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.
By issuing this law, the UAE government underscored the importance of family-owned businesses as key drivers of the UAE economy, accounting for a substantial number of jobs, while boosting economic activity through their supply chain ecosystems.
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 though successive generations and strengthen the role of the private sector in driving economic growth and social development. It makes the UAE an attractive investment destination for family-owned businesses and family offices from around the world.
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.
Scope of Application
The provisions of the Law apply to:
- any Family Business existing in the UAE at the time of its entry into force, or those established after the commencement of the Law;
- any Family Business established in the free zones; and
- any Family Business established within the scope of any of the emirates of the UAE, unless there is a local legislation in the same emirate regulating these companies, in which case the Law will be applicable only to some areas that are not regulated.
Joint Stock Company and Partnerships are excluded from the scope of application of this Law.
Family Businesses are required to be registered in the unified register of Family Businesses that is established by the Ministry of Economy in accordance with the provisions of the Law (Register). This is done in coordination with a local competent authority that may govern the business in a specific Emirate or a Free Zone.
Family Charter
In addition to the mandatory requirement of having memorandum and articles of association (Memorandum), Family Businesses must also have a family charter to regulate the governance of family affairs in context of the business, and the family’s relationship with the Family Business.
A copy of this family charter needs to be deposited in the Register. In the event of a conflict between the Memorandum and the family charter, the provisions of the Memorandum shall prevail.
Classes of Shares
Two different classes of shares can be issued by a Family Business:
- Share (A), which entitles its owner to obtain profits and vote in the company general assembly; and
- Share (B), which entitles its owner to exclusively obtain profits without the right to vote.
The Family Business may (with the approval of the partners who represent the majority of the share capital) purchase no more than 30% of its share capital in two scenarios: either reduction of the capital or purchase or redemption of the shares of one of the partners.
Management
The Family Business needs to be managed by a Director appointed by the Memorandum.
In the absence of such a provision, the Director may be appointed by a subsequent decision of partners/members who collectively own at least 51% of the shares. The Director may be one or more persons and can also be a legal person. However, if there is more than one Director, at least one of them should be a natural person.
The Memorandum of the Family Business with limited liability may stipulate the formation of a Board of Directors (BOD) to manage the Family Business. In this case, the Memorandum will govern the rules, controls and conditions governing the BOD, its powers, term of membership, salaries of the members, appointment and dismissal, the mechanism for making the decisions, etc. The BOD will have a Chairman who will be the representative of the BOD but will not have casting vote.
Disputes
The Law gives Family Businesses the option to choose the most appropriate bespoke mechanisms for the settlement of any disputes, which include a special committee, namely “Family Business Dispute Resolution Committee”, in each Emirate, which can be established by the Law, the courts of the financial free zones or 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 UAE. Moreover, Family Businesses may also be able to benefit from incentives and concessions that may be provided occasionally, at the discretion of the Cabinet.
Dubai Centre for Family Businesses
Dubai Centre for Family Businesses (Centre) 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 program in partnership with the Family Firm Institute (FFI), a leading institute for family business research, studies and thought leadership.
This article has been written by the experts at OH LLP.
*It reflects the personal opinion of the law firm and does not constitute legal advice*
We at OHLLP understand that each Family Business’ requirements are different and can provide your Family Business with dedicated and personalized legal opinion. Do not hesitate to contact us for further enquiries: info@ohllp.com
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