Family Business Law in the UAE

Family-run businesses are a considerable part of the UAE’s economic landscape. However, such businesses face a number of unique challenges, such as a lack of structure and succession planning, conflicts within the family, etc. 

To address these issues, UAE issued Federal Decree Law no. 37 of 2022 (“Family Business Law” or “Law”), which came into force on 11 October 2023. In this article, we will provide a brief overview of the Family Business Law.

Objectives of Family Business Law

Family Business Law has been introduced to achieve the following objectives:

1. To develop a comprehensive legal framework for the regulation of the ownership and governance of family businesses in UAE;
2. To support the growth of family businesses and enhance the private sector’s role in economic growth and societal contribution;
3. To provide appropriate mechanisms for dispute settlement related to family businesses;
4. To strengthen the contribution of family businesses to UAE’s economy.

Family Business Law: Definition and Scope

The family business has been defined in the Law as any company (established in accordance with the provisions of the UAE Companies Law, i.e. Federal Decree by Law No. 32 of 2021) wherein most of the shares or stakes are owned by people belonging to a single family.

The Law further provides that a family business can take any form of company stipulated in the UAE Companies Law except for a Joint Stock Company and a Partnership Company. Family Business Law applies to existing family businesses in the UAE and family businesses established after the commencement of this Law.

Family Business Charter

The Law provides that a family business may have its own Family Charter, i.e. a written document regulating the governance of the family business, including family ownership, goals and values, mechanisms for evaluating shares, methods of profit distribution, etc.

The Charter may also specify the minimum educational qualifications and experience that family members must have to participate in the family business. The Law further provides that in the event of a conflict between the Articles of Association and the Family Charter, the provisions of the Articles of Association shall prevail.

Shareholders in Family Business and Classes of Shares

Under Family Business Law, there is no limit on the number of individuals who may become shareholders in the family business (as opposed to Companies Law, which allows a maximum of fifty shareholders in a Limited Liability Company).

A family business may issue two categories of shares:

1. Share (A) entitling its owner to receive profits with the right to vote; and
2. Share (B) entitles its owner to receive profits without voting rights.

Pre-Emption Rights​

Family Business Law provides that if a shareholder decides to dispose of his shares in the family business, they may offer them to the other partners. 

A shareholder may also transfer and assign their share, with or without consideration, to his spouse or first-degree relative without offering the same to the remaining partners (unless otherwise provided by the Article of Association).

Management

Regarding management, the Law provides that a family business shall be managed by a director appointed in the Articles of Association. 

In the absence of a provision for the appointment of a director, the director can be appointed by a subsequent decision of partners who own at least 51 per cent (50%) of the company.

Dispute Resolution

The Law requires the formation of a board for dispute resolution consisting of family members or third parties. It further provides for the establishment of a Family Business Dispute Resolution Committee in each Emirate.

If the Articles of Association or the Family Charter do not provide for the formation of a board, or if the board fails to resolve the dispute within a maximum period of (3) three months from the date the dispute was presented to it, the dispute shall be referred to the Committee. As an exception, the parties may also refer the dispute to arbitration or the courts of the financial free zones of the UAE.

Conclusion

The Family Business Law marks a significant step forward in addressing the unique challenges family-run businesses face in the UAE. By establishing a comprehensive legal framework, this law aims to ensure sustainable growth, improve governance, and enhance the economic contributions of these businesses.

The introduction of tools such as the Unified Registry, Family Business Charter, and structured dispute resolution processes highlights the UAE’s commitment to supporting family businesses. This law provides family businesses a solid foundation for stability and prosperity, strengthening the private sector and helping the UAE’s economic development.