UAE’s new family business law to come into effect in January 2023

Dubai: The Ministry of Economy shared key details of the new UAE federal law on family business on Monday.

The Federal Decree Law No. 37 of 2022 is part of the comprehensive Thabat programme that aims to turn 200 family-owned businesses into major companies by 2030, with a market value of over Dh150 billion and annual revenues exceeding Dh18 billion. The Thabat programme was unveiled by Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Ruler of Dubai, and Deputy Prime Minister and Minister of Finance of the UAE, in September this year.

Once the law comes into effect in January 2023, it 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 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,” said Abdullah Bin Ahmed Al Saleh, Undersecretary of the Ministry of Economy.

Al Saleh pointed out that family businesses account for 70 per cent of the private sector companies globally, 60 per cent of the global workforce, and 70 per cent of the global GDP. In the UAE, 90 per cent 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.

“Family-owned companies in the GCC countries are relatively young, ranging in age between 40 to 60 years, and generate an annual revenue of nearly $100 billion, and 50 per cent of the owners of these companies include five shareholders or less.”

What does the law state?

According to the law, a family-owned company is a company established in accordance with the provisions of the Commercial Companies Law in the country, with most of its shares owned by people belonging to one family. It must be registered in the unified family business registry, which is established under the provisions of this law. Some of the prominent provisions of the decree-law are as follows:

• The establishment of a unified register of family businesses under the supervision and follow-up of the Ministry of Economy.

• 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. The law also applies to all commercial companies except for public and solidarity companies.

• 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’. This is due to the fact that disputes are one of the top reasons that lead to the termination of family businesses.

• The law establishes a set of mechanisms for managing the family business, whether by the director or the board of directors.

• 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.

• 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.

• 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.

Al Saleh pointed out that the law forms part of the UAE’s comprehensive efforts to outline a roadmap for the growth and prosperity of family businesses in the country and strengthen their operations in various economic and commercial fields, especially in the sectors of the new economy.

He indicated that the law’s development phase witnessed a synergy and integration of national efforts, as the Ministry of Economy worked alongside the concerned federal and local authorities and coordinated with family businesses in the country during this stage.