UAE Government issues decree on Family Offices and Businesses
The UAE Government has passed Federal Law No. 37 of 2022 on Family Businesses (“New Law”) which will go in to force three months from the date of publication in the official gazette. The New Law follows in recent steps taken towards providing further support to family businesses across the UAE. The New Law is much welcome legislation that shows the government’s commitment to supporting family business and their organization and recognizing their key role in developing and sustaining the UAE economy as well as their role in being a key provider of employment in the UAE.
The New Law aims to take a holistic view of family businesses in the UAE and their governance and aims to establish best practices for succession of family business, in particular ownership and control from one generation to the next. The New Law also specifically dictates the level of support family business can expect to receive from state institutions in terms of enhancing their participation in the private sector and the UAE economy overall. In addition to the other benefits provided under the New Law, it aims to provide dispute resolution mechanisms through committees in the local Courts who will be responsible for all disputes related to family businesses.
Key Take Aways
a unified register to be maintained by the government for all family businesses;
family business and organizations will be eligible to apply for registration on the register as long as the minimum requirements for family ownership are met in accordance with the New Law;
would be applicable to all companies established under the Federal Companies Law or as per applicable legislation in the Freezone (excluding public joint stock companies and general partnerships);
introduces separate classes of shares with voting rights and profit participation rights as agreed between family members;
provides a mechanism preventing existing shareholders from selling their stake to outsiders.
The New Law discusses among other details, a family charter under the law whereby the family members would be able to agree on important issues such as mechanism for profit sharing and requisite education and qualifications of family members to work in the family businesses. The New Law also encourages family office structures & governance tools such as a family council, family assembly and family constitution to help family businesses thrive.
The New Law is a positive development for family businesses as it aims to work in conjunction with the UAE Federal Companies Law and UAE Federal Personal Status Law (on inheritance matters) to cover the issues which may not have been previously provided for thereunder given the nature of family businesses.
Although the new law may not be able to address all the issues and challenges faced in a typical family business structure, it does tackle a lot of the issues that were perhaps lacking under the existing legislative framework and were previously missing on the objective of ensuring continuity of businesses owned by families in the UAE.