Dubai law to regulate family businesses

Tags: News,Others

20 Aug, 2020

As published in Khaleej Times
Issac John /Dubai







The law, which defines the terms of the family ownership contract, and the powers and obligations of its manager, is valid from the date of its publication in the Official Gazette.

A new law providing a clear legal framework to regulate family-owned businesses and facilitate their smooth transfer between successive generations has been promulgated in Dubai.

His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE, in his capacity as Ruler of Dubai, on Wednesday issued the new law that seeks to protect families’ wealth, enhance the contribution of their businesses to economic and social development and foster the growth of family businesses, the Dubai Media Office said in a statement.

The Law No (9) of 2020 Dubai, which defines the terms of the family ownership contract, and the powers and obligations of its manager, is valid from the date of its publication in the Official Gazette.

According to the decree, the validity of a family ownership contract can be extended up to 15 years. It can be renewed for a similar term following the agreement of all concerned parties. The law also regulates the articles of the family ownership contract, the business’s structure and management, the formation of the board, the authorities and responsibilities delegated to the board and management as well as the management’s powers and limitations.

The law is optionally applicable to existing and new family ownerships, including corporate equity securities and proprietorship. Family ownership in public joint stock companies and movable and immovable property are excluded from this law, the Media Office said.

As per the law, for the family ownership contract to become legally binding, all parties of the contract must be members of the same family and have a single common interest. “Furthermore, the contract must clearly define the share of each member, and parties of the contract must own all the legal rights of the monies and assets that are under the purview of the contract.”

The law defines “family ownership” as movable and immovable property, copyright and related rights, and industrial property rights for patents, industrial designs and models as well as trademarks and other rights that are subject to the family ownership contract.

The law also defines a “family property contract” as an agreement concluded between family members who are united by a business unit or interest, according to which family ownership is organised as common property among them, as well as determining how this property is managed.

The law stipulates that in order for it to be valid, “the family ownership contract requires that its parties be members of the family, that its parties have a single business or a common interest, and that the share of each partner in the family ownership contract be determined, and that the funds that represent the subject of the family ownership contract are owned by its parties.”

As per the law, the management of the family property organised by the family ownership contract shall be carried out by a manager who is appointed by a decision of the partners who own at least two-thirds of the family ownership, and the manager may be one or more persons, provided that their number is individual, whether they are among the partners.

The law also defines the mechanism for dismissing the manager, the termination and interpretation of the family ownership contract, the dispute settlement mechanisms, and the responsibility of government agencies in the emirate of Dubai, which the law requires them to take the necessary measures to put it into practice.

The law also defines the responsibilities and authorities of government entities with regard to facilitating the formation of family-owned businesses.

This law annuls any other legislation that contradicts of challenges its articles.

In January, the Federal Cabinet approved a draft law amending the Agency Law to allow and encourage family businesses across the UAE to go public in order to bring in more transparency and improve productivity and corporate governance, as well as address the liquidity shortage issue to a great extent in UAE markets.

Analysts hailed the move as a key step to giving a fillip to the IPO market and bring in more transparency and governance in the system, thereby, increasing investor confidence and investment.