The UAE Government, on October 10, 2022, issued Decree Law No. 37 on Family Businesses and published it in the official gazette. The New Law shall come into force on January 10, 2023, three months from the date of publication.
The issuance of this new legislation has been seen as a much-welcome move from the government reiterating the nation’s commitment to supporting family organizations and businesses. The new law recognizes the vital role of family businesses and offices in the sustainable development of the UAE economy besides being the most significant contributor to employment generation in the UAE
Objectives of the New Decree Law
This Decree-Law is being enforced to establish a comprehensive legal framework to regulate the ownership and governance of family businesses, make the legal framework accessible to all family businesses and facilitate their success across generations, ensure family business continuity, promote the role of the private sector in the growth of the national economy and community contribution, stipulate measures to resolve family business-related disputes through committees in the local courts and enhance the contribution of family businesses to the economic competitiveness of the emirates.
The New Decree Law also focuses on establishing best practices for a succession of family businesses, in terms of ownership and control, over future generations. The New Law also provides an increased level of support for family businesses from the state machinery.
Key Features of the New Decree Law
- Stipulated the requirement of maintaining a unified register by the government for all family businesses
- Stipulated eligibility requirements for the application of registration on the register for the family office in UAE
- Stipulated applicability of the new law for all companies established under the Federal Companies Law or applicable legislation in the Freezone, excluding public joint stock companies and general partnership companies
- Introduced two separate categories of shares with voting rights and profit participation rights as agreed between family members
- Established regulation requirements on share transfer between members of the same family and between others from outside the family
- Provided measures to prevent existing shareholders from selling their stakes to outsiders
- Introduced a family charter under the new law to enable family members to agree on important issues including profit-sharing methods and requisite education, training, and qualification requirements of family members
- Encouraged and outlined various tools for family office structures and governance including family council, family assembly, and family constitution to help family businesses thrive
- Stipulated the establishment of a committee in each Emirate called the “Committee for the Resolution of Family Business Disputes” by a decision of the Minister of Justice or the head of the local judicial authority
- Specified the composition and the procedure for the settlement of disputes of family businesses, chaired by a judge and assisted by two experienced and competent persons in the legal, financial, and family business management fields
- Regulated insolvency and bankruptcy of family member shareholders
What HR procedures do I contract out?
The New Law is seen as a positive development in terms of family office regulations in the UAE as it includes issues not previously addressed. The new law may not be the panacea for all issues related to family businesses and offices however, it does address the majority of the issues and associated challenges under the existing legislative framework that was previously addressed inadequately on the objective of ensuring the continuity of family businesses and offices in the UAE.
