Historical Context: The 51% Requirement and Nominee Arrangements
The UAE legal landscape continues to evolve in a manner that prioritizes commercial stability and economic growth. A significant recent development in this regard is a ruling issued by the General Assembly of the Court of Cassation in Dubai in Decision No. 8 of 2025, which addresses a long-standing legal controversy concerning the validity of limited liability companies (LLCs) established with so-called “nominee” or “side” shareholding arrangements.
Historically, the issue of nominee shareholding—where the actual ownership structure differs from what is reflected in the company’s constitutional documents—has created substantial legal uncertainty in the UAE.
Under the previous legal regime, particularly before the issuance of Federal Decree-Law No. 32 of 2021 on Commercial Companies, UAE law required that at least 51% of the shares in an LLC be held by UAE nationals. This requirement often led to the creation of side agreements or nominee arrangements, whereby foreign investors retained effective control despite the formal shareholding structure.
In several earlier judicial decisions, UAE courts adopted a strict approach toward such arrangements. Where it was established that the shareholding structure reflected in the company’s memorandum of association did not correspond to the true ownership, courts occasionally held that the company lacked the essential legal elements required for its formation.
As a result, such companies were deemed void ab initio on the basis of public policy, leading to severe consequences, including dissolution and liquidation.
The Legislative Shift: Federal Decree-Law No. 32 of 2021
However, the legal position has undergone a fundamental shift following the enactment of Federal Decree-Law No. 32 of 2021. This law introduced sweeping reforms to the UAE’s corporate framework, most notably removing the requirement for UAE nationals to hold a minimum 51% shareholding in most business activities. It also expressly permitted the establishment of single-shareholder LLCs, thereby modernizing the corporate structure and aligning it with international business standards.
Resolving Conflicts: Court of Cassation Decision No. 8 of 2025
In light of these legislative changes, the Court of Cassation was called upon to resolve conflicting judicial approaches. As reflected in the judgment, the Court considered whether LLCs established before the new law—particularly those involving nominee arrangements—should be declared void due to non-compliance with the previous ownership requirements.
The Court ultimately adopted a pragmatic and commercially sound approach. It held that it is no longer permissible to declare an LLC void solely on the basis that the shareholding structure is nominal or does not reflect actual ownership, even if such arrangements existed prior to the issuance of the new law.
The Court emphasized that the introduction of the new legal framework, which permits full foreign ownership and single-shareholder companies, must be applied in a manner that promotes economic stability and protects existing business structures.
The Mechanism of “Regularization of Status”
Importantly, the Court clarified that the concept of “regularization of status” plays a central role in this context. As explained in the judgment, regularization is a legal mechanism designed to correct or legitimize existing arrangements that may have previously lacked a proper legal basis.
Rather than invalidating such arrangements, the law seeks to bring them into compliance with current legal standards, thereby preserving ongoing economic activity and avoiding unnecessary disruption.
Legal Consequences vs. Nullity of the Company
The Court further held that, where a dispute arises concerning the true ownership of shares, the appropriate legal consequence is not the nullity of the company itself, but rather the adjustment or recharacterization of its legal structure.
In practical terms, this means that the company may be treated as a valid LLC with the actual partners reflected, or even as a single-shareholder company, depending on the factual circumstances.
This approach ensures that the legal entity continues to exist, while addressing any discrepancies in ownership through appropriate legal mechanisms.
Strategic Implications for Businesses and Investors
This judgment carries significant implications for businesses and investors operating in the UAE. It provides much-needed clarity and reassurance to companies that were established under the previous legal framework and may have relied on nominee arrangements.
By rejecting automatic nullity, the Court has effectively safeguarded the continuity of commercial entities and reinforced investor confidence in the UAE’s legal system.
Interpreting Corporate Laws with Economic Objectives
From a legal perspective, the ruling also underscores the importance of interpreting corporate laws in light of their underlying economic objectives.
The Court explicitly recognized that the reforms introduced by Federal Decree-Law No. 32 of 2021 were intended to enhance the UAE’s attractiveness as an investment destination, facilitate foreign ownership, and support small and medium enterprises. Accordingly, judicial interpretation must align with these objectives, rather than undermine them through overly rigid application of outdated rules.
At KH Legal, we consider this judgment to be a landmark development in UAE corporate law. It reflects a mature and forward-looking judicial approach that balances legal compliance with commercial reality.
However, while the ruling mitigates the risk of nullity, it does not eliminate the need for proper legal structuring. Companies are strongly advised to review their corporate arrangements and ensure that their ownership structures are accurately documented and compliant with current laws.
Conclusion: A Decisive Shift in Corporate Stability
In conclusion, Decision No. 8 of 2025 marks a decisive shift in the treatment of LLCs with nominee shareholding arrangements in the UAE. By prioritizing regularization over nullity and aligning judicial reasoning with legislative reform, the UAE courts have reinforced the principles of legal certainty, economic stability, and investor protection.
Businesses operating in the UAE should take this opportunity to reassess their corporate structures and seek professional legal advice to ensure full compliance and long-term sustainability.
For legal advice on corporate structuring, shareholder arrangements, and compliance with the UAE Commercial Companies Law, KH Legal remains available to provide comprehensive and strategic legal support.
Frequently Asked Questions (FAQ)
Q1. What was the “nominee shareholding” issue in the UAE?
Historically, laws required UAE nationals to own 51% of an LLC. Foreign investors often used side agreements (nominee structures) to maintain control, which previously put the company at risk of being declared void by the courts.
Q2. How does Decision No. 8 of 2025 protect existing LLCs?
The Court of Cassation ruled that LLCs cannot be declared void simply because they used nominee shareholding structures, even if those structures were created before the new 2021 Commercial Companies Law.
Q3. What is “Regularization of Status”?
It is a legal mechanism that allows businesses to correct their existing ownership arrangements to comply with current standards rather than having the company dissolved or invalidated.
Q4. Does this ruling apply to companies created before the 2021 reforms?
Yes. The court emphasized that the new framework, which allows 100% foreign ownership, applies to existing business structures to promote economic stability.
Q5. What happens if there is a dispute over the true ownership of shares?
Instead of the company being declared null, the court will adjust or recharacterize the legal structure to reflect the actual partners or a single-shareholder status based on the facts.
If you require further clarification or legal assistance concerning the matters discussed in this article, please do not hesitate to contact Khairallah Advocates & Legal Consultants LLC. Our lawyers would be happy to assist you.
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