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New Family Business Governance Rules in Abu Dhabi

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His Highness, An Overview of the Law Governing Family-Owned Businesses in Abu Dubai The President of Abu Dhabi, Sheikh Khalifa bin Zayed Al Nahyan, has announced a new family business ownership governance statute (the “New Law”) that boosts the sector’s economic contribution and allows for succession. The new law allows family business owners to prevent the sale of shares or dividends to non-family members or businesses. Before a shareholder sells their separate ownership interest to a non-family member, family partners must first agree. To avoid expropriation, family company owners might incorporate family-owned shares with weighted voting rights and avoid pledging their businesses as encumbered assets.

New Law’s Applicability

Owners or co-founders of family-owned enterprises can request a new law governing family-owned businesses from the Abu Dhabi Department of Economic Development (ADDED), which will release the new law’s executive and administrative regulations in March 2022. The Act does not apply to non-family members who control more than 40% of a family-owned business.

Why is it vital to have a Family-Owned Business Law in place?

As is well known, many of the GCC’s most renowned firms are family-owned. These companies employ a large number of people in their communities and are vital to the economic success or failure of the countries in which they operate.

There will be a large number of family stockholders in most family businesses, each with its own set of interests and aspirations. As a result, a family quarrel might easily spill over into the workplace. When looking for equity or loan capital, or when dealing with an internal or external conflict, family businesses frequently try to fix problems at the wrong time, when their priorities are elsewhere. Abu Dubai seeks to offer a legal framework that allows family businesses to face special obstacles by enacting the law governing family-held firms.

The New Law’s Purpose

It aims to improve the legal environment for family-owned enterprises by implementing a more flexible and long-term economic model based on worldwide best practices. The bill also aims to boost family businesses’ contribution to the economy’s diversity and growth.

The New Law’s Most Important Points

The new family business ownership governance law empowers family business owners to:

1) Restrict the sale of shares or dividends to non-family members or businesses.

2) Before a shareholder sells a non-family member’s stock investment, the shareholder must obtain prior consent from the non-family member.

3) Make shares with weighted voting rights available to family members.

4) To avoid expropriation, prevent family-owned businesses from being pledged as encumbered assets.

Dispute Resolution

Any difficulties arising from a Family Property Contract must be addressed by a special judicial committee comprised of experts in legal, financial, and family management areas, with the confidentiality and privacy of any dispute, as well as quick resolution processes, guaranteed. Any provision of other legislation that clashes with the Law’s provisions is similarly repealed.

In Dubai, there is a law that governs family-owned businesses.

On August 13, 2020, the Ruler of Dubai signed Law No. (9) of 2020 Regulating Family Ownership (the “Law”). The legislation permits family members to engage in a legally binding and notarized contract (the “Family Property Contract”) that provides for the communal ownership and administration of family-owned property for the benefit of the parties to the Family Property Contract, as well as their successors.

Customize the terms of the Family Property Contract

Family members can adjust the conditions of the Family Property Contract as they see fit under the law. It will also allow them to address a variety of areas of the family’s communal enjoyment of the property, such as giving particular proportionate ownership requirements relating to income and capital rights, as well as administration and management.

The Family Property Contract would spell out the terms of reference for one or more managers, as well as clauses governing the managers’ oversight by a board of directors, as well as their hiring and firing.

Method of acquiring a family property interest

The law also allows for the acquisition of interests in the underlying family property by transferring an individual family member’s rights in the Family Property Contract to heirs through inheritance or specific bankruptcy laws.

In Dubai, Disputes Over Family Property Contracts Are Resolved

Problems over Family Property Contracts are addressed by a special judicial committee comprised of legal, financial, and family management professionals, ensuring confidentiality and privacy while resolving conflicts fast. Any provision of other laws that clashes with it are also repealed by the law.

Lawyers in Dubai choose specialized Family Business Practice to assist business families in protecting their assets and planning for the long-term viability of their companies. In this sector, our firm, Family Business Practice, provides wealth preservation solutions for large, complex organizations. Please let us know if there is any way we can help you in this area, and we will be happy to do so.

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