Commercial Contracts in UAE

Legal contracts are an essential part of doing business in the United Arab Emirates. They help define roles, protect rights, and ensure smooth operations between all parties involved. From commercial agreements to employment contracts and shareholder arrangements, having the right legal documents in place is key to avoiding disputes and staying compliant.

Commercial contracts in UAE outline clear terms, responsibilities, and expectations, helping businesses build trust and operate confidently in a highly regulated environment. 

Whether you are launching a new venture, entering into partnerships, or hiring staff, well-drafted business contracts provide the legal foundation for long-term success in the UAE market. In this article, we will understand the various commercial contracts required for a business setup in UAE.

What are the Types of Business Contracts in UAE?

Understanding the types of work contracts in UAE is essential for ensuring smooth operations and legal clarity. Check out the common types of contracts and how these different types of commercial contracts in UAE play a role in protecting business interests.

1. Shareholders Agreement

A shareholders' agreement in UAE outlines the roles, responsibilities, and obligations of each shareholder. A well-drafted shareholders' agreement helps prevent misunderstandings, ensures transparency, and protects the interests of all parties involved in the company. Creating this agreement is essential while forming joint ventures, adding new investors or co-founders, and more.

The UAE has distinct legal systems; free zones have their own regulations, while mainland businesses are subject to federal laws. Agreements must be appropriate for the applicable jurisdiction. Unless they are exempt under the FDI Law, certain mainland sectors require a local sponsor with majority ownership. Shareholders' Agreements are private contracts between owners. Courts or arbitration panels will usually enforce these private agreements, as long as they do not conflict with UAE laws or public regulations.

2. Board Resolution

A board resolution in UAE is a legal document that records the decisions made by a company's board of directors during a meeting. It serves as official proof that the board has discussed and agreed upon a particular course of action. Once signed by all board members, the resolution becomes part of the company’s official records and may be required for legal or regulatory purposes. 

To draft a board resolution, members are supposed to provide certain essential documents. These include the passports and Emirates IDs of the concerned parties, the company’s trade license, Memorandum of Association (MoA), and Articles of Association (AoA). Additional documents may include a letter from your sponsor (if applicable), a commercial invoice, a Power of Attorney, and a detailed list of all shareholders with their addresses, nationalities, and shareholding percentages.

A board resolution is used for various key actions in the UAE, such as:

• Opening or changing a bank account
• Appointing or removing directors or managers
• Issuing a Power of Attorney
• Transferring or allotting company shares
• Changing the company name, office address, or business activities
• Approving audited financial statements

3. Memorandum of Understanding (MoU)

The Memorandum of Understanding in UAE is a formal, non-binding agreement between parties that contains details of a mutual understanding or cooperation. Creating an MoU in UAE is usually the first step before signing a final, official contract, and can be signed in English or Arabic. This document includes the names of all parties involved, objectives, roles and responsibilities, duration, termination, and declaration of non-binding nature.

The idea behind drafting an MoU in UAE is to clearly outline the shared goals, expectations, and responsibilities of each party to avoid confusion or disagreement later on. While it is not legally binding in most cases, it sets the groundwork for future negotiations and can be used as a reference if any issues arise during the collaboration. MoUs generally do not require notarisation or registration, and an Arabic translation may be needed for legal use in UAE courts.

4. Non-Disclosure Agreement (NDA)

An NDA is a legal agreement created to protect confidential information shared between parties. Non-Disclosure Agreements are recognised and enforceable under the UAE Civil Code (Federal Law No. 5 of 1985) and supported by intellectual property and commercial laws.

An NDA in UAE ensures that all sensitive and confidential information discussed during meetings, negotiations, collaborations, and discussions is kept private. If any party breaches the Non-Disclosure Agreement in UAE, it can lead to civil action, where the breaching party may have to pay damages or stop using the confidential information. If it involves stealing or misusing trade secrets, criminal charges may also apply. Courts in the UAE treat NDAs as valid as long as they are clearly written, legal, and properly signed.

There are three types of NDAs in UAE: Unilateral, mutual, and multilateral. Let us understand the details:

• Unilateral Non-Disclosure Agreement - This NDA states that one party discloses confidential information, and the other party agrees to maintain its confidentiality.
• Multilateral Non-Disclosure Agreement - This type of NDA consists of three or more parties. Here, all parties are bound by confidentiality terms.

• Mutual/Bilateral Non-Disclosure Agreement - This agreement is between two parties. Here, both disclose and protect confidential data.

  Essential Clauses in UAE NDA	Details
  Definition of Confidential Information	Specifies what is considered confidential, such as trade secrets, financial records, or technical details.
  Purpose of Disclosure	The primary reason for sharing information.
  Obligations of the Receiving Party	The recipient must not disclose the information to third parties, use it only for the stated purpose, and protect it using reasonable means.
  Exclusions	Information that is already public, previously known to the recipient, disclosed by a third party legally, or required by law to be revealed.
  Duration of Confidentiality	1-5 years.
  Return or Destruction of Information	The recipient is required to return or destroy all confidential data after termination.
  Governing Law and Jurisdiction	The UAE law is the governing law. Disputes are handled by UAE courts or through arbitration.
  Remedies for Breach	Specifies the legal consequences or actions that may be taken if the agreement is violated. This can include injunctions, damages, or termination.

  Read our article on franchise agreement in UAE to learn more.

5. Service Agreement

The service agreement in UAE is a contract between the service provider and the customer. This document contains the terms and conditions under which services will be provided. 

When making a service agreement contract in UAE, there are a few things to keep in mind. If the agreement might be used in court, it is good to have an Arabic version, so using both English and Arabic is helpful. You usually do not need to get the agreement notarised unless a government body asks for it. Additionally, if either party has registered for VAT in UAE, invoices must include VAT in line with UAE Federal Tax Authority (FTA) guidelines. These agreements are often used for business services like consultancy, marketing, software development, subcontracting, facility management, and freelance work.

6. Freelancer/Consultancy Agreement

The freelancer agreement or the consultancy agreement in UAE is between a company and a freelancer or consultant. These individuals offer services to the company without being considered employees. A consultant or freelancer in UAE must have a valid freelance permit or trade license from the relevant authority.

Entrepreneurs can apply for either a freelance permit or a professional license in UAE, depending on the nature of their services. In the UAE, freelancers and consultants must register for VAT if they earn over AED 375,000 per year. While there is no income tax in the UAE, freelancers from other countries may need to report their income back home. It is important that the agreement clearly shows the freelancer is not an employee to avoid legal issues. These agreements are common in fields like marketing, IT, design, HR, and business consulting, especially among startups and small businesses

7. Power of Attorney (PoA)

A Power of Attorney in UAE is a legal document that permits one person (called the Principal) to give permission to another person (called the Agent) to act for them. A PoA in UAE is often used to handle things like buying property, running a business, or dealing with legal matters. However, the principal must be mentally fit and make decisions willingly. Additionally, you can cancel the PoA in UAE at any time by signing a notarised cancellation document.

8. Articles of Association (AoA)

Articles of Association in UAE is a legal document that explains the basic rules and regulations for how a company will run every day. While the Memorandum of Association (MoA) talks about what the company does and its outside dealings, the AoA in UAE is about how things work inside the company.

How Can Commitbiz Help?

Navigating the landscape of commercial contracts in UAE can be complex without the right guidance. At Commitbiz LLC, our legal experts help draft, review, and structure all types of commercial contracts in UAE to ensure they meet regulatory requirements and protect your business interests. Whether you are forming partnerships, hiring employees, or signing service agreements, we provide reliable support tailored to your needs. Let us assist you in managing and drafting your commercial contracts in UAE with confidence and clarity.