Ministry of Economy reviews new family business law underlining its role in enhancing UAE’s position as a hub for family businesses
Law to come into force in January 2023
Abu Dhabi, 28 November 2022
The Ministry of Economy organized a media briefing today in Abu Dhabi to introduce the Federal Decree Law No. 37 of 2022 on family businesses, which forms part of the comprehensive and the long-term program adopted by the UAE government to enhance and raise the family business environment in the country to globally competitive levels. These efforts are set to enhance the sector’s role as a major contributor to national economic growth and a key partner in the UAE’s sustainable development over the next 50 years.
During the media briefing, H.E. Abdullah Bin Ahmed Al Saleh, Undersecretary of the Ministry of Economy, confirmed that the UAE – thanks to the vision and directives of its wise leadership – attaches great importance to the family business sector and is aware of this vital economic model’s significance in sustainable development. H.E added: “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.”
H.E continued: “A number of pioneering initiatives were launched in the last phase to develop the family business sector, most notably the FB-X family business platform and the ‘Thabat’ program. These are specifically designed to support family business investments, help diversify their activities and establish pioneering projects in the areas of the new economy and strengthen their partnerships and opportunities both inside and outside the country.”
Thabat program’s ambitious objectives include turning 200 family-owned businesses into major companies by 2030, with a market value of over AED 150 billion and annual revenues exceeding AED 18 billion.
With regard to the importance of the economic role of family businesses, H.E Al Saleh pointed out that they account for 70% of the private sector companies globally, 60% of the global workforce, and 70% of the global GDP. In the UAE, 90% 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. H.E continued: “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 USD 100 billion, and 50% of the owners of these companies include five shareholders or less.”
H.E. underlined that the new family business law issued by the UAE government is a significant milestone in the development of legislation regulating the ownership and governance of family businesses in the UAE. Upon its entry into force 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 third and fourth are through well-studied mechanisms and procedures that support family businesses’ ability to expand and grow in a sustainable manner, enhance their competitiveness and develop their operations in local and foreign markets, in accordance with the goals and projects of the 50 and the determinants of the UAE Centennial 2071.
The Undersecretary explained that the issuance of the law is a proactive and distinguished step for the UAE at both regional and global levels as it is a pioneering and distinguished legislation in the field. There exists no other legislation regulating the operations of family businesses such as the UAE’s and this is set to consolidate the country’s position as a foremost and preferred destination for family business investments and projects, regionally and globally. He 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.
H.E. Al Saleh further 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. These concerted efforts helped develop the articles of the law through a proactive and flexible approach that foresaw future directions. These efforts relied on comparative studies that focused on developed countries in the family business sector at the Arab and global levels to ensure the creation of a progressive and comprehensive legislation that serves the country’s objectives by establishing a new operational framework for family businesses, ensuring their sustainability and growth.
With regard to the specifics of the law, H.E explained that it defines a family-owned company as 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. The most prominent provisions of the decree-law are the following:
• The establishment of a unified register of family businesses under the supervision and follow-up of the Ministry of Economy, in order to organize the operations of family businesses in the country, and to benefit from all the advantages and flexibility stipulated by the law.
• 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 who decide to register it in the unified register as a family company in accordance with the provisions of the law. The law also applies to all commercial companies except for public and solidarity companies.
• A family-owned business may take any form of company stipulated in the Commercial Companies Law, including the one-person company.
• The establishment of the family business for the family charter, which defines the rules for ownership, goals and values of the family, and mechanisms for evaluating shares and methods of profit distribution.
• 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,” pursuant to a decision by the Minister of Justice or the head of the local judicial authority, as the case may be. This is due to the fact that disputes are one of the top reasons that lead to the termination of family businesses. Therefore, the formation of the committees contributes to settling family business disputes, and their resolution by specialists (judges or arbitrators), while ensuring speed, confidentiality and efficiency in resolving them.
• The law establishes a set of mechanisms for managing the family business, whether by the director or the board of directors, with clarification on the most important terms of reference and obligations of the director and how to dismiss him.
• With regard to the partners’ shares, 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, and he has an exception to that.
• The law clarifies that in the event of bankruptcy or insolvency of one of the partners in the family business, the procedures and controls in force in the insolvency and bankruptcy laws in force in the country must be followed.
• The law grants sufficient flexibility for the family business to have any number of 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. In this case, the family business shall be struck off the unified register, at the request of any interested party or by a decision of the competent authority.
• 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.
H.E Al Saleh concluded the briefing by emphasizing that the national efforts to develop the family business system will continue during the next stage through integrated and qualitative initiatives and policies in order to consolidate the position of the UAE’s business environment as the most attractive and suitable one for family businesses from around the world.