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On 10 October 2022, Decree-Law No. (37) on Family Businesses was issued and published in the Official Gazette and it will come into force three months after the date of publication, i.e. from 10/01/2023. The law has identified the family companies as any company established in accordance with the provisions of the Companies Law and most of its shares are owned by persons belonging to the same family and are registered in the specific register prepared for this as a family business, as per this law, the Council of Ministers shall, upon the recommendation of the Minister of Economy, issue a decision specifying what is meant by one family.
Objectives of the Law
This Decree-Law aims to achieve the establishment of a comprehensive and accessible legal framework to regulate the ownership and governance of family businesses in the UAE, facilitate their transmission across generations, support the continuity of family businesses, enhance the role of the private sector in economic growth and community contribution in the UAE and provide appropriate mechanisms to resolve disputes associated with them and attribute their contribution to the UAE economy and competitiveness.
Types of servings and their transition
The Decree-Law also regulated how shares are transferred between members of the same family and between them and others from outside the family, and how each partner disposes of his share.
The shares were determined by two basic types according to the benefits granted to each type. The first type is called shares category (A) in which the partner has the right to vote in the general assembly of the company and receive his percentage of the profits.
The second type is called category (B) in which the partner is entitled to receive profits only without the right to vote in the general assembly. The decree authorized the memorandum of association to stipulate the conditions governing the conversion of shares (B) into shares (A) or vice versa and to be stipulated such as the passage of time or any other conditions, and it also allowed the provision to divide shares (A) or (B) into categories according to the number of votes or profits allocated to them.
The Memorandum of Association may provide for other categories shares that differ in value, voting power, profits, priority rights and other rights or privileges, provided that the responsibility of the partner is to the extent commensurate with the rights and privileges allocated to each of those shares.
Bankruptcy and insolvency of family member shareholder
The Decree-Law also regulated the bankruptcy or insolvency of the partner in the family business and the right of any partner to have the right to priority purchase of the partner’s share at the price and within the period determined by the court hearing bankruptcy or insolvency.
The death of one of the partners was also organized, and the director of the company acts as the guardian of the shares of the deceased partner, and supervises the procedures for transferring ownership to his heirs, each according to his legitimate share, and takes the procedures to amend the memorandum of association, after settling any rights or debts that may be related to these shares in favor of the family company or others, unless there is a provision in the Memorandum of Association to the contrary.
Family Business Management
It also organized the distribution of profits and how to manage the family company, the appointment and dismissal of the director, his powers and responsibilities, and the organization of the governance of family affairs in relation to its relationship with the family company, through the establishment and organization of the work of councils and committees, such as the Family Association, the Family Council and the Family Office, which are specialized – each in the field of tasks entrusted to him – to manage the affairs of the family and codify its relationship with the family business, including the education, training of its members and their work in the family company and its subsidiaries and entrepreneurship initiatives, and is concerned with the separation of ownership of the family company.
Family asset governance is about the ownership and governance of the family business, overseeing family investments, organizing charitable work and its own community contribution initiatives, and it contributes to the control of conflicts of interest and the reconciliation of views on disputes that may arise between family members and between them and partners.
The Decree-Law also stipulated that the mechanism for settling disputes of family companies is to be established, whether in the memorandum of association the formation of a council of partners, family members or third parties, the purpose of which shall be to consider disputes that may arise between partners, between them and family members and between them and the family company, and to try to reconcile them.
Family Business Dispute Resolution Committee
The Decree-Law also provided the establishment of a committee in each Emirate called the “Committee for the Resolution of Family Business Disputes” by a decision of the Minister of Justice or the head of the local judicial authority, specifying its composition and the system of its work in the settlement of disputes of family businesses, chaired by a judge and assisted by two experienced and competent persons in the legal, financial, and family business management fields. The urgency it deems appropriate to maintain the continuity of the family business, prevent the interruption of its business or affect its reputation or financial position throughout the period of consideration of the dispute.
Benefits and incentives of family business companies
The Decree-Law on the benefits and incentives of the Most Successful Family Enterprises also decided, and made the Council of Ministers, upon the proposal of the Minister of Economy, and after coordination with the concerned stakeholders and the competent authorities, issue such decisions as it deems appropriate for the benefits and incentives granted to family owned companies registered in the Registry, and the controls, requirements related to these benefits and incentives, as well as the competent local authority, authorized for corporate affairs in each Emirate or Free Zone Authority, to grant any other benefits and incentives to family businesses in accordance with the controls and requirements issued in this regard.
Reda Hegazy is a Partner at Alsuwaidi & Company.
Reda is listed Legal Consultant in the Government of Dubai Legal Affairs Department, a Member of the DIAC 40, Young Practitioners Group in Dubai International Arbitration Centre (DIAC), a certified arbitrator and member of the International Commercial Arbitration Centre (ICAA) in Sharjah (Tahkeem).