The much-awaited Family Business Policy is underway. His Highness Sheik Mohammed bin Rashid Al Maktoum, the vice president, and prime minister of the UAE and the ruler of Dubai published a decree specifying the Family Business Center in Dubai with the directives and aim to drive the growth of family business towards sustainability.
How does it seek for the family businesses to contribute to the nation’s GDP?
The center aims to meet the objectives highlighted in the decree and it also applies to all the family-owned businesses that exist in the country, and its owners who own the majority shares in the family business who aspire to register in the unified register as a family company.
The new law aims to follow scientifically proven international practices to enhance the corporate governance structure in the country. Moreover, it will help to diversify the UAE economy by attracting numerous investments in key sectors that will contribute to the country’s gross domestic product (GDP).
The Decree overviews the duties and responsibilities of the Center, which include extended support regarding technical and administrative support for the family businesses. ensuring their sustainability and growth. Besides, the Center will support in developing strategies to support and evolve the family businesses as well as provide creative solutions to deal with the challenges the enterprises face to increase their growth.
This freshly implemented Family Business Law aligns with the nation’s vision of sustainable development for the next 50 years, and the established new procedures are projected to boost businesses to achieve sustainable growth in the following years.
Some of the major aspects of the law include succession planning, dispute resolution, distribution of the annual profit, and multiple classes of shares and governance, among others. The law also enables the regulation of the ownership of family businesses by, portraying their capital, how the partner disposes of his shares, and the procedure for waiving it, as well as the right to redemption and evaluation of shares and their categories.
Furthermore, this Law will help family businesses to generate income, double and contribute to the nation’s GDP. This is also part of the UAE’s plan to achieve its GDP of $320 billion in 2032.
Some of the key highlights of the new family business law are:
- A family business can take any form of company that aligns with Commercial Companies’ law. One-person companies can also be a part of the family-owned business.
- The law assigns a set of objectives for managing the family business
- Businesses can be managed by directors as well as the board of directors, which aligns with a series of mechanisms set by the law to manage it.
- In case of bankruptcy or insolvency of one of the partners, the law objects to following the procedures and controls regarding the insolvency bankruptcy laws in force in the country.
- It clarifies that the business continues to exist in the event of the death, interdiction, bankruptcy, or insolvency of one of the partners.
- Shares in the family should be assigned under the conditions prescribed in the law
- In the wake of bankruptcy, a partner in the family business has the priority of buying the shares of the other partners.
In the wake of the decree, many experts across the financial sector of the UAE have disposed of their opinions, which all of the financial professionals believe that the new Family Business law intents to meet its objectives as its strategies are developed after thorough research on the nature and the market of the family businesses.
As per experts, this law would encourage family businesses in expanding their operations, diversifying their ventures in modern economic areas as well as strengthening the partnerships between local and international firms.
It is believed that family businesses of all sizes dominate the nation. As per the data, In UAE, family business accounts for 90 percent of investments in real estate, retail commerce, tourism, industrial, technology, shipping, and logistic services of all private organizations. This indicates that Middle Eastern family businesses are vital for the nation’s prosperity. Similar to Western businesses, these companies also struggle with challenges.
However, with the induction of this law, it aims to turn more than 200 family business projects into multinational corporations, with a market value of more than $40.84 billion (Dh150)
Most of the businesses in the Middle East generate annual revenue of $100 billion, and 50% of the owners of these companies include five shareholders or less. But only 10 to 15 percent of these businesses thrive up until the third generation, and most of these business does not make it into the third generation because the members of the family members do not have the same succeeding commitment as the founding members of their family.
Thus, this law provides the framework and necessary tools for families to ensure that succession should be carried out smoothly and efficiently to satisfy the objectives of the amendment.