UAE’s new Family Business Law speeds up dispute resolution

Dubai: A new UAE legislation that goes into effect in January provides all the protection needed for UAE family companies, some of which have been in existence since the 1940s and 1950s. Simultaneously, Federal Decree Law No. 37 of 2022 offers a route for these private firms – or sections of them – to contemplate becoming public if they so want.

The law is part of the government’s attempts to assist family companies, in recognition of their role in driving the UAE’s economic transition through significant family firms’ contributions to GDP growth and international commerce.

The law defines a family company as a company incorporated under the Companies Law whose majority of shares are owned by persons belonging to the same family and is registered in a special register of family companies at the Ministry of Economy.

The legislation allows family businesses to establish a charter that governs the governance of family concerns pertaining to the family business.

The legislation also authorizes a family charter to specify restrictions, requirements, and qualifications that family members must meet in order to be considered for employment with the family business.

The legislation also established numerous entities, including as the family assembly, the family council, and the family office, to control family governance and the family’s connection with the corporation. Each of these groups is accountable for certain functions.

Law does not set maximum limit on number of partners in family company

Unlike the Commercial Companies Law, the new law does not impose a maximum number of partners in a family company and allows family members to agree in the memorandum of association and charter on equal or different rights for partners in terms of dividends, management, and other rights and benefits.

A significant component of the Law allows for several types of shares. For example, according to the partners’ desires, shares in the firm may be divided into class (a) shares and class (b) shares, with class (a) shares providing dividend and voting rights and class (b) shares providing dividend but no voting rights. This, of course, does not diminish the partners’ rights to control profit distribution and allocation, as previously stated.

To protect the family enterprise and ensure that the shares in the family company remain within the family, the Law imposes strict controls and procedures on the sale of shares to non-family members, with partners from among family members being granted a preemption right as well as a right of redemption in certain cases.

Among the other benefits of the law is the ability of a family business to acquire its own shares. Previously, such a privilege was limited to joint stock firms and only in extraordinary circumstances. The Law provides families with extra tools to safeguard family businesses and maintain continuity of ownership while allowing family members to depart the firm.

Law sets out flexible mechanisms and options for resolving disputes

One of the most difficult difficulties that families and family businesses encounter is the conflict resolution system associated to family enterprises. In light of this, Article 19 of the law establishes a number of flexible processes and choices for settling conflicts between family members and partners, as well as between them and the family business. For the resolution of conflicts, the legislation allows for a conciliation procedure to be agreed upon in the memorandum of association or charter, through a board made up of persons, partners, or third parties.

If the parties cannot agree on a method of conflict resolution, or if the board fails to reach a solution through conciliation within three months or any additional period agreed upon by the parties, or if the dispute is not referred to the board, the dispute will be decided by the dispute resolution committee within three months. This period may be extended if the parties involved make a reasonable request.

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