UAE issues new family business ownership governance law

New law aims to boost family businesses’ contribution to growth of economy.

The new family law was issued by President His Highness Sheikh Khalifa bin Zayed Al Nahyan. File photo

By Web Desk

Published: Tue 25 Jan 2022, 5:14 PM

Last updated: Tue 25 Jan 2022, 7:32 PM

In his capacity as Ruler of Abu Dhabi, President His Highness Sheikh Khalifa bin Zayed Al Nahyan has issued a new family business ownership governance law that further strengthens the sector’s contribution to the economy and facilitates the transition to successive generations.

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

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The new family business ownership governance law empowers owners of family business to: prevent selling of shares or dividends to individuals or companies outside the family, and to require prior approval from family partners before a shareholder sells their respective equity stake to a non-family member.

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

The provisions of this law are applied to family-owned businesses on an opt-in basis for owners or co-founders by submitting a request to the Abu Dhabi Department of Economic Development (ADDED), which will issue the executive and administrative regulations of the new law from March 2022.

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Commenting on the new law, Mohamed Ali Al Shorafa, Chairman of the Abu Dhabi Department of Economic Development, 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”.

He added: “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”.