Khaleej Times, Thursday, Dec 01, 2022 | Jamadi Al Awwal 7, 1444
New UAE family business law explained: How it helps resolve disputes, distribute shares
Emirates:
A new law on family businesses will come into force in January 2023. Essam Al
Tamimi, a legal expert and Essam Al Tamim, Founder and Chairman, Al Tamimi &
Company says the law provides the necessary flexibility for families to manage
their own affairs and organise the administration of their business.
“To this end, the law regulates several key matters and provides the assurance
of continuity and stability of family companies in the UAE,” he told Khaleej
Times.
Abdullah Bin Ahmed Al Saleh, Undersecretary of the Ministry of Economy, said
during a media briefing on Monday that the Federal Decree Law No. 37 of 2022 on
family businesses was introduced by the UAE government to enhance and raise the
family business environment in the country to globally competitive levels.
The law comes as part of government efforts to support family businesses, in
recognition of their importance in driving the economic transformation of the
UAE through the contributions that large family businesses make to boosting GDP
growth and international trade.
What is a family company?
Al Tamim has explained that the law defines a family company as a company
incorporated under the Companies Law whose majority of shares are owned by
persons belonging to the same family and is registered in a special register of
family companies at the Ministry of Economy.
“Under the law, a company loses its family company status if the partners from
among family members cease to be majority shareholders, and with that the
company loses its benefits under the law,” he said.
“The law applies to all existing family companies or thereafter incorporated in
the UAE, with the exception of public joint stock companies and general
partnerships. In this regard the law does not create a new form for the family
company as family companies will still take the same forms already in place in
the UAE under the Commercial Companies Law or in the free zones as per their own
legislations.”
According to the expert, notwithstanding that the law confirms that family
companies are subject to the Companies Law, it provides that this will only
apply where there is no special provision in the law.
“Where a special provision exists, such provision shall apply and not the
provisions of the Companies Law,” Al Tamim explains.
“As long as a company comes under the definition of a family company, then it
enjoys the unique benefits, incentives, and exclusions available under the Law
or such decisions as the Cabinet or the competent authority may issue in
implementation of its provisions.”
The law gives family companies the right to adopt a charter that regulates the
governance of family affairs relating to the family company.
The law further allows a family charter to include conditions, standards, and
qualifications to be met for family members to be considered for employment with
the family company.
The law also provided for other mechanisms to regulate family governance and the
family’s relationship in relation to the company through the creation of various
bodies such as the family assembly, the family council, and the family office,
each of which is responsible for specific tasks.
Law does not set maximum limit on number of partners in family company
Unlike the Commercial Companies Law, the new law does not set a maximum limit on
the number of partners in a family company and gives family members the right to
agree, in the memorandum of association and charter, on equal or different
rights for the partners with respect to dividends, management, and other rights
and benefits.
A key provision of the Law permits different classes of shares. For example,
shares in the company may be divided into class (a) shares and class (b) shares,
according to the partners’ wishes, such that class (a) shares give its holders
dividend and voting rights while holders of class (b) shares have a right to
receive dividends but not to vote. This, of course, does not detract from the
partners’ rights to regulate profit distribution and allocation, as mentioned
above.
In order to protect the family enterprise and to ensure that the shares in the
family company remain within the family, the Law provides strict controls and
procedures on the disposal of shares to non-family members, whereby the partners
from among family members are given a preemption right in addition to a right of
redemption in certain cases.
Among the additional positive features of the law is the right of a family
company to purchase its own shares. Such right was previously restricted to
joint stock companies and in exceptional cases only. Under the Law, families now
have additional means to protect family companies and preserve continuity of
ownership while family members have the flexibility to exit the company.
Al Tamimi explains that in a unique development aimed at duly organizing the
affairs of families and the family company in terms of ownership and management
the law requires a partner holding at least 90 percent of the shares of a family
company to give notice to the partners who are non-family members of his
intention to purchase their shares, at the price agreed between them or, in the
event of disagreement, as determined by the dispute resolution committee. Where
the other partners are family members, the Law requires a partner holding at
least 95% of the shares of a family company to give notice to the other partners
of his intention to purchase their shares at the price agreed between them or,
in the event of disagreement, as determined by the dispute resolution committee
Law sets out flexible mechanisms and options for resolving disputes
In practice, the dispute resolution mechanism related to family companies is
perhaps one of the biggest challenges families and family businesses face. In
view of this, the law sets out, at Article 19, various flexible mechanisms and
options for resolving disputes that arise between family members and partners,
and between them and the family company. The law allows for a conciliation
process to be agreed upon, in the memorandum of association or charter, through
a board made up of individuals, partners or third parties, for the resolution of
disputes.
In the event that the parties do not agree on a means of conflict resolution or
if the board fails, through conciliation, to reach a solution within three
months or during any additional period agreed upon by the parties or if the
dispute is not referred to the board, the dispute shall be decided by the
dispute resolution committee, within a period of three months. This period may
be extended upon a reasoned request from the parties concerned.
The law provides for a dispute resolution committee to be established in each
emirate by a decision of the Minister of Justice or the head of the local
judicial authority, as applicable.