Law Governing Family Owned Businesses in Abu Dubai -An Overview
His Highness Sheikh Khalifa bin Zayed Al Nahyan, President of Abu Dhabi, has issued a new family business ownership governance law in Abu Dhabi (“New Law”) that increases the sector’s economic contribution and enables succession. The new Law permits family company owners to prohibit the sale of shares or dividends to persons or businesses outside the family. It needs prior agreement from family partners before a shareholder sells their separate ownership holding to a non-family member. To avoid expropriation, family business owners may also create family-owned shares with weighted voting rights and prevent family-owned firms from being pledged as encumbered assets.
Applicability of New Law
Owners or co-founders of family-owned businesses can opt for a new law governing family owned businesses by requesting the Abu Dhabi Department of Economic Development (ADDED), which will release the new legislation’s executive and administrative regulations starting in March 2022. Non-family members who possess more than 40% of a family owned business are excluded from the Act.
Why is it necessary to have a Law Governing Family Owned Business?
Many of the GCC’s prominent corporations are family-owned, as is widely known. Such businesses employ many people in their communities and are crucial to the economic success or failure of the nations in which they operate.
In most family enterprises, there will be a significant number of family stockholders, each with their own set of interests and goals. A family feud might easily cross over into the business due to this. When seeking to obtain equity or debt capital or confronting an internal or external disagreement, family firms frequently try to repair problems at the wrong moment, when their interests are elsewhere. By enacting the law governing family owned businesses, Abu Dubai hopes to provide a legal framework that enables family enterprises to confront specific challenges.
Purpose of New Law
It intends to improve the legal environment for family-owned businesses by adopting a more flexible and sustainable economic model following the best international governance standards. The law also seeks to increase the contribution of family companies to the economy’s diversity and growth.
Key highlights of the New Law
The new family company ownership governance law allows family business owners to:
1) Restrict the sale of shares or dividends to persons or businesses outside the family.
2) Family partners must require prior consent before a shareholder sells a non-family member’s stock investment.
3) Make family-owned shares with weighted voting rights available.
4) Prevent family-owned companies from being pledged as encumbered assets to prevent expropriation.
Resolution of Dispute
Any issues originating from a Family Property Contract must be resolved by a special judicial committee comprising of specialists in legal, financial, and family management topics, with the secrecy and privacy of any dispute, as well as time-efficient processes for their settlement guaranteed.
The Law also repeals any provision in other law that conflicts with its requirements.
Law governing Family Owned Businesses in Dubai
The Ruler of Dubai enacted Law No. (9) of 2020 Regulating Family Ownership (the “Law”) on August 13, 2020. The law allows family members to enter into a legally binding and notarized contract (the “Family Property Contract”) that provides for the collective ownership and administration of family-owned property for the benefit of the family members who are party to the Family Property Contract, as well as their successors.
Option to customize terms of Family Property Contract
The law allows family members to customize the terms of the Family Property Contract as they see fit. It also will enable them to address various aspects of the family property’s collective enjoyment, such as providing specific proportionate ownership provisions relating to income and capital rights and administration and management.
The Family Property Contract would outline the terms of reference for one or more managers, clauses about the managers’ monitoring by a board of directors, and their hiring and removal.
Method of acquisition of Interest in family property
The Law also allows for the acquisition of interests in the underlying family property by transferring an individual family member’s rights in the Family Property Contract to heirs via inheritance or through particular rules dealing with bankruptcy and third-party disposal.
Resolution of Disputes over Family Property Contract in Dubai
Conflicts over Family Property Contracts are resolved by a special judicial committee comprising legal, financial, and family management professionals, assuring secrecy and privacy of conflicts while resolving them quickly. The Law also repeals any provision in other laws that conflicts with it.
How HHS Lawyers and Legal Consultants may assist you?
Specialized Family Business Practice at HHS Lawyers and Legal Consultants helps families in business protect their assets and plan for the future sustainability of their businesses. In the area, our Company, Family Business Practice, offers solutions for preserving wealth for large, complicated businesses. Please let us know if we can be of any service in this area, and we would be pleased to assist you.
Disclaimer: The purpose of this article is to provide an overview of the subject. This article was produced with great care to ensure correctness. Because individual circumstances may vary, it is not meant to give legal advice or predict a specific conclusion. Readers considering legal action should seek legal advice from an experienced attorney to learn about current laws and how they may apply to their case.