The UAE's new family business law goes live in January 2023

The UAE's new family business law goes live in January 2023 

Image: Provided to Gulf News

In the UAE, 90% of the total number of private companies are family businesses, and their investments cover the sectors of real estate, retail trade, tourism, industry, technology, shipping and logistics services. 

The new family businesses governance law goes into effect early next year, in January. 

The law was announced at the start of 2022 by His Highness the late Sheikh Khalifa bin Zayed Al Nahyan, and will provide the legal framework required to ensure the growth of family businesses, help diversify their activities, and facilitate their continuity and longevity through generations

The new family business law forms part of the nation’s comprehensive efforts to outline a roadmap for the growth and prosperity of family businesses in the country.

There exists no other legislation regulating the operations of family businesses such as the UAE’s and this is set to consolidate the country’s position as a foremost and preferred destination for family business investments and projects, regionally and globally, said Abdullah Bin Ahmed Al Saleh, Undersecretary of the Ministry of Economy, at a media briefing yesterday. 

He pointed out that the UAE - thanks to the vision and directives of its wise leadership - attaches great importance to the family business sector and is aware of this vital economic model’s significance in sustainable development. 

He added: "The family business sector is a major economic growth driver in most countries and they play a fundamental role in establishing new businesses, attracting investments and creating job opportunities in various sectors.”

He continued: "A number of pioneering initiatives were launched in the last phase to develop the family business sector, most notably the FB-X family business platform and the 'Thabat' programme. These are specifically designed to support family business investments, help diversify their activities and establish pioneering projects in the areas of the new economy and strengthen their partnerships and opportunities both inside and outside the country.”

Thabat programme’s ambitious objectives include turning 200 family-owned businesses into major companies by 2030, with a market value of over AED150 billion ($40.84 billion) and annual revenues exceeding AED18 billion. 

With regard to the importance of the economic role of family businesses, Al Saleh pointed out that they account for 70% of the private sector companies globally, 60% of the global workforce, and 70% of the global GDP. In the UAE, 90% of the total number of private companies are family businesses, and their investments cover the sectors of real estate, retail trade, tourism, industry, technology, shipping and logistics services. 

The most prominent provisions of the decree-law are the following:

  • The establishment of a unified register of family businesses under the supervision and follow-up of the Ministry of Economy, in order to organise the operations of family businesses in the country, and to benefit from all the advantages and flexibility stipulated by the law.
  • The law applies to all family-owned companies that exist in the country, and the owners who own the majority of the shares in the family business who decide to register it in the unified register as a family company in accordance with the provisions of the law. The law also applies to all commercial companies except for public and solidarity companies.
  • A family-owned business may take any form of company stipulated in the Commercial Companies Law, including the one-person company.
  • The establishment of the family business for the family charter, which defines the rules for ownership, goals and values of the family, and mechanisms for evaluating shares and methods of profit distribution.
  • The law regulates the ownership of family businesses by defining their capital, how the partner disposes of his share, and the mechanism for waiving it, in addition to regulating the right of redemption and evaluation of shares and their categories, as well as the family company's purchase of its shares.
  • Cancels the restriction on the maximum number of shareholders in the family company when it is in the form of a limited liability company.
  • Formation of a committee in each emirate called the “Family Business Dispute Resolution Committee,” pursuant to a decision by the Minister of Justice or the head of the local judicial authority, as the case may be. This is due to the fact that disputes are one of the top reasons that lead to the termination of family businesses. Therefore, the formation of the committees contributes to settling family business disputes, and their resolution by specialists (judges or arbitrators), while ensuring speed, confidentiality and efficiency in resolving them.
  • The law establishes a set of mechanisms for managing the family business, whether by the director or the board of directors, with clarification on the most important terms of reference and obligations of the director and how to dismiss him.
  • With regard to the partners' shares, the law clarifies that if any of the partners desires to dispose of his share in the family business, he must present it to the rest of the family partners, and he has an exception to that.
  • The law clarifies that in the event of bankruptcy or insolvency of one of the partners in the family business, the procedures and controls in force in the insolvency and bankruptcy laws in force in the country must be followed.
  • The law grants sufficient flexibility for the family business to have any number of partners.
  • The family business must distribute a part of its annual profits at the end of each fiscal year to its partners, according to the proportion of each partner's share in the family business, unless the articles of incorporation stipulate otherwise.
  • Removes the ‘family business’ status of a company if people from outside the family own the majority of its shares and have the right to vote in accordance with the provisions of the law. In this case, the family business shall be struck off the unified register, at the request of any interested party or by a decision of the competent authority.
  • The law states that a family business does not cease to exist due to the death, interdiction, bankruptcy or insolvency of one of the partners.
  • The law grants the heir the right to remain in the family business as a partner as much as his inherited share or dispose of his share.
  • Shares in the family business may not be assigned except in accordance with the conditions stipulated in the law.
  • A partner in the family business has the priority right to buy the shares of the other partners, in the event of the bankruptcy of one of the fellow partners.

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