Sheikh Khalifa issues new family business ownership governance law

Law aims to further enhance the family-owned business legislative ecosystem by adopting a more flexible economic model

The new law aims to boost family businesses’ contribution to the diversification and growth of the UAE economy. Reuters

The President, Sheikh Khalifa, issued a new family business ownership governance law, further strengthening the sector’s contribution to the economy and facilitating the transition to successive generations.

The new law prevents selling shares or dividends of family-owned businesses to people or companies outside the family, and requires prior approval from family partners before a shareholder sells an equity stake to a non-family member, a statement from Abu Dhabi Media Office said on Tuesday.

It aims to further enhance the family-owned business legislative ecosystem by adopting a more flexible and sustainable economic model, in line with best international governance practices, the statement added.

The law also aims to boost family businesses’ contribution to the diversification and growth of the economy.

Family businesses account for about 90 per cent of private companies in the UAE. The UAE Ministry of Economy said last year it is considering new policies to help family businesses grow as they form a key part of the UAE's continuing transition to a more sustainable economy.

“Family-owned businesses in Abu Dhabi continue to contribute to economic diversification and the knowledge-based economy, equipped with decades-long experience in the market, strong resilience and experience in partnering with government entities, as well as investing in sectors targeted by strategic initiatives launched by the emirate of Abu Dhabi,” said Mohammed Ali Al Shorafa, chairman of the Abu Dhabi Department of Economic Development (Added).

Owners of family businesses can also issue family-owned shares with weighted voting rights and prevent the pledging of family-owned businesses as encumbered assets to avoid expropriation, the statement said.

The current law is not applicable to family-owned businesses where non-family members own more than 40 per cent of shares, it added.

“This law is a major pillar in enhancing the vital role played by these businesses in driving economic development. It also provides a legislative framework to ensure the growth and sustainability of family-owned companies in line with the evolving business sector, since it allows ownership by non-family members up to 40 per cent of the capital. This will support the expansion and development of family-owned businesses,” Mr Al Shorafa said.

The provisions of the new law are applied to family-owned businesses on an opt-in basis for owners or co-founders by submitting a request to Added, which will issue the executive and administrative regulations of the new law from March 2022, the statement said.