Dubai introduces law to regulate family owned businesses

A new law that provides a specific legal framework for governing family-owned businesses and to promote their smooth transfer between successive generations has been adopted in Dubai.

His Highness Sheik Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE, in his capacity as Ruler of Dubai, released a new law which is aimed at protecting the wealth of families, enhance their business contribution to economic and social development and foster the growth of family businesses, the Dubai Media Office said in a statement.

Dubai’s Law No. (9) of 2020, which specifies the terms of the family ownership contract, and its manager’s powers and responsibilities, is valid from the date it is published in the Official Gazette.

Under the rule, the duration of a family ownership contract can be extended to15 years. Upon the agreement of all concerned parties, it can be further extended for a similar term.

The legislation also governs the terms of the family ownership contract, the structure and management of the business, the setting up of the board, the roles and duties assigned to the board and management as well as the powers and limitations of the management.

Optionally, the law applies to existing and new family ownership including securities and ownership of corporate equities. The Media Office said family ownership in public joint stock companies and movable and immovable property is exempted from this rule.

As per the rule, all parties of the contract must be members of the same family and have a shared mutual interest in order for the family ownership contract to become legally binding.

In addition, the contract must clearly define each member’s share, and the contracting parties must own all the legal rights of the monies and assets under the contract’s scope.

The legislation describes “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 assets that are subject to the family ownership agreement.

The law also describes a “family property contract” as an understanding signed between members of the family who are united by a business unit or interest in which family ownership is organized as common property among them, as well as deciding how this property is handled.

According to the regulation, the management of the family property organized by the family ownership contract shall be done by a manager appointed based on the decision of the partners who own at least two-thirds of the family ownership, and the manager may be one or more individuals.

The law also specifies the procedure for the dismissal of the manager, the termination and definition of the contract for family ownership, the conflict resolution procedures, and the duty of government entities in the Dubai Emirate, as the law requires them to take the appropriate steps to enforce it.

It also defines the responsibilities and authorities of government entities regarding the facilitation and formation of family-owned businesses.

This law annuls any other legislation which contradicts its articles.

The move was welcomed by analysts as a crucial step towards giving the IPO market a boost and adding greater transparency and governance into the system, thus improving investor confidence and investment.

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