Federal Decree-Law No. 37 of 2022 in relation to Family Companies

As part of the continuous and active efforts of the UAE Government to create an innovative and stable environment for family businesses in the UAE, Federal Decree-Law No. 37 of 2022 in relation to Family Companies has been issued and will come into force three months after its publication in the official gazette. This Decree-Law is a continuation of the UAE Government’s efforts to establish a comprehensive legal framework to regulate the ownership and governance of Family Companies, boost the sector’s contribution to economic and social development, and to facilitate the transfer of wealth between successive generations.

The Federal Decree-Law provides families in the UAE with another tool to organize their affairs and provide for succession planning and is the first Federal legislation issued to address the regulation of family businesses in the UAE.

The new Federal Decree-Law applies to any Family Company in which the owners of the majority of its capital agree to register their company in a unified Register of Family Companies established under this Decree-Law. A Family Company can take the form of any company recognized by the Federal Commercial Companies Law (with the exception of public joint stock companies and general partnerships) or under the laws in force in the Free Zones. The majority of the shares in a Family Company must also be owned by persons belonging to the same Family.

The Federal Decree-Law introduces new and innovative concepts that may be utilized by family businesses in the UAE. Interestingly, the Decree-Law makes provision for many matters not covered by the Commercial Companies Law which provide opportunities to family businesses in regulating their affairs, such as permitting classes of shares where holders may enjoy different rights and enabling the buy-back of up to 30% of the Family Company’s shares to facilitate the exit of family members. In addition the Decree-Law provides for a prescribed exit mechanism which prevents existing shareholders from selling their interest to individuals or companies outside the family.  Further the Decree-Law further abolishes the restriction on the number of shareholders that a Family Company may have.

The Decree-Law also allows families to enter into Family Constitutions to regulate their affairs and provide for the governance of the family and the Family Company.  It provides flexibility in terms of the management of a Family Company and enables the family to design their own arrangements. In particular the family can establish different governance bodies such as a family assembly, family council, family office, and other committees.

The Decree-Law also allows families to select the appropriate mechanisms for dispute resolution. For example a family may choose to resolve any dispute by reference to the courts of the financial free zones, arbitration or by a special Committee in each Emirate, to be established by this Decree-Law.

Family Companies regulated under the Decree-Law may also benefit from incentives and concessions that may be provided at the discretion of the Cabinet. The precise type and nature of these incentives is not currently set out in the Decree-law.

Finally, the Decree-Law addresses a key aspect of any succession planning by indicating that the regulations of a Family Company under this Decree-Law or the laws applicable in the Free Zones do not constitute a violation of the Personal Status Law.

Whilst legislative solutions cannot ensure that family businesses will be successful, they afford business owners the opportunity to design structures in a way to optimise the continued success of well established businesses as they pass through the hands of successive generations of ownership.

How can we help?

Al Tamimi & Company’s leading Family Business Practice have lawyers dedicated to the provision of tailored and sensitive legal advice to the leading families in the UAE and the wider gulf region. We will be happy to discuss any questions you may have arising from the issue of this new Decree-Law.