The Mainland LLC Comes Of Age: View From An M&A And Private Capital Lens

Federal Decree-Law No. (20) of 2025 (the "Amendment"), effective 15 October 2025, makes the most substantial changes to the UAE's mainland corporate framework since the Commercial Companies Law (Federal Decree-Law No. (32) of 2021, the "CCL") came into force. It introduces preferred share classes, constitutional exit mechanics, and corporate mobility with continuity of legal personality into the onshore limited liability company – structural features that, until now, were primarily associated with DIFC / ADGM.

The consequence is not that mainland LLC has become equivalent to a DIFC or ADGM entity. It has not. What has changed is that the most commercially critical investor protections have been converted from contractual workarounds into statutory architecture. That distinction matters in ways that will be felt across institutional investments, PE-backed exits, and inbound M&A transactions involving an onshore UAE target.

The Fault Line

The UAE mainland operates on civil law foundations. In this system, preferred share classes, differential voting rights, and statutory exit mechanics were not native to the limited liability company. A liquidation preference or drag-along right that exists only in a shareholders' agreement binds the signatories, not the company, and typically requires judicial or arbitral intervention to enforce with no guarantee of seamless recognition at the corporate registry level. In common law systems, those same protections are structural, they are embedded in the constitutional documents of the entity and operate as a matter of corporate law.

That gap, contractual protection versus statutory protection, drove institutional investors toward DIFC and ADGM holding structures as a matter of course. Common law certainty, preferred share classes, constitutional drag mechanics, and cross-border enforcement infrastructure were available in the free zones by statute. On the mainland, they had to be improvised. The holding layer that connected the two added cost, complexity, and sequencing risk to every transaction. The Amendment removes much of the justification for that layer, at least in the mid-market transactions (i.e., founder-led or regional deals where the offshore holding structure was historically driven more by enforceability than necessity).

What Changed

The most significant reform is the introduction of multiple share classes into the mainland LLC (Art. 76(4)). The Amendment expressly permits classification "into different categories in terms of value, voting rights, redemption rights, priority in the distribution of profits or liquidation, or other rights, privileges, or restrictions." A liquidation preference, anti-dilution mechanic, or dividend priority that previously sat in the SHA can now be embedded in the articles and operate by force of corporate law. The articles become the primary rights document. The SHA is rationalised to governance arrangements, information rights above the statutory floor, and restrictive covenants. Cabinet implementing regulations, which will define the permissible categories and conditions, are awaited.

Drag-along and tag-along rights have been given express statutory recognition (Art. 14(4)(a)). Pre-Amendment, these provisions were contractual only, with uncertain enforceability against non-consenting minority holders before UAE courts. Embedding them in the MoA of an LLC or private joint stock company now gives them statutory recognition at the corporate level, rather than contractual effect between shareholders only. This is the same structural footing that drag and tag operate on in DIFC and ADGM entities, though the remedial infrastructure around enforcement in those jurisdictions remains a separate advantage. One qualification applies: the LLC's statutory pre-emption right (Art. 80) survives the Amendment. A properly drafted MoA should address this through an express pre-emption waiver or a sequenced drag trigger, failing which a determined minority can still use pre-emption to delay an exit even where a drag clause is present.

Corporate mobility is the third structural shift. A free zone operating company (non-financial free zone) being integrated into a mainland group, or a portfolio company being repositioned between Emirates, can now do so without destroying its legal identity. The transfer pathway to and from financial free zones, DIFC and ADGM specifically, operates under a separate regime: Art. 15 bis(3) requires Cabinet controls that have not yet been issued, and that route is not presently available. Once those controls are in place, a DIFC or ADGM holdco moving onshore for a strategic acquisition becomes the most commercially significant application of the mobility framework.

Legal form conversion has been correspondingly streamlined for conversions into a Joint Stock Company (Art. 275(2),(3)). The procedure no longer requires a new incorporation application or a founders' committee, nor the prior formation of a board of directors. These are deferred to the post-conversion general assembly of the new form. Continuity of legal personality under Art. 275(1), which applies to all form conversions, means existing contracts and licences are not put through novation. For M&A, converting a target LLC to a public joint stock company ahead of a capital markets exit, or restructuring a group post-acquisition without rebuilding the legal architecture from scratch, is now materially less onerous.

For private joint stock companies, the Amendment introduces private placement of securities on UAE financial markets (Art. 32(2),(3)) and applies a founder lock-up of one year (with Ministerial Decision No. 50/2025 cutting this further to six months for listed private joint stock companies). Implementing conditions for the private placement pathway to be issued by the SCA and are awaited. The Amendment also enables Cabinet to define differentiated share classes for listed entities (Art. 208(2)).

Who Benefits

The Amendment's most immediate commercial impact is in the onshore mid-market. UAE founders and family businesses seeking institutional capital for the first time were, in most institutional transactions, required as a matter of market practice to undertake an offshore restructuring. The Amendment means that a preferred share class and constitutional drag mechanics can be created directly in the mainland LLC, reducing a structural barrier that had historically added cost and timeline to transactions and, in some cases, deterred or delayed deal execution.

Regional and mid-market PE and VC funds deploying into mainland operating businesses such as healthcare, education, consumer brands, and logistics, where deal size rendered the offshore holding layer disproportionate and founders were often resistant to restructuring, are now better able to structure directly into the operating entity, with key investor protections capable of being embedded at a constitutional level. Corporate acquirers taking minority positions with a path to full ownership benefit from constitutional drag mechanics that make the partial-acquisition-with-drag structure more executable without the additional structuring previously required to render those rights effective in practice.

The Limits

Large-cap institutional PE and cross-border M&A, in most cases, will continue to use DIFC and ADGM structures. The Amendment narrows the gap; it does not close it. Common law contractual certainty, established jurisprudence on SPA warranties and MAC clauses, institutional court infrastructure, and cross-border enforceability of judgments and arbitral awards are not fully replicated by the CCL reforms. A transaction with a sophisticated international counterparty, significant debt financing, or complex multi-jurisdictional closing mechanics is more likely to be documented under English law with DIFC or ADGM governing entities.

Put and call options, compulsory transfer provisions on default, and event-driven buyout mechanics are not addressed by the Amendment. They remain contractual and carry the pre-reform enforcement risk profile. For minority investment structures where the investor's exit depends on a put option against the majority, the legal framework has not changed.

Choosing the Right Structure

The choice between a mainland LLC, a DIFC or ADGM Qualifying Free Zone Person entity, and a hybrid arrangement is a function of the business activity, the investor base, the income profile, and the tax position. The Amendment changes the calculus for the mainland LLC; it does not collapse the distinction between structures. The following sets out the primary use case and decisive trade-offs for each.

The hybrid structure, i.e., mainland LLC as operating entity, DIFC or ADGM holding company as investment vehicle, remains the most common institutional PE/VC arrangement in the UAE. The Amendment reduces the cases in which it is necessary; it does not eliminate them. Where an investor requires common law contractual certainty, institutional court access, or cross-border enforcement infrastructure, the DIFC or ADGM vehicle remains the superior instrument regardless of the mainland improvements.

What to Do Now

The practical imperative is immediate on two fronts. For existing onshore portfolio investments, constitutional documents should be reviewed. SHA provisions drafted to compensate for previously silent articles may now conflict with an updated constitutional framework, with the articles prevailing. The area of highest conflict risk is exit mechanics, where drag and tag provisions in the SHA may have been drafted on the assumption that the articles were silent on the subject.

For new transactions, the articles must be treated as the primary rights document from the outset, not an afterthought to the SHA. Share class architecture, and drag and tag mechanics belong in the constitutional document. The three implementing instruments most relevant to the matters above are still awaited: Cabinet decision on LLC share classes (Art. 76(4)), Cabinet controls on register transfers (Art. 15 bis(3)), and SCA rules on PrJSC private placements (Art. 32(2)). Structures should be designed with sufficient flexibility to accommodate the final framework.

The structural tools now exist. The question is whether the transaction documents reflect them.

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.