Preliminary agreements

What preliminary agreements are commonly drafted?

The outline terms of a transaction are often recorded in writing in a heads of terms. The parties should consider whether they wish to be legally bound by the heads of terms and review the wording accordingly. This is particularly the case in the United Arab Emirates, where the requirement of good faith may create an enforceable obligation to proceed in accordance with the heads of terms. The heads of terms may be governed by either UAE or foreign law.

Principal documentation

What documents are required?

The documents generally required for a private transaction include:

  • an information memorandum;
  • a confidentiality agreement;
  • a process letter;
  • an offer letter;
  • an exclusivity agreement;
  • an acquisition agreement;
  • a disclosure letter;
  • ancillary agreements;
  • signing authorities; and
  • filings.


Which side normally prepares the first drafts?

The seller will usually draft the confidentiality agreement, process letter, information memorandum and exclusivity agreement and the buyer will draft the offer letter. Either party may draft the acquisition agreement, disclosure letter and ancillary agreements.

What are the substantive clauses that comprise an acquisition agreement?

Substantive clauses in an acquisition agreement typically include:

  • a sale and purchase agreement;
  • a purchase price;
  • accounting mechanics and the passing of risk;
  • completion mechanics;
  • warranties and indemnities; and
  • post-completion covenants and separation issues.


What provisions are made for deal protection?

Deal protection may be strengthened by a requirement for the buyer to pay a refundable deposit into an escrow account when a non-binding offer is given. The deposit will be:

  • refunded to the buyer if the seller does not proceed with the transaction; or
  • paid to the seller if the buyer does not make a binding offer at the end of the due diligence stage.

Closing documentation

What documents are normally executed at signing and closing?

In addition to the principal documentation listed above, on a share sale, the parties must sign a standard share transfer form (in Arabic or dual English/Arabic) before a UAE notary to transfer the shares from the seller to the buyer.

Are there formalities for the execution of documents by foreign companies?

UAE law contains no specific provisions relating to the execution of a UAE law-governed agreement by a foreign entity. However, it is not uncommon for a local counterparty to require a foreign counterparty to execute a contract pursuant to a power of attorney. Further, there is no requirement for the power of attorney to be notarised, unless it is to be used in a government process, such as registering an amendment to a company’s memorandum of association.

Are digital signatures binding and enforceable?

The use and enforceability of electronic signatures is governed by the Federal Law concerning E-Transactions and E-Commerce (1/2006). An electronic signature which meets the requirements of the law has legal force and effect. The term ‘electronic signature’ is broadly defined and includes all types of signature (eg, alphabetical, numerical, symbolic or vocal) which is attached to or logically associated with an electronic agreement and which serves as a method of authentication. Reliance on electronic signatures must be reasonable, which is generally based on the following factors:

  • the nature, value and importance of the transaction being supported by the electronic signature;
  • the appropriate steps taken by the relying party to verify the identity of the electronic signatory;
  • evidence of prior breach or revocation of the electronic signature;
  • previous reliance on an electronic signature between the contracting parties; and
  • any other relevant factors.

In addition, there are certain categories of transaction and document for which the use of an electronic signature is not allowed, including:

  • negotiable instruments;
  • transactions involving immovable property;
  • documents legally required to be attested before a notary; and
  • any other document or transaction exempted by a special law.

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