Beginning in January 2023, the Federal Decree-Law No. 37 of 2022 on family businesses (the “new family business law”) will take effect. This law’s goal is to increase the economic impact of family businesses on the nation and encourage more companies to locate their operations in the United Arab Emirates. The UAE government passed the legislation to improve and boost the family business climate in the nation to levels that are competitive with those found outside.
After the legislation is put into force in January 2023, it will provide family companies with the legal foundation they need to expand, diversify their operations, and support generational continuity and longevity. The family business sector is a critical economic development engine in most nations. They play a crucial role in launching new enterprises, luring investments, and generating employment opportunities in various industries.
New Family Business Law in the UAE: What Is It?
According to the legislation, a family company is a business formed according to the Companies Law and listed in the Ministry of Economy’s special register of family businesses. Most of the company’s shares are held by members of the same family.
When family members no longer make up most of a firm’s partners, the company no longer qualifies as a family business and loses its legal advantages. Except for public joint stock companies and general partnerships, the legislation applies to all current family businesses and any new businesses formed in the UAE. In this respect, the law does not establish a new form for the family business since family businesses will continue to use the same formats currently in use in the United Arab Emirates under the Commercial Companies Law or in the free zones following their legal frameworks.
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Salient Features of the New Family Business Law in the UAE
The law defines a family-owned business as one whose majority of shares are held by members of a single family, which was created in line with the country’s Commercial Companies Law. It is required to be listed in the unified family business registration, which is created following the rules of this legislation. The following list includes some of the decree-most law’s notable provisions:
- The creation of a unified registry of family company will be governed and monitored by the Ministry of Economy.
- All family-owned businesses in the nation are subject to the legislation, as are the owners who own most of the company’s stock. Except for public and solidarity firms, all commercial enterprises must abide by the law.
- The legislation controls the ownership of family enterprises by defining their capital, how the partner sells his share and the procedure for waiving it. It also governs the right of redemption, the appraisal of shares and their categories, and the family business’s acquisition of its shares.
- When the family business is organized as a limited liability company, the limitation on the maximum number of shareholders is lifted.
- Establishment of “Family Business Dispute Resolution Committee” in each emirate. It is because conflicts are one of the main factors in family companies closing down.
- The legislation lays forth several procedures for controlling the family company, whether by the director or the board of directors.
- The legislation clarifies that each partner must notify the other family partners if he wants to sell his interest in the family firm.
- Unless the articles of incorporation provide otherwise, the family company shall, after each fiscal year, pay a portion of its yearly earnings to its partners following each partner’s percentage ownership in the family business.
- Removal of a company’s identity as a “family business” if the majority of its shares are owned by non-family members, who also have the legal right to vote.
- According to the law, a family company does not end owing to one of the partners’ death, imprisonment, bankruptcy, or insolvency.
- Under the law, the heir has the option to sell his share or stay on as a partner in the family firm up to the amount of his inherited share.
- Shares in the family company cannot be transferred unless specific requirements are met in the legislation.
- Should one of the other partners in the family firm file for bankruptcy, the other partner has the first right of refusal to purchase their shares.
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Lawyers in Dubai UAE will help you
The New Family Business Law is a part of the UAE’s extensive efforts to lay out a roadmap for the development and profitability of family companies in the UAE and to boost their operations in various economic and commercial spheres, particularly in those related to the new economy. The Ministry of Economy collaborated with the relevant federal and municipal agencies, and family companies in the UAE, during the beginning phase of the legislation, resulting in a harmony and coordination of national efforts.
For more information about the new family Business Law in the UAE, please don’t hesitate to contact our Lawyers in Dubai UAE.
