs. Awatif Al Khouri advises businesses on how to approach acquisitions with a clearer understanding of the legal risks and protections that may be required before completing the transaction.

FAQ’s

1. What is M&A legal due diligence in the UAE?

M&A legal due diligence is the review of a target company’s legal, corporate and contractual position before a merger, acquisition or investment. It helps buyers and investors identify liabilities, compliance issues and transaction risks before completing the deal.

2. What documents are reviewed during M&A legal due diligence?

The review may include incorporation documents, licences, shareholder records, commercial contracts, financing agreements, employment documents, litigation records, intellectual property rights, regulatory approvals and other material business documents.

3. Why is legal due diligence important before acquiring a UAE company?

Legal due diligence can reveal undisclosed liabilities, contractual restrictions, ownership issues, regulatory concerns and ongoing disputes. These findings may affect the purchase price, transaction structure, warranties, indemnities or whether the buyer proceeds with the acquisition.

4. What legal risks can be identified during an M&A due diligence review?

Common risks include defective corporate approvals, change-of-control restrictions, outstanding litigation, regulatory breaches, employment liabilities, intellectual property issues, debt obligations and weaknesses in important commercial contracts.

5. How long does M&A legal due diligence take in the UAE?

The timeframe depends on the size and complexity of the target company, the volume of documents, the industry and the scope of the transaction. Smaller transactions may be reviewed relatively quickly, while complex acquisitions can require a more extensive legal assessment.

6. Do foreign investors need legal due diligence when acquiring a UAE business?

Yes. Foreign investors should carefully review the target company’s ownership, licensing, regulatory position, contractual obligations and liabilities before completing an acquisition. The due diligence process can also identify issues that may affect the transaction structure or post-acquisition operations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.