If you are associated with a family office or family business in the UAE, here’s what you need to about the new Family Business Law which came into effect in January 2023
UAE Federal Decree Law No.37 of 2022 concerning the Family Businesses (the “Law”) was issued in October 2022 and came into force in January 2023. This Law highlights the United Arab Emirates (UAE) government’s focus on the family business sector.
UAE family businesses are key drivers of its economy, accounting for a substantial number of jobs, and boosting economic activity through their supply chain ecosystems. According to the UAE Ministry of Economy, up to 90% of private companies in the UAE are family businesses, employing more than 70% of the sector’s workforce and contributing about 40% to the country’s GDP.
The new Family Business Law has been introduced with the goal to transform the UAE into an attractive destination for family enterprises from around the world, encouraging them to invest and open single and multi family offices in the country.
The Law aims to lay out a comprehensive legal framework to:
- regulate the ownership and governance of family-owned businesses in the UAE;
- support their continuity through successive generations; and
- enhance the UAE private sector’s role in economic growth and societal contribution to the country.
Family Businesses in the UAE
As per the Law, a “Family Business” is any company established in accordance with the provisions of the UAE Companies Law (Federal Decree by Law No. (32) of 2021), provided most of its shares or stakes are owned by people belonging to a single family. However, joint stock companies and partnership companies are excluded from the scope of application of the Law.
New UAE Family Business Law: Main Provisions
- The provisions of this Law apply to any Family Business either existing in UAE at the time the Law came into force or a Family Business established after the commencement of the Law, both in the mainland or in any of the free zones in UAE.
- The Law is applicable to Family Businesses in Dubai or any other emirate of UAE and/or in any free zone in UAE, as long as the provisions of the Law do not conflict with the laws, regulations and legislation of the emirate and/or free zone, which govern family business regulation, organisation, incorporation or registration, and all related matters.
- Family Businesses need to be registered in the unified register of Family Businesses established by the Ministry of Economy in accordance with the provisions of the Law (“Register”). This has to be done in coordination with a local competent authority which governs the business in a specific emirate or a UAE free zone.
- It is mandatory for family businesses to draw up a Memorandum of Association (MoA). In addition, they also have the option of agreeing on a family charter to structure family business governance and regulate the family’s relationship with the business. A copy of this family charter may be deposited in the Register. The family charter allows Family Business management to be flexible. However, in the event of a conflict between the MoA and the family charter, the provisions of the MoA will apply.
- The Law has detailed provisions regarding Family Business management, shareholders’ patterns, their rights and transfer of shares to ensure smooth family succession and uphold the rights and duties of the directors. Some important provisions include:
- no limit on the number of shareholders in the Family Business
- right of shareholders to transfer and assign shares, with or without consideration, to their spouse or first-degree relative, without offering the same to the remaining partners, unless otherwise provided by the Articles of Association of the company
- buy-back of up to 30% of a family firm’s shares to facilitate the exit of family members
- a prescribed exit mechanism
- The Law gives Family Businesses the option to choose the appropriate bespoke mechanisms for dispute resolution and settlement. Family Business Dispute Resolution Committee, a special committee, will be established in each emirate by the Law, the courts of financial free zones or by arbitration.
- The Law gives a viable option and a supportive atmosphere to Family Businesses and family offices across the world to start their business safely in the UAE. The Family Businesses may also benefit from incentives and concessions that may be provided from time to time, at the discretion of the Cabinet.
UAE Family Business Growth Initiatives
The UAE government recently launched the Thabat Venture Builder program that aims to double the contributions of Family Businesses to the UAE’s gross domestic product to USD320 billion (AED 1.18 trillion) by 2032 by preparing them for the future economy.
Similarly, the Dubai Centre for Family Businesses was officially launched under the umbrella of Dubai Chambers in May 2023. The Centre is entrusted with ensuring the growth and sustainability of Family Businesses in Dubai and has commenced its activities with the launch of the Governance Series, a series of educational sessions focusing on key issues influencing the success of family businesses to empower family businesses in Dubai. The Centre recently announced the launch of a new family business advisory certificate programme in partnership with the Family Firm Institute (FFI), a leading institute for family business research, studies and thought leadership.
*The article reflects the personal opinion of the law firm and does not constitute legal advice*
At OH LLP, we understand that every Family Business has different requirements. Our experienced legal consultants in Dubai and Abu Dhabi can provide your Family Business or family office with personalized legal advice and legal services tailored to meet your needs.
To speak with one of our legal experts, get in touch on: info@ohllp.com or +97124110619
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