New Law for Family Businesses in the UAE

The United Arab Emirates (“UAE”) Ministry of Economy, as part of a comprehensive and long-term plan to improve and boost the family business climate in the nation to match standards that are globally competitive unveiled the Federal Decree Law No. 37 of 2022 on family businesses (“New Law”).

The New Law shall apply to any Family Business existing in the UAE at the time of the entry into force of its provisions, or that is established after the entry into force of this New Law, the majority of the stock or shares are held by the members of a single family, can now be designated in the Register as a “Family Business” under the New Law.

Decree Law No. 37 of 2022 will come into effect from 3^rdJanuary, 2023 with the goal of increasing the economic impact of family businesses on the nation and luring new family businesses to base their operations in the Emirates.

The Law is a component of the UAE's all-encompassing attempts to lay out a roadmap for the development and success of family businesses in the nation with the following important details:

• Any type of corporation allowed by the Commercial Companies Law, even a one-person business, may be categorized as a family-owned enterprise
• The law establishes a number of procedures for administering the family business, whether by the director or the board of directors, managers and provides clarity on the director's obligations, as well as removal of the directors
• The creation of a group called the "Family Business Dispute Resolution Committee" to facilitate the resolution of disputes within families in each emirate, as per an order from the minister of justice or the head of the regional judicial authority, as applicable. This is to address family disputes in a speedy manner, which is one of the primary causes of failure of family businesses
• A family business is not declared to have ended due to the demise, imprisonment, bankruptcy, or insolvency of one of the partners, according to the legislation
• No partner may dispose off their shares to a non-member without the approval of partners holding at least 75% of the Share Capital
• The New law allows the Family business to issue (2) two classes of shares, namely Class-A; which entitles the shareholders to profits and voting rights and Class-B; only entitles shareholders to profits
• The Family may have a charter that includes rules relating to ownership, objectives and values of the family. It shall contain mechanisms for evaluating shares, methods of distributing profit, education and qualification of Family members to work in the Family Business and its subsidiaries, consideration of Family disputes related to the Family Business, and other rules and provisions
• The New law shall apply to companies in the Freezone as long as they do not contradict the laws and regulations of the Freezone

It is pertinent of note that Public joint stock companies and general partnerships are excluded from the scope of application of this New Law.

Our industry-leading team has been providing families with advice on the best ways to ensure business continuity and succession planning for several years. This advice has been given primarily through the use of trusts, foundations, and corporate structures in the United Arab Emirates; the flexibility of such arrangements is essential in providing the customized solutions that our clients demand. We offer considerate and useful guidance at any level of a family owner's decision-making process to make sure that the owner's lasting heritage is protected.