UAE: New Law on Family Companies

The most recent introduction to the UAE’s regulatory reforms affecting family businesses is Federal Law No.37 of 2022 on Family Companies which was published in the Official Gazette and will enter into force in January 2023.

keynotes of the law can be summarized as follows:

1. Family Company is defined as every company established in accordance with the provisions of the Companies Law (No.32 of 2021), in which the majority of shares are owned by persons belonging to the same family.
2. The law shall apply to any Family Company in the UAE, which can be in the form of any company recognized under the Federal Commercial Companies Law, except for Public Joint-Stock Companies and General Partnership companies. Applicability of the law shall also cover Family Companies established in free zones, provided there is no conflict with the laws and regulations of such free zones.
3. A Family Company must be registered in a Unified Register. The company is governed by articles of association and may have a family constitution put in place to set out the values of the family, the method for distributing profits and the educational requirements for a family member to join the Family Company.
4. There are two main types of shares: Type A entitling profits and voting powers, and Type B entitling profits only. Shares cannot be transferred to non-family members unless otherwise agreed by partners representing ¾ of the company’s capital. There are instances where partners in the company can redeem shares that were transferred to non-family members.
5. The management of the Family Company can be vested with one or more persons (partners or third parties). A legal person can also be appointed as manager. A board of directors can manage the company and a chairman can preside it.
6. The law provides that a family can establish a family association, family council and a family office, to manage its relationship with the Family Company. Such councils can handle the education and training of family members to employ them in the Family Company.
7. Disputes at the Family Company level may be resolved by a Council of Partners. Otherwise, disputes shall be resolved by a Family Companies Dispute Resolution Committee.
8. The Family Company ceases to exist when a non-family party acquires a majority of its voting shares, or when partners representing ¾ of its capital request to delist it from the Register.

This new regulation, along with many other reforms, shall pave the way for more maturity in the UAE family business scene. It will allow families to record core founding values, to be passed on to successive generations. Flexibility in shaping shareholding structures will help families determine the roles of members, each in accordance with their involvement in the business. Management and governance provisions shall encourage families to incorporate proper communication channels, allocate tasks efficiently and increase meritocracy. Finally, an independent dispute resolution mechanism shall help families resolve differences internally, and in all cases, avoid lengthy court procedures.