The UAE is all set to introduce a new law on family businesses in January 2023. The law will introduce flexibilities for families to manage their own affairs while also organising the administration of their businesses. As stated by the Undersecretary of the Ministry of Economy, the Federal Decree law No. 37 of 2022 on family businesses was introduced by the UAE government to enhance and raise the family business environment in the country, which would further allow them to compete at global levels.
The law in relation to family businesses are a part of government efforts to support family businesses, in recognition of their importance in driving the economic transformation of the UAE through the contributions that large family businesses make in boosting GDP growth and international growth.
For any company to be incorporated as a family company under the Companies Law, should fulfil the following criteria-
Majority of shares are owned by persons belonging to the same family
Registered in a special register of family companies at the Ministry of Economy
As per the law, a company loses its family company status if partners from among family members cease to be majority shareholders. With this, the company shall also lose its benefits under the law. The new family business law applies to every existing family company incorporated in the UAE. However, the law does provide exception to public joint stock companies and general partnerships. Other features of the bill are as follows-
The law provides family companies with a right to adopt a charter that regulates the governance of family affairs relating to the family company.
The charter shall include conditions, standards, and qualifications to be met for family members to be considered for employment with the family company.
The law provides for mechanisms to regulate family governance and the family’s relationship in relation to the company through the creation of various bodies such as family assembly, family council and family office.
No specific maximum limit has been set on the number of partners in a family business. It gives members the right to agree, in the company’s MOA and charter.
The law has now ensured that the shares in the family company shall remain within the family. The law provides strict controls and procedures on the disposal of shares to non-family.
The law provides the right to a family company to purchase its own shares. The same right was previously restricted to joint stock companies and in exceptional cases only.
The law provides for additional means to protect family companies and preserve continuity of ownership, while also allowing family member the flexibility to exit the company.
As per the article 19 of the law, resolving disputes which arise between family members and partners, and between them and the family company, has now become more flexible. Accordingly, it now allows for a conciliation process to be agreed upon, in the memorandum of association or charter, through a board made up of individuals, partners or third parties, for the resolution of disputes. In the event that the parties do not agree on a means of conflict resolution or if the board fails, through conciliation, to reach a solution within three months or during any additional period agreed upon by the parties or if the dispute is not referred to the board, the dispute shall be decided by the dispute resolution committee, within a period of three months. This period may be extended upon a reasoned request from the parties concerned.
Moving on, family enterprises play a vital part in the UAE economy, hence accounting for some of the country’s largest conglomerates. Family firms account for 70% of worldwide private sector, 60% of global labour, 70% of global GDP. In the GCC (Gulf Cooperative Countries), family-owned countries are relatively young, with just 40-60 years of existence. these companies generate an annual revenue of nearly $100 billion, and 50% of the owners of these companies include five or less shareholders.
Additionally, the family law will allow to diversify a company’s operations, establish ventures in modern economic areas, and strengthen partnerships both inside and outside country. With such positive features, the introduction of the family company law will contribute majorly to country’s GDP, but also will be a driver for new businesses into this arena.
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