A new governance law has come into effect for family businesses in the UAE, which account for 90 percent of private companies.
The family business ownership law was announced in January by Sheikh Khalifa bin Zayed Al Nahyan, the UAE President and Ruler of Abu Dhabi.
Its aim is to “further strengthen” the sector’s contribution to “the diversification and growth of the economy” and ease “the transition to successive generations” with a “more flexible and sustainable business model”, the Abu Dhabi Government Media Office reported.
Prior approval from family partners
The new law prevents selling shares or dividends of family-owned businesses to individuals or companies outside the family, and requires prior approval from family partners before a shareholder sells an equity stake to a non-family member.
In his capacity as Ruler of Abu Dhabi, Khalifa bin Zayed has issued a law regulating family business ownership to further enhance the sector’s contribution to the local economy and ensure smooth transition to successive generations. pic.twitter.com/vowdLDnFOr
— مكتب أبوظبي الإعلامي (@admediaoffice) January 25, 2022
Owners of family businesses can issue family-owned shares with weighted voting rights and prevent the pledging of family-owned businesses as encumbered assets, to avoid expropriation.
The current law, the statement said, is not applicable to family-owned businesses where non-family members own more than 40 per cent of shares.
Allows some ownership by non-family members
HE Mohamed Ali Al Shorafa, chairman of the Abu Dhabi Department of Economic Development (ADDED), said: “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.
“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.”
The provisions of this law are applied on an opt-in basis for owners or co-founders, the statement said, and they can apply by submitting a request to ADDED, which will issue the executive and administrative regulations of the new law from March 2022.