Recent Developments in Family Businesses: New Legal Framework in the UAE
In the Middle East, family businesses of all sizes have been dominating the region for many years even though most of the jurisdictions here lacked the proper regulations. To address this point, the United Arab Emirates (“UAE”) took the approach of seeking to fill this gap by issuing Decree-Law No. 37 of 2022 (“Family Business Law”) to begin to regulate family business. GLA & Co sees this as a good initiative for the reform of the current legislative scene that missed out on the regulation of the same.
The Decree defines “Family Business” as each company that is established in accordance with the provisions of the Federal Law No. 32 of 2021 on Commercial Companies (the “Companies Law”), and most of its shares are owned by people belonging to one family and is registered in the unified registry of family businesses as a Family Business. We are still waiting on the definition of one family to be further defined in the implementing regulations still be enacted by the UAE Cabinet as mentioned in the decree. The Family Business Law aims to
- establish a comprehensive legal framework to regulate the ownership and governance of Family Businesses in the UAE and facilitate passing them on between generations;
- support the continuity of Family Businesses and enhance the role of the private sector in economic growth and societal contribution to the UAE;
- provide the proper mechanisms for resolving disputes related to Family Businesses; and
- enhance the contribution of Family Businesses to the UAE’s economy and its competitiveness.
Evidently, the UAE government is realizing the important role of Family Businesses in the region and is setting objectives that offer the needed support for such businesses to thrive in such a dynamic market. Even though Family Businesses may take the form of any type of company listed under the Companies Law, the reality is that there is no limit to the number of shareholders in Family Businesses. It must be further noted that the Family Business Law does not apply to public shareholding and partnership companies.
To address the disagreements that arise between family members in Family Businesses on various matters, the decree stipulated a new mechanism called “Family Charter”, which is designed to set out the conditions related to the ownership, objectives, morals, mechanisms of evaluating shares and dividends, etc. The charter could also include the minimum qualifications and expertise required for the shareholders and individuals of the family working in the Family Business and its affiliates. We find this approach to be very useful in the future because it regulates important matters regarding each Family Business separately alongside the memorandum of association, which do not resolve to a large extent all family disputes within a business.
The Family Business Law also addresses the benefits and incentives that are to be granted to Family Businesses, but it is yet unclear as there are not many details available in the law. The Family Business Law provides that the UAE Cabinet will issue the implementing regulations of the Family Business Law which will specify the benefits and incentives granted to the registered Family Businesses. It was further added that the competent authority in each Emirate may provide other benefits and incentives in accordance with the controls and conditions set by the UAE Cabinet.
We are yet to see if the UAE Cabinet will issue a comprehensive and detailed set of benefits and incentives in addition to the controls that should regulate it.
Furthermore, the Family Business Law took an interesting approach to tackling Family Business disputes. It is stated that a “Family Business Dispute Resolution Committee” shall be established to look into Family Business disputes and issue its decision. The committee is entitled to take all the necessary and precautionary measures to ensure the continuity of the Family Business throughout the duration of the dispute. On the other hand, the binding nature of the committee’s decisions remains vague, as the Family Business Law is silent on this matter. We certainly believe that upon the formation of such committee, more decisions will be issued further regulating the matter and providing more informative details.
With that being said, it is essential to have a legal counsel when registering your business as a Family Business to ensure compliance with the requirements and regulations and to properly advise on various legal aspects regarding the business. It will also be interesting to see if similar legal frameworks for Family Businesses develop in some of the other key jurisdictions such as KSA, Kuwait and Qatar.
GLA & Company’s lawyers and legal consultants have extensive expertise across the region and are without a doubt qualified to advise businesses to which Family Business Law shall be applicable.