In Brief

1. Without a registered Memorandum of Association, a co-founder agreement has no legal standing under Federal Decree-Law No. 32 of 2021 — leaving IP ownership, equity, and profit rights unresolved.

2. Federal Decree-Law No. 20 of 2025 introduced multiple share classes and statutory drag-along and tag-along rights for UAE LLCs, giving co-founding teams tools previously unavailable in mainland structures.

3. A vesting schedule, a documented IP assignment, and a RAK ICC holding layer together form the most defensible architecture for distributed co-founding teams in 2026.

Two co-founders agree on a 50/50 split in a co-working space. Six months later, one relocates abroad and stops working. The other wants to raise capital — but without a registered corporate structure, there is no company to invest in, just two individuals with an undocumented arrangement and competing claims. Under Federal Decree-Law No. 32 of 2021 on the Regulation of Commercial Companies (the "Commercial Companies Law"), as amended by Federal Decree-Law No. 20 of 2025, an informal partnership carries no legal weight. Equity entitlements, IP ownership, and profit rights all remain disputed until a tribunal is asked to settle them. Getting the structure right before the first line of code is written is not a formality. It is the foundation on which every future investor conversation, exit negotiation, and dispute resolution will rest. The 2025 amendments to the Commercial Companies Law have significantly expanded what UAE entities can do — but only if the structure is in place to use them.

Why static equity is the first structural risk to address

A 50/50 split recorded only in a Shareholders' Agreement (SHA) without registration in a Memorandum of Association (MOA) is unenforceable as a matter of company law. The MOA is the constitutional document of the entity; the SHA governs the relationship between its owners. Both are required, and neither substitutes for the other. The deeper problem with static equity is that it rewards past contribution rather than ongoing commitment. A co-founder who builds the initial product and then disengages retains the same ownership position as one who continues building for years. That outcome — half the company owned by someone no longer working in it — is the single most common cause of early-stage deadlock and investor concern. Vesting schedules address this directly. Under a standard four-year vest with a one-year cliff, a co-founder earns 25% of their allocation after 12 months and the remainder monthly over the following three years. Unvested shares return to a reserved pool on departure. The equity stays with those who continue building it. Free zones such as the Ras Al Khaimah Economic Zone (RAKEZ) allow FZ-LLC structures with between one and 50 shareholders under the RAKEZ Companies Regulations 2023 — providing the legal platform to formalise this ownership through a properly registered MOA.

IP assignment: the ownership gap most co-founders miss

UAE law does not automatically vest intellectual property created by an individual in a company. Under Federal Law No. 38 of 2021 on the Regulation and Protection of Industrial Property Rights, copyright in original work belongs to its creator unless expressly assigned. Without a signed IP assignment agreement, a departing co-founder may retain ownership of the code they wrote — and can prevent the remaining founders from building on, licensing, or selling it. The assignment must be documented, signed at or before the point of creation, and ideally registered with the Ministry of Economy's IP office. For companies using a two-layer structure — with a Ras Al Khaimah International Corporate Centre (RAK ICC) Foundation or Business Company at the holding level — the IP should vest in the holding entity, not the operating company. This separates the asset from operational liability and from any individual founder's personal estate.

Governance: resolving the deadlock problem before it arises

Equal ownership produces equal voting power. Where two founders disagree on a material decision and neither can outvote the other, the company stalls. Under the Commercial Companies Law, persistent unresolved deadlocks can lead to judicial dissolution — the worst possible outcome for a business with commercial momentum. A well-drafted SHA addresses this with three mechanisms: a decision hierarchy that distinguishes unanimous decisions (sale of the business, issue of new shares) from majority decisions (material expenditure, new hires) and management-level decisions (day-to-day operations); a designated tie-breaker for specific categories of dispute; and a Deadlock Resolution Clause. The most common version is a "buy-sell" or "shotgun" provision: either founder can trigger it by naming a price, and the other must choose whether to buy or sell at that price. It concentrates minds remarkably quickly. The Place of Effective Management (PoEM) concept, introduced under Article 11(3)(b) of Federal Decree-Law No. 47 of 2022 on Corporate Tax, also matters here. A UAE company managed and controlled from outside the UAE may be treated as a tax resident of another jurisdiction. Where co-founders operate across multiple countries, board resolutions should document that key management decisions are made within the UAE.

What the 2025 legislative amendments change for co-founders

Federal Decree-Law No. 20 of 2025, which came into force in October 2025, amended the Commercial Companies Law in ways that directly affect co-founding arrangements. Article 76(4) now permits UAE LLCs to issue shares of different classes — allowing a technical founder to hold shares with enhanced voting rights while a commercial founder holds shares with priority on profit distributions. Article 14(4) expressly permits drag-along and tag-along rights to be included in the MOA, giving them statutory force. Previously, these rights existed only in SHAs and were harder to enforce against third parties. Now they form part of the company's constitutional document. One qualification applies: the detailed rules governing the issuance of multiple share classes are subject to a Cabinet decision that had not been published as of March 2026. Companies planning to use differentiated share classes should monitor the Ministry of Economy's publications and take legal advice before incorporating these provisions.

Choosing the right jurisdictional platform

Feature	RAKEZ FZ-LLC (Operating)	RAK ICC Business Company (Holding)
Shareholders	1 to 50	Typically 1 to 10
Primary use	Billing, visas, operations	IP ownership, holding shares
Governance law	Free zone regulations	Common law principles
Visa eligibility	Yes — multiple visas	None directly
Asset protection	Operational	Statutory firewall (2025 amendments)

For most co-founding teams with distributed operations, the recommended structure combines a RAKEZ FZ-LLC at the operating level — handling client billing, expenses, and visa sponsorship — with a RAK ICC entity at the holding level, owning the IP and the shares of the operating company. The 2025 RAK ICC Foundation Amendments introduced statutory protections including asset firewall provisions and a three-year finality period for challenges to foundation transfers.

Good leaver and bad leaver: defining departure terms in advance

The most costly co-founder disputes are those where departure terms were never agreed. A SHA should define two categories of departure. A "good leaver" — someone who exits due to illness, disability, or mutual agreement — typically receives fair market value for their vested shares. A "bad leaver" — someone who resigns to join a competitor, is terminated for cause, or breaches contractual obligations — may be required to sell their shares back at nominal value, often as low as AED 1. UAE free zone tribunals and mainland courts increasingly apply these provisions when they are clearly documented in the SHA. The distinction between the two categories, and the price mechanism that follows, should be drafted with precision — generic drafting is routinely contested.

The 2025 amendments to the Commercial Companies Law have meaningfully expanded the tools available to UAE-based co-founding teams. Class shares, statutory drag-along mechanics, and improved structural options give founders genuine flexibility — but only if the legal architecture is in place before the business grows to the point where disputes become inevitable. Implementing regulations for class share issuances are expected during 2026 and should be monitored closely. For guidance on co-founder structures, Shareholders' Agreements, and IP assignment frameworks, contact Alldren's corporate advisory team at [email protected].

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This article is for general informational purposes only and does not constitute legal, tax, or financial advice. Readers should seek professional advice tailored to their specific circumstances. Information reflects the position as of the publication date and may be subject to change. This article addresses UAE, Australian, UK, and Canadian law where specified; different rules apply in other jurisdictions. © 2026 Alldren. All rights reserved.