Navigating the insights into UAE’s bolstering Family Business Law

Navigating the insights into UAE’s bolstering Family Business Law

Dubai will be the focal point of a sweeping change in family-owned wealth across the world. Yes, you heard it right! A range of initiatives have been taken into consideration to assist family businesses navigate brought to the global economy in transition.

Dubai’s strengths make it an ideal global base for family undertakings that seek to penetrate high-growth markets,

The growth of the family business sector in the United Arab Emirates is to be stimulated by a boom in financial wealth, expected to increase annually at an estimated rate of 6.7% reaching $1 trillion between 2026 and 2040.

UAE’s updated family business law came into existence this year to expand the contribution of family businesses to the national economy. While the majority of the private businesses in UAE are run by families, very few make it to the third generation. However, the new law outlines a clear plan for growth and business longevity, with regulation for solvency and more factors.

Importance of New Family Business Law in UAE

The UAE Federal Decree No. 37 of 2022 has entered into force and is a comprehensive package of provisions designed to strengthen family businesses both now and in the future, known amongst practitioners and experts as just New Family Business Law.

Furthermore, In September 2022, Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Ruler of Dubai, Deputy Prime Minister and Minister of Finance of the UAE, announced the Thabat Program.

With the help of this program Dubai International Financial District (DIFC) aims to transform 200 family-owned businesses in the nation into major companies with a market value of Dh 15 million and annual revenue that exceeds Dh 18 million by 2030. By training family businesses with new regulations and support for the new economy, tripling family businesses’ contribution to GDP from $180 billion to $320 billion.

Lastly, the Thabat program was introduced to assist family businesses in entering into sectors that are outside their traditional fields and further encourage them to take advantage of advanced knowledge of industries like artificial intelligence (AI), renewable energy, space science, agriculture-based technology, biotechnology, and more.

DIFC’s Aim with Family Business Law

The new Family Business Law which came into effect on 1st January 2023 aims to improve the contribution of family businesses to the UAE Economy and captivate more businesses to begin their operations in UAE.

However, in the United Arab Emirates, 90% of private companies are family businesses, which have been identified as strategic to the future economic transformation of the country. As per a few studies, only 10% – 15% manage to make their business forward to the third generation.

Whereas, the new law offers a detailed framework and required flexibility for the families to make sure to maximize success in a smooth and systematic format and further aims to avoid or minimize business disruptions.

How will the new law support Family Businesses nationally or globally?

This new law allows the family to take charge of its affairs, and formalize governance and legal proceedings concerning undertakings owned by a family to make it easier for them to run their enterprises. Comparatively, there was no law or governing support to control businesses led by families and this resulted in public family disputes over the years.

In the coming years, these disputes will no longer be public as mediation proceedings through new Family Business Dispute Resolution Committees set up in each emirate shall now take place. However, how family businesses operate is not expected to change any time soon as it will now be formalized that sensitive business decisions have an impact on family dynamics.

Additionally, the new law oversees the regulation of the ownership of family businesses by mentioning its capital – The way the shareholders dispose of their shares, and how they will be able to transfer rights over such shares. The law also governs the shareholders’ right to redeem their shares, the classification of such shares, as well as the buyback of shares by a family firm. And, disputes between family members, the distribution of capital, and insolvency are dealt with by other provisions in the law.

Family Businesses and share ownership in the UAE

The new law introduced in UAE has given the family business a definition to be an incorporated company under the Companies Law wherein majority shares are owned by individuals belonging to the same family and the one who is registered in a special register of family companies at the Ministry of Economics.

Under the new law, a company may lose its family company status if family members opt to cease the majority shareholders. And with such circumstances, a family business will lose the perks granted under the law.

Thabat program

Moreover, the launch of Thabat also aims at supporting women’s development as an essential part of family businesses. According to Dubai Chamber Director Al Ghurair, Thabat’s initiative is “explicitly aimed at encouraging women’s participation.“

Women are the future shareholders of the companies, when fathers move on their daughters will have the right to become a shareholder of the company. To make sure that the company’s interests are taken into account, you need women to be on board. Sometimes they just want out because they’re excluded, but we don’t want that.

Implication of DIFC for Structured Business Planning

The Family Business Law in UAE will spread awareness among families in the country about the importance of streamlined business planning and continually contributing to the common goal as a team. However, many families can also enjoy confidentiality when structuring their affairs away from the rule of law.

Key points and regulations outlined by DIFC

  • The new rules replace the old single-family office regulations and the single-family office regime in Dubai International Financial Centre (DIFC) with a new family office regime that can be used by one family or more. It also means that family offices don’t have to register with DFSA, the Dubai Financial Services Authority, to be a family office.
  • The law also provides for the establishment of an emirate-by-emirate committee, which is referred to as the ‘Family business dispute resolution committee’. This is because disputes are a major reason for the closure of family businesses.
  • If one of the shareholders of the family business is declared bankrupt or insolvent, the law clarifies the applicable insolvency procedures and controls by the new insolvency laws applicable in the country.
  • Shareholdings in the family-owned business shall not be transferred unless the terms of the transfer are laid down by law.
  • If one of the other shareholders in the family business goes bankrupt, the one with the most shares has the right to buy out the rest.
  • The guidelines mentioned in the law sets out certification and accreditation programs for family businesses and their advisors in the Dubai International Financial District (DIFC) to help them take advantage of the benefits and incentives that are planned for family businesses under UAE Family Business Law.

Newly launched platform by DIFC

There are 3 important efforts which are a part of the platform introduced by DIFC. The first is an accelerator program with a physical studio especially for metaverse technology, which will support the growth of a creator community and business development. It covers the creation of metaverse policies and laws about open data, digital identities, and corporate legal frameworks.

UAE’s vision with family businesses

The authority, not only in terms of tourism and with pioneering changes, was thrust into the public eye by the vision of Dubai’s royal family. For instance, one of the leading changes in the region includes establishment of a financial services hub and the launch of the Dubai Financial Services Authority’s business plan for the period 2023 to 2024, which will further support Dubai’s growth as a well-regulated and forward-thinking financial services hub.

Do you run a family business in the UAE and want to learn more about the newly introduced law? Act now and get in touch with NR doshi and Partners our experts to learn more about the law’s implications, regulations, and a series of perks offered.

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