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A Pro-rata side letter to Investment agreement protects investors' ownership rights in UAE companies during future funding rounds. It gives existing shareholders the right to maintain their percentage ownership by participating in new share issues at the same terms, helping them avoid dilution of their stake.

Under UAE Commercial Companies Law, these letters play a crucial role in preserving investor interests, especially in fast-growing startups and tech companies. They're commonly used alongside investment agreements in Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) jurisdictions, where multiple funding rounds are common.

Use a Pro-rata side letter to Investment agreement when investing in UAE startups or growth companies that plan multiple funding rounds. This document becomes essential before any initial investment, particularly in tech hubs like DIFC and ADGM, where rapid scaling often leads to frequent capital raises.

The timing is critical - adding this protection after later funding rounds becomes much harder. Early-stage investors in UAE companies need this document to maintain their ownership percentage and voting power. It's especially valuable when investing alongside larger institutional investors who might otherwise dominate future rounds and dilute smaller stakeholders.

• Basic Pro-rata Rights: The standard version guarantees participation rights in future funding rounds at the same price and terms as new investors in UAE companies
• Full Participation Rights: Extends beyond just maintaining ownership percentage to include tag-along rights and information rights
• Qualified Pro-rata Rights: Sets minimum investment thresholds or ownership requirements to exercise pro-rata rights in DIFC/ADGM entities
• Limited Duration Pro-rata: Specifies a sunset period or maximum number of rounds for pro-rata rights, common in early-stage UAE startups

• Angel Investors: Early-stage investors who need pro-rata rights to protect their ownership in UAE startups from dilution during future rounds
• Venture Capital Firms: Investment firms operating in DIFC or ADGM who regularly include these letters in their standard deal documentation
• Corporate Legal Teams: In-house lawyers who draft and negotiate pro-rata side letters alongside main investment agreements
• Startup Founders: Company leaders who must understand and manage these rights when planning future fundraising
• Investment Banks: Advisory firms helping structure deals and ensuring pro-rata rights align with UAE regulations

• Investment Details: Gather current capitalization table, investment amount, and share price from the main investment agreement
• Rights Scope: Define exact participation rights, including any minimum investment thresholds for UAE compliance
• Duration Terms: Specify how long pro-rata rights last and through how many funding rounds they apply
• Authorized Signatories: Confirm who has authority to sign under DIFC/ADGM regulations
• Company Documents: Review articles of association to ensure alignment with pro-rata provisions
• Notice Requirements: Establish clear procedures for notifying investors about future funding rounds

• Parties and Recitals: Clear identification of investor, company, and reference to main investment agreement
• Pro-rata Rights Definition: Precise terms of participation rights in future funding rounds
• Notice Requirements: Detailed process for informing investors about new share issues
• Exercise Period: Specific timeframe for investors to exercise their pro-rata rights
• Governing Law: Express choice of UAE, DIFC, or ADGM jurisdiction
• Termination Conditions: Clear triggers for rights expiration or cancellation
• Execution Block: Signature sections compliant with UAE electronic signature laws

A Pro-rata side letter to Investment agreement differs significantly from a standard Investment Agreement. While both documents deal with investment terms, they serve distinct purposes in UAE's legal framework.

• Scope and Purpose: Pro-rata side letters focus specifically on future investment rights, while Investment Agreements cover the entire investment relationship, including valuation, governance, and initial share transfer
• Timing of Effect: Pro-rata rights activate during future funding rounds, whereas Investment Agreements govern immediate investment terms
• Document Structure: Side letters are shorter, focused documents that supplement the main agreement, while Investment Agreements are comprehensive standalone contracts
• Legal Standing: Under UAE law, side letters function as amendments or additions to the main Investment Agreement, not as independent agreements