Commercial Contracts in the UAE: What Businesses Should Settle Before They Sign

A commercial lawyer can help turn a negotiated business deal into clear obligations covering performance, payment, authority, shareholder rights, termination and dispute risk.

A commercial agreement should tell both sides what happens when the deal works and what happens when it does not. Yet contracts are often negotiated heavily around price and scope while issues such as authority, delays, payment triggers, termination rights and responsibility for failure receive less attention.

The legal framework has also changed. Federal Decree-Law No. 50 of 2022 continues to regulate commercial transactions in the UAE, while Federal Decree-Law No. 25 of 2025 introduced a new Civil Transactions Law from 1 June 2026. The current framework makes the negotiation stage itself more important, meaning legal risk can begin before the final agreement is signed.

The Negotiation Stage Now Deserves More Attention

Article 121 of the new Civil Transactions Law requires the initiation, conduct and termination of pre-contractual negotiations to comply with good faith. Entering negotiations does not force either party to complete the transaction, but negotiating or ending negotiations in bad faith can create liability for actual loss in the circumstances provided by law.

This matters when businesses exchange term sheets, financial information, pricing models, draft agreements or confidential commercial material over several weeks or months. Commercial law firms should therefore consider confidentiality, disclosure, exclusivity and the intended status of preliminary documents early rather than assuming that nothing matters until the main contract is executed.

Turn Commercial Promises Into Measurable Obligations

Terms such as "promptly", "high quality", "reasonable support" or "as required" may sound acceptable during negotiations but can become difficult to apply when performance is disputed. A contract should identify what each party must deliver, by when, against what standard and what evidence confirms completion.

Payment clauses require the same precision. The agreement should make clear when an invoice can be issued, when payment becomes due, whether acceptance or certification is required, what happens if part of an invoice is disputed and whether any retention or adjustment mechanism applies.

A corporate and commercial lawyer should also test whether different clauses work together. A payment obligation should not depend on an approval process that the contract never explains, and a delivery deadline should not conflict with a separate provision allowing the other party to delay access, information or approvals.

Check Who Can Commit the Company

The person negotiating a deal is not always the person authorised to bind the company. Before execution, the company's legal form, constitutional documents, authorised signatories and any required board or shareholder approvals should be checked.

This is particularly important for major acquisitions, disposals, long-term obligations, guarantees and transactions involving related parties. Lawyers in Dubai reviewing commercial contracts should identify authority before signature rather than discovering later that an internal approval was missing.

The Commercial Companies Law also requires changes to specified registered company information to be dealt with through the applicable corporate process. Commercial contracting therefore needs to remain consistent with the company's legal structure and registered position.

Shareholders Agreements Should Match the Company Structure

Shareholders agreements can address matters that ordinary trading contracts do not, including reserved decisions, management rights, future funding, share transfers, deadlock, confidentiality and exit arrangements. The objective is to decide how owners will exercise control before a disagreement makes those questions harder to resolve.

The 2025 amendments to the Commercial Companies Law are relevant here. The current Article 14 permits LLCs and private joint stock companies to include certain rights in their constitutional documents concerning the sale of shares or stakes and participation in another shareholder's sale, subject to the law.

This does not mean every clause in shareholders agreements automatically has corporate effect. The agreement should be reviewed alongside the memorandum or articles, the company's legal form and mandatory provisions of UAE company law. Where a right needs to operate through the corporate structure, the constitutional documents may also need attention.

Termination Clauses Need an Exit Process

A termination clause should answer more than whether a party can leave the contract. It should identify the event giving rise to termination, any notice requirement, whether a breach can be cured and what happens to outstanding payments, property, confidential information and continuing obligations afterwards.

Under the current Civil Transactions Law, contracts are also required to be performed consistently with good faith. A commercial lawyer should therefore avoid treating termination wording as an isolated paragraph. Notice provisions, default clauses, cure periods and contractual consequences need to work as one system.

Where a business wants an immediate right to end a relationship for a particular event, that intention should be drafted clearly and reviewed against applicable law. Assuming that every breach automatically permits immediate termination can create unnecessary exposure.

Decide How a Dispute Will Be Handled Before One Exists

Commercial agreements should clearly address governing law and dispute resolution. Depending on the transaction, parties may choose court jurisdiction or arbitration, but the clause needs to be drafted for the actual relationship rather than copied from another contract.

Advocates and legal consultants in Dubai should also consider where the parties, assets and contractual performance are located. A dispute clause that appears acceptable during negotiation may become commercially inconvenient when enforcement is required.

Conclusion

The best legal companies treat dispute provisions as part of the transaction rather than boilerplate at the end of the document. Businesses assessing top law firms in Dubai for commercial work should expect the same attention to exit, enforcement and shareholder risk as they receive on pricing and commercial obligations. AY Advocates advises businesses on commercial agreements, shareholders agreements, corporate transactions, governance arrangements and contractual disputes across the UAE.

Whether your business is entering a new commercial relationship, restructuring an existing agreement or negotiating terms between shareholders, contact AY Advocates for legal review before the commercial position becomes legally binding.

Frequently Asked Questions

1. Are negotiations legally irrelevant until a commercial contract is signed?

No. Under the current Civil Transactions Law, pre-contractual negotiations must be proposed, conducted and terminated in accordance with good faith. Bad-faith conduct can create liability in the circumstances provided by law.

2. Does entering negotiations mean a company must complete the transaction?

No. The law expressly states that negotiations do not themselves oblige the parties to conclude the contract.

3. Should payment terms state more than the payment deadline?

Yes. A well-drafted payment provision should also address invoicing, acceptance requirements, disputed amounts, supporting documents and any conditions that must occur before payment becomes due.

4. Can shareholders agreements regulate how owners leave a company?

Yes. They can address matters such as transfers, exit arrangements, deadlock and other shareholder rights, subject to applicable company law and the company's constitutional documents.

5. Can a company terminate a commercial agreement immediately after any breach?

No. The answer depends on the contract, the type of breach, applicable notice or cure requirements and the governing law. Immediate termination should not be assumed without reviewing those factors.

6. Should dispute resolution be negotiated before signing the contract?

Yes. The parties should determine the appropriate governing law, court jurisdiction or arbitration mechanism before a dispute arises, particularly where the transaction involves parties or assets in different jurisdictions.