Essam Al Tamimi *
The United Arab Emirates has issued the Federal Decree-Law No. (37) of 2022 relating to family businesses, and the law was born from the enthusiasm of supporting family businesses and from the appreciation of their importance in advancing the country’s economy, through the contribution of important family businesses in supporting the domestic product country’s gross as well as supporting international trade. The law provides the necessary flexibility to families in managing their affairs, arranging the management of their businesses and ensuring their sustainability in a way that serves the interest of family members and strengthens the economy of the state.
The law defines a family business as a company established according to the provisions of company law, and most of its shares are owned by persons belonging to a family, and is registered in a special register of family businesses at the Ministry of Economy . According to the law, the company loses its status as a family business if the majority percentage of family members decreases, and thus loses its privileges under this law.
The law applies to all existing or incorporated family businesses in the country, with the exception of public limited companies and partnerships. It is worth noting that the law has not established a new form for the family business, but it will take the same forms that are in force in the country according to the law on commercial companies or in the free zones according to their legislation. Although the law confirms that family businesses are subject to company law, this is related to the absence of a special provision in the law, and in this case this special provision applies and the company law provisions do not apply.
And due to the legislator’s will to provide special concessions and incentives for family businesses at federal and local level, the law authorized the Council of Ministers to adopt all the decisions it deems appropriate regarding the concessions and incentives granted to registered family businesses on the register, as well as authorizing the competent authority at the UAE level to grant any other benefits and incentives in accordance with the controls and requirements issued in this regard. It is worth noting that the law does not distinguish between family companies, regardless of the form of the company and the place of its establishment, whether in the country or in free zones.
family card
The law gave family companies the right to establish a family statute, which is a document to regulate the governance of family affairs related to the family business. In addition to the mechanism for resolving disputes and conflicts that arise between them, following are the family members affairs and other provisions and rules that are binding on all family members during their lifetime and after their death. The law also allows the family statute to include the conditions, criteria, qualifications and conditions that must be met by family members to work in the family business.
The law also established other mechanisms to regulate the governance of the family in relation to its relationship with the family business through the establishment of various bodies, such as the family association, the family council and the family office, so that each of them is specialized in specific tasks entrusted to them, such as the training and education of family members so that they can enter the family business and supervise their work Family investments, separating the ownership of family assets from the ownership and governance of the company family, manage charitable business and community contributions to which the company seeks to contribute, in addition to dispute resolution mechanisms and other family affairs and internal governance of family businesses.
equal or different rights
Contrary to the provisions of the Commercial Companies Act, the Act did not specify an upper limit for partners in family companies and gave family members the right to agree in the articles of association and articles of association that the partners in the company have equal or different rights in the company, profits, management right and other rights and privileges. One of the most important provisions envisaged by the law is the provision that allows some shares to have a preference over other shares, for example, the company’s shares can be divided into category (A) shares and other category (B) shares according to the will of the shareholders, so that the shares of category (A) ) The right to profits and to vote, provided that the holders of shares of category (B) have the right to profits without the right to vote, and this naturally does not affect the right of shareholders to regulate the methods of distribution and allocation of the aforementioned profits.
In order to protect the family project and the legislator’s will to ensure that the company’s shares are always owned by family members, the law has established strict controls and procedures for the disposal of shares for non-family members, as they have been attributed members from family members the right of priority in addition to the right of recovery in some cases.
Among the positive things provided for by the law there is also that relating to the right of the company to buy its own shares, as family companies could buy their own shares, which was limited only to corporations and only in exceptional cases, and the law provided additional means for families to protect family businesses and ensure continuity of ownership of those companies by family members, while providing flexibility for family members to opt out.
Buy shares
In a single development, and in order for the legislator to ensure that the affairs of the family and the family business, including ownership, management, etc., are perfectly organized, the law obliges a partner who owns no less than 90% of the capital of the the family business to inform the other shareholders outside the family of its willingness to purchase their shares, at the agreed price, or in the event of disagreement, at the price determined by the Conciliation Committee. In the event that the other shareholders are members of the family nucleus, the law obliges a shareholder who holds no less than 95% of the capital of the family business to inform the other shareholders of his intention to purchase their shares at the agreed price or the price determined by the Dispute Resolution Committee in case of disagreement.
In practice, the family business dispute resolution mechanism is perhaps one of the biggest challenges faced by families and family businesses. In view of this and that, conflicts between family members often cause confusion in the management of the company and a negative impact on its business and the conduct of its business, which in most cases leads to hindering growth of the company or to prevent its continuity, the legislator has organized in article 19 of the law different and flexible mechanisms and options for the resolution of disputes that arise between family members and cohabitants, and between them and the family business. In this regard, the law has made it possible to agree on a method of conciliation in the deed of incorporation or in the statute through a council formed by some individuals, partners or third parties for the resolution of disputes. In the event that the parties do not agree on a means of resolving the dispute, or if the Board fails to be reconciled within 3 months or within any additional period agreed by the parties, or if the dispute is not referred to the Board, the dispute is decided by the Dispute Resolution Committee, which decides on the dispute within three months, this period may be extended at the reasoned request of the parties concerned.
Conflict Resolution Committee
The law provides that a dispute resolution committee is established by decision of the Minister of Justice or the head of the local judicial authority in each emirate, as the case may be. The Dispute Resolution Committee is responsible for taking the urgent measures necessary to maintain the continuity of the company, take decisions in it and not affect its business during the dispute settlement period. The parties may appeal the decision before the competent court .
Contrary to what happens in other disputes which are compulsorily judged through dispute resolution committees, recourse to the dispute resolution committee is optional for the parties, as the law guarantees them the right to choose arbitration or appeal to the courts financial free zones to resolve disputes that arise between them. In support of the financial free zones, the law provides that the resolution of disputes relating to family businesses registered in the financial free zones is subject to the legislation in force in these areas. This is a very important provision to confirm that any arrangement or structure set up in financial free zones, whether in Abu Dhabi or Dubai, will be organized and governed in accordance with the laws, procedures and arrangements in force in those areas at the time. within their jurisprudence and judicial jurisdiction, especially since they have special laws and regulations, such as the Trust Act and The Foundation Act, which is unique for special arrangements and structures in the light of family affairs agreements.
common intention
In a positive step, and in the absence of an explicit text or its ambiguity in the deed of incorporation or in the articles of association, the law stated taking into account the common intention of the founders of the family business and its partners, and the aims and objectives for which the company was formed, and work to bring what helps its continuation and transmission between generations in a fluid way, away from conflicts. The law also stated that the articles of association, the deed of incorporation or any agreement between the partners cannot be invalidated, as it expressly stated that in the event of the invalidity of any condition, the invalidity is limited to the condition without the Memorandum of Association, Memorandum of Association, or any other agreement. All this in support of the legislator for the continuity of family businesses and for the provisions that the family adopts to preserve the family, its business and its assets without questioning or demolishing it.
In order to regulate the transfer of shareholdings in family companies, and for the legislator to guarantee their continuity and maintenance, and to avoid any objection to the arrangement and governance of family affairs, the law provided an important and unique provision disregarding from any disputed violation of the Law on the Statute of natural persons for the possible disposition of the shares and assets of family companies when this disposition has been completed The life of the transferor shareholder, so that any dispositions are considered effective provided they are approved and signed during his life of the disposer, and they apply to everyone and there is no doubt about them in the Sharia.
This law will enter into force within three months from the day following the date of publication in the Official Gazette, and was published on 10 October 2022.
* Chairman of the Board of Directors of Al Tamimi & Associati Lawyers and Legal Consultants
