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Family businesses are a cornerstone of the United Arab Emirates’ economy, contributing significantly to its growth and stability. However, with multiple generations involved, managing these businesses can become complex, especially regarding ownership, governance, and succession. The Family Business Law in UAE addresses these intricacies by providing a comprehensive legal framework tailored to the unique needs of such enterprises. This blog provides a comprehensive overview of the key aspects.
Federal Decree by Law No. (37) of 2022
The family business law in UAE aims to create a robust legal framework that ensures the continuity and governance of family businesses across generations. It supports the growth of the private sector, enhances the economic contribution of family businesses, and provides clear mechanisms for dispute resolution.
The scope of this law is broad and inclusive, covering various types of family businesses in Dubai. Here’s a closer look at its application:
Who It Applies To:
The law applies to any family business existing in Dubai when the law came into force, as well as those established afterward. A company qualifies as a family business if most of its shares or stakes are owned by individuals from a single family.
Forms of Business:
Family businesses can take any form of company stipulated in the UAE’s Companies Law, including Limited Liability Companies (LLCs) and One-Person Companies (OPCs). However, the law specifically excludes Joint Stock Companies and Partnership Companies from its scope.
Free Zones:
Family businesses located in Dubai’s Free Zones are also subject to this law, provided its provisions do not conflict with the specific laws and regulations of the Free Zones.
What should be prioritized?
The law introduces several important legal concepts that family business owners should know. Let’s break down some of the most critical ones:
1. The Family Business Register
One of the law’s cornerstone provisions is the creation of a Family Business Register. This register is maintained by the Ministry of Economy, in coordination with local authorities, and serves as an official record of all family businesses operating under this law. Registration is mandatory for businesses wishing to avail themselves of the protections and benefits provided by the law.
The process is straightforward: once a family business meets the required terms and conditions. It must register to gain official recognition and the accompanying legal advantages. This step is crucial in ensuring that the business is governed by the rules set out in the law.
2. Articles of Association and Family Charter
The Articles of Association and Family Charter are two key documents that govern the internal workings of a family business. The Articles of Association outline the company’s structure, ownership, and operational guidelines. At the same time, the Family Charter covers aspects related to family governance, such as ownership rules, profit distribution, and the resolution of family disputes.
Importantly, if there’s a conflict between the two documents, the Articles of Association will take precedence. This ensures that the business’s operational integrity is maintained, even if family disagreements arise.
3. Ownership and Share Transfer
The law provides specific guidelines on the ownership and transfer of shares within the family business. For example, if a partner wishes to sell their shares, they must first offer them to other family members. This provision helps keep ownership within the family, maintaining the business’s status as a family enterprise.
Additionally, the law allows for the creation of different categories of shares. Such as shares with voting rights (Category A) and shares without voting rights but with profit entitlements (Category B). This flexibility allows family businesses to tailor their ownership structure to meet their specific needs.
4. Management and Governance
The management of a family business under this law can be handled by one or more directors, who may be family members or external professionals. The law also allows for the formation of a board of directors (BOD) to oversee the business’s operations, adding another layer of governance and ensuring that the company is run effectively.
Directors and BOD members are required to act in the best interests of the business, exercising care and diligence. This includes prioritizing the business’s well-being over personal interests, managing assets responsibly, and ensuring transparent communication with shareholders.
5. Dispute Resolution
Family disputes can be detrimental to a business’s stability and success. Recognizing this, the law establishes mechanisms for dispute resolution, including the option to refer disputes to a Family Business Dispute Settlement Committee. This committee is empowered to resolve conflicts quickly, preventing them from escalating and affecting the business’s operations.
Alternatively, disputes can be referred to arbitration or resolved through the courts in the financial-free zones, depending on the agreement between the parties involved.
Conclusion
The implementation of Federal Decree by Law No. (37) of 2022 marks a pivotal moment in strengthening the framework surrounding family-run enterprises in the UAE. By introducing mechanisms for governance, succession planning, and dispute resolution. The Family Business Law in UAE ensures long-term stability and legal clarity for businesses rooted in familial ties. Whether your enterprise operates within mainland Dubai or a Free Zone. Understanding and complying with this law is essential for safeguarding both legacy and growth. In short, this law is designed to protect the interests of the family and the business. For further guidance, contact a reputable law firm in Dubai that specialises in business law.
Family businesses are a cornerstone of the United Arab Emirates’ economy, contributing significantly to its growth and stability. However, with multiple generations involved, managing these businesses can become complex, especially regarding ownership, governance, and succession. The Family Business Law in UAE addresses these intricacies by providing a comprehensive legal framework tailored to the unique needs of such enterprises. This blog provides a comprehensive overview of the key aspects.
Federal Decree by Law No. (37) of 2022
The family business law in UAE aims to create a robust legal framework that ensures the continuity and governance of family businesses across generations. It supports the growth of the private sector, enhances the economic contribution of family businesses, and provides clear mechanisms for dispute resolution.
The scope of this law is broad and inclusive, covering various types of family businesses in Dubai. Here’s a closer look at its application:
Who It Applies To:
The law applies to any family business existing in Dubai when the law came into force, as well as those established afterward. A company qualifies as a family business if most of its shares or stakes are owned by individuals from a single family.
Forms of Business:
Family businesses can take any form of company stipulated in the UAE’s Companies Law, including Limited Liability Companies (LLCs) and One-Person Companies (OPCs). However, the law specifically excludes Joint Stock Companies and Partnership Companies from its scope.
Free Zones:
Family businesses located in Dubai’s Free Zones are also subject to this law, provided its provisions do not conflict with the specific laws and regulations of the Free Zones.
What should be prioritized?
The law introduces several important legal concepts that family business owners should know. Let’s break down some of the most critical ones:
1. The Family Business Register
One of the law’s cornerstone provisions is the creation of a Family Business Register. This register is maintained by the Ministry of Economy, in coordination with local authorities, and serves as an official record of all family businesses operating under this law. Registration is mandatory for businesses wishing to avail themselves of the protections and benefits provided by the law.
The process is straightforward: once a family business meets the required terms and conditions. It must register to gain official recognition and the accompanying legal advantages. This step is crucial in ensuring that the business is governed by the rules set out in the law.
2. Articles of Association and Family Charter
The Articles of Association and Family Charter are two key documents that govern the internal workings of a family business. The Articles of Association outline the company’s structure, ownership, and operational guidelines. At the same time, the Family Charter covers aspects related to family governance, such as ownership rules, profit distribution, and the resolution of family disputes.
Importantly, if there’s a conflict between the two documents, the Articles of Association will take precedence. This ensures that the business’s operational integrity is maintained, even if family disagreements arise.
3. Ownership and Share Transfer
The law provides specific guidelines on the ownership and transfer of shares within the family business. For example, if a partner wishes to sell their shares, they must first offer them to other family members. This provision helps keep ownership within the family, maintaining the business’s status as a family enterprise.
Additionally, the law allows for the creation of different categories of shares. Such as shares with voting rights (Category A) and shares without voting rights but with profit entitlements (Category B). This flexibility allows family businesses to tailor their ownership structure to meet their specific needs.
Conclusion
The implementation of Federal Decree by Law No. (37) of 2022 marks a pivotal moment in strengthening the framework surrounding family-run enterprises in the UAE. By introducing mechanisms for governance, succession planning, and dispute resolution. The Family Business Law in UAE ensures long-term stability and legal clarity for businesses rooted in familial ties. Whether your enterprise operates within mainland Dubai or a Free Zone. Understanding and complying with this law is essential for safeguarding both legacy and growth. In short, this law is designed to protect the interests of the family and the business. For further guidance, contact a reputable law firm in Dubai that specialises in business law.
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