Legal Glossary

ADGM. The financial centre Free Zone in the emirate of Abu Dhabi.

A transaction in which a Company is being bought primarily for its employees and not for its technology, product or service. Usually the buyer will close down these operations and use the team (who have a history of working together) to accelerate its own growth.

Abu Dhabi Global Market.

The courts of Abu Dhabi Global Market. The ADGM Courts do not have jurisdiction in criminal matters.

The incorporation, registration and licensing authority in ADGM.

A person providing strategic advice, introductions to Investors or other third parties, or engaged to assist with some other significant milestone in the life of the Company. The terms of the Advisor’s engagement and compensation (which may be in the form of Equity) are set out in an Advisor Agreement.

An agreement which sets out the terms of engagement of an Advisor to a Company. The Advisor Agreement also sets out the details of any Equity grant to the Advisor which may Vest over the period of time in which the Advisor is engaged by the Company.

An individual who invests in startups. Angel Investors typically make up the shortfall between Friends and Family financing rounds and Institutional Investors.

A key document for a Company setting out details on how the business will be governed and its day-to-day operations. The Articles of Association are a contract between the company and its shareholders. The Articles of Association specify rules and procedures on how the Board of Directors are appointed, board meetings and shareholder meetings are conducted and how shares may be transferred etc. In some jurisdictions, the Articles of Association are a public document which is made available for inspection.

The transfer of a right from one party to another party.

A process transferring the ownership of Intellectual Property from one person to another e.g. work created by a business partner is transferred to the entity.

The total number of authorised shares is the maximum number of shares a company may issue. The authorised share capital is the total amount that shareholders have permitted the directors to issue without further reference to them (i.e. shareholder consent is not required for the board of directors to issue additional shares to incoming Investors).

The body responsible for the management and oversight of a company. Shareholders appoint Directors to the Board of Directors. The Board of Directors owe Fiduciary Duties to the Company to ensure that it functions effectively and avoids the need for Shareholders to involve themselves in the day-to-day management of a business. The Board of Directors should meet regularly to ensure they are fulfilling this duty.

Short-term temporary finance used to bridge the gap until the company can raise money through other sources (e.g. share issue or private equity investment).

A written plan looking forward and describing the Company’s future: its goals and how it will achieve them. It may cover the next six months or up to three years, depending on how fast the Company is growing and changing. A Business Plan usually includes a business model, financial projections and assumptions and information about the target market for the Company’s products and services.

See Articles of Association.

An Option which gives a right (but not an obligation) for a person to acquire an asset from another person at a specified price (or a price calculated in accordance with an agreed formula). The terms of the Call Option will often state that it may only be exercised during a defined period of time.

The document issued by the companies’ registration authority in a particular jurisdiction upon the creation and registration of a company as a separate legal entity. A certificate of incorporation is usually re-issued following a change of name of the company.

Also known as a Non-Disclosure Agreement or NDA. An agreement which requires a party to keep certain information confidential and to use that information only for a specified purpose.

ScaleUp has a Confidentiality Agreement (One Way) document {here} and a Confidentiality Agreement (Mutual) document {here}.

An agreement which appoints an individual to perform services for another party where the relationship between the parties is not that of Employer and Employee.

An individual working for a company under a Consultancy Agreement or other contract which is not an employment agreement. Consultants are not entitled to the rights of employees set out in employment laws.

A loan to the company which converts into Preference Shares or Ordinary Shares at a specific price and generally during a specified period. The conversion will usually be at a discount to the company’s share price. Convertible Loan Notes are used to bridge the company between rounds of Preference Share issues so are often granted to Angel Investors, Seed Investors or other existing investors in the company.

ScaleUp has a Convertible Loan Note document {here}.

An intellectual property right. Copyright protects the form of expression of an idea (and not the idea itself) and lasts for a fixed period (normally the life of the author plus 70 years from the end of the calendar year of the author’s death). Copyright laws are designed to prevent copying but do not extend to similar or identical works which may already exist, provided they have not been copied.

Also known as Peer-to-Peer finance or P2P. A method of raising money from individuals to fund a startup which is often done through an online platform. There are different Crowdfunding methods (e.g. loan-based, investment-based, donation-based and pre-payment- or rewards-based), some of which may be regulated activities in some jurisdictions.

Directors’ and Officers’ Insurance. An insurance policy to cover directors’ and officers’ liabilities arising out of their activities in those positions as directors or officers of the company. The policy is normally taken out by the company on behalf of the directors and officers. VC investors normally require D&O Insurance be put in place by a company prior to their investment in it.

See Due Diligence Questionnaire.

Dubai Financial Services Authority. The financial services regulator in the DIFC.

Dubai International Financial Centre. The financial centre Free Zone in the emirate of Dubai.

The courts of the DIFC.

The arbitration centre in the DIFC. A joint venture between the DIFC and the London Court of International Arbitration.

The reduction in a Shareholder’s percentage ownership in a company triggered by the company issuing new Shares. The exercise of rights under Options or other instruments may also cause dilution. As the number of shares in a company increases, each Shareholder will own a smaller percentage of the company.

A person who is a member of the Board of Directors and is elected by the company’s Shareholders.

The giving of compensation or other value (e.g. cash, shares, physical assets owned by the company) by the company to its Shareholders. A Dividend is a common form of Distribution to Shareholders.

A form of Distribution of a company’s profits (after tax, where applicable) to its Shareholders.

Dubai Multi Commodities Centre. An international commodities trading Free Zone in the emirate of Dubai.

Drag-Along Rights allow a majority of the Shareholders to approve a sale of their shares in the company and to force the remaining minority of the Shareholders to also vote to approve such sale (i.e. the majority Shareholders “drag along” the minority Shareholders in a sale scenario). Investors (usually the majority Shareholders) want to receive the full value for their Shares and this may not be possible unless they can sell all the Shares in the company to the buyer. Founders (usually the minority Shareholders) may be reluctant to agree to these rights because investors (the majority Shareholders) normally have a Liquidation Preference and may negotiate the terms of a sale which benefit those investors and not the minority Shareholders. So Drag-Along Rights typically include some protection against abuse for minority Shareholders (e.g. minority Shareholders will sell their shares on the same terms, including price, as the majority Shareholders).

Tag-Along Rights work in a similar but opposing manner.

A process where a buyer or investor examines an asset, company, or business. A due diligence exercise may include reviewing relevant documents and financial statements, inspection of premises and operations and interviews with key personnel including the management team, accountants, legal counsel, customers and suppliers. A buyer or investor will usually engage lawyers and accountants to assist with the review in their respective areas of expertise. For example, in a sale scenario, a buyer will examine the company’s records to (i) confirm that those records support the valuation; (ii) find any matters which it can use as a basis on which to renegotiate the price; or (iii) request any further information it needs.

DDQ. Also known as Due Diligence Request List. A questionnaire given by a potential buyer or investor to the company they are contemplating buying or investing in. The questionnaire is designed to obtain certain documents, records and information from the target so that the buyer or investor can conduct Due Diligence on it. The form of the questionnaire, and the information it intends to flush out from the target, will vary depending on the type of company, how long it has existed, what industry it is operating in and where it is located.

See Due Diligence Questionnaire.

The UAE Identity Card, issued by the Emirates Identity Authority. The identification number shown on the card is unique to the holder and remains with them permanently. The card is used as evidence of identity when dealing with governmental and some non-governmental entities.

A person hired to perform work under the direction of an Employer in return for a wage or salary. The status of “Employee” comes with various legal requirements for their Employer (e.g. liability for the actions of the Employee and, in the UAE, visa and immigration requirements) which are not applicable if the person is a Consultant.

A plan providing benefits to employees (and/or Directors and Consultants) in the form of an Option to purchase Shares in the employer company.

An individual, company or other entity by which an Employee is employed.

A contract of service between and Employer and an Employee. An Employment Agreement sets out the compensation the Employee will receive (wages, salary, or equity), other benefits including bonuses, holiday entitlements, health insurance coverage, end-of-service gratuity and other terms of the relationship. In the UAE, Employers must use a standard form of Employment Agreement issued by the Ministry of Human Resources and Emiratisation or the relevant Free Zone authority but Employers typically supplement this standard form with their own, more comprehensive form of Employment Agreement.

An ownership interest in a company, usually represented by Shares. In accounting terminology, the value of a company’s net assets minus its liabilities is referred to as equity.

Employee Share Option Plan.

The current value that an independent third party would pay for a Share in a company in an arm’s length transaction.

A person with a duty to act solely in the interests of another party e.g. Directors of a company are fiduciaries of the company’s shareholders.

The duties owed by a Fiduciary to the person in whose interests they are acting e.g. duty of confidentiality, a duty not to profit from the position.

A programme offered by the DFSA in the DIFC where financial services businesses and entrepreneurs can refine and test their proposition. Firms operating in FinTech Hive are given a restricted class of financial services licence known as an Innovation Testing Licence.