Questions & Answers
Non-payment of share value and claiming the shares back
My company is located in Dubai as an LLC. We have two shareholders,
1. UAE national shareholder with 95%
2. A foreign shareholder with 5%
The UAE national shareholder transferred this 5% shares to the foreign shareholder through a share sales agreement, which was notarized at the notary public in Dubai and submitted it to the DED to amend the trade license etc. This happened in 2014.
But till this date, the foreign shareholder did not pay the value of 5% shares to the UAE national shareholder or to the company.
Also, the foreign shareholder was not actively involved with the company's operation and as per Article 17 of the Commercial Companies Law:
"2. The partner may not contribute in work rendered unless he is a joint partner. The contribution of the partner may not consist of his having reputation or influence."
Under these circumstances, is it possible for the UAE national shareholder to request from the court to cancel the 5% shares of the foreign shareholder and transfer back to him?
Dear Sir,
Thank you for getting in touch with me on this.
As per the given facts, you have a good claim to file a case against the foreign shareholder to transfer back the 5% of the shares transferred.
I will need to go through the MOA to confirm the clauses of partner obligations.
Considering the foreign shareholder never paid for the 5% of the stake and does not participate in the activities of the company, there exist positive and cogent reasons for the court to direct shareholder to transfer back the shares.
You can get in touch with me on 052-9495731 or email on hari.wadhwana@gmail.com for further discussion.
Regards,
Hari Wadhwana
Hi,
Under these circumstances you have two options:
1. Issue a claim against the foreign shareholder and compel him to pay for the shares transferred to him; or
2. Issue a claim for returning the shares to the UAE national who transferred the shares to the foreign shareholder.
However, to confirm that both of the above are viable options we would need to review the MOA and any existing shareholders agreement.
Moreover, the choice of options also depends on the interests of the company and its shareholders as a whole.
Please feel free to get in touch with us if you would like us to review the abovementioned documents, thereby offering you more detailed advice on your query.
Kindly note that our first consultation is free of charge.
Our contact number is 04-8716762 or 050-1132587.
It all depends on the executed sale and purchase agreement of shares that affected the amendment to the MOA you have mentioned it's signed in 2014, and whatever other side agreements or shareholder agreements that were drafted for the transaction.
In my humble opinion, if the amendment states that the UAE national has received already the compensation for the 5% of the shares “which is mandatory to be accepted by the notary in the UAE”, and such document is notarized through the notary public, then the foreign shareholder can easily claim that the amount was already paid.
So many companies registered as LLC show the share capital at their MOA as a nominal value of AED 300,000 which makes that 5% a very small amount that can be easily paid in cash.
Neither the foreign shareholder nor the Emirati one can prove if they've paid or not the value of the 5% unless there is another written communication that proves otherwise.
In the event there is no clear written evidence, there is a pending payment representing the 5% of the company shares. The chances of the local partner claiming back the 5% share are quite difficult.
If you require more assistance regarding the subject matter please do not hesitate to contact me directly through ae@elnaggarlegal.com
If you wish to book an appointment you can get in touch with admin@elnaggarlegal.com
Regards,
Ahmed Elnaggar
Ae@elnaggarlegal.com
