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New law will help family businesses prepare for the economy of the future, doubling their contribution to the nation’s GDP to $320 billion by 2032
The new law will follow best international practice and is aimed at strengthening the country’s corporate governance structure.
The new family business law appears set to strengthen the corporate sector and diversify the UAE’s economy by attracting investment in key industries and contributing more to the country’s gross domestic product (GDP) in the coming years, experts said.
The new law, which came into force this week, will follow best international practice and aim to strengthen the country’s corporate governance structures. It will help family businesses prepare for the economy of the future, thereby doubling the contribution of family businesses to the nation’s GDP to $320 billion by 2032.
Analysts, economists and legal experts say the Family Companies Law issued by the UAE government is a welcome piece of legislation that enables family businesses to overcome challenges when planning for succession under the existing legal framework of UAE company law.
Build a business group
Vijay Valecha, chief investment officer at Century Financial, said the new family business law, which will come into force in January 2023, aims to increase the contribution of family businesses to the national economy and invite more businesses to do business in the UAE.
He said family businesses play a vital role in the UAE’s economy, accounting for some of the largest conglomerates in the country.
Vijay Valecha, chief investment officer at Century Financial, said the new family business law will come into effect in January 2023.
“Family businesses account for 70% of the global private sector, 60% of the global workforce, and 70% of global GDP. In the UAE, family businesses account for 90% of all private businesses, and investment areas include real estate, retail business, tourism, industry, Technology, shipping and logistics services,” Valecha told Khaleej Times on Sunday.
provide a legal framework
The new law applies to all existing family businesses in the country, as well as to those whose owners own a majority of shares in a family business registered on the Unified Register under the provisions of the Ministry of Economy law.
“After coming into force in January 2023, the new law will provide the legal framework needed to ensure the growth of family businesses, help them diversify their activities, and promote their intergenerational continuity and longevity,” said Abdullah bin Ai Ahmed Saleh, deputy secretary of the Ministry of Economy, said at a recent media briefing.
help family business
Family businesses in the GCC countries are relatively young, between the ages of 40 and 60, with annual revenues approaching $100 billion, and 50% of these companies are owned by five or fewer shareholders. analyst.
“This law will help family businesses diversify their businesses, build pioneering businesses in the modern economy, and strengthen their partnerships and opportunities at home and abroad,” Valecha said.
“The plan, which aims to transform 200 family business projects into large companies with a market capitalization of more than AED 150 billion ($40.84 billion) and annual revenue of AED 18 billion by 2030, will go a long way towards transforming the UAE growth story,” he added.
law aimed at corporate governance
Farhat Ali Khan, managing partner at law firm Century Maxim International, said the UAE corporate market is heading into the new year with another reform aimed at strengthening corporate governance structures and boosting the growth of family businesses in the region.
“In line with the country’s sustainable development for the next 50 years, the regulator has instituted a series of new procedures for managing family businesses, including establishing a resolution mechanism to resolve family disputes,” Khan told the Khaleej Times on Sunday.
Farhat Ali Khan, managing partner at law firm Century Maxim International, said the UAE corporate market is heading into the new year with another reform aimed at strengthening corporate governance structures and boosting the growth of family businesses in the region.
Another important component of the new system, he said, was the introduction of a “family charter”. This will help to create strong guidelines and parameters for transparent and accountable business operations, he said.
“Formal documentation of key terms and conditions can help a business set the tone at the top and hopefully be disseminated throughout the business. Such policy management may encourage ethical business conduct while adhering to locally applicable rules and regulations,” he said.
Covers all aspects
According to Atik Munshi, managing partner of FinExpertiza UAE, most private companies in the UAE are family-owned and they are also significant contributors to the country’s GDP. He said that the UAE government has announced the Family Company Law to meet the needs of family businesses.
“The main areas affected by the law are succession planning, dispute resolution, multi-class shareholding and governance. While the law does not define which entity can be called a family company, it is likely to follow customary international best practice. It will apply to Mainland and free zone registered companies,” Munshi told Khaleej Times.
Atik Munshi, managing partner of FinExpertiza UAE, said that the UAE government has announced the Family Company Law to meet the needs of family businesses.
A family charter may now be one way to address the above issues, as long as it does not conflict with the law, he said. Such a family constitution will address management rules, ownership, governance, profit sharing, voting rights, dispute resolution, valuation, etc., but the constitution is in addition to the corporate constitution.
“Family companies will have the possibility to have voting and non-voting shares, ensuring uninterrupted operations and management. Entities wishing to be treated as family companies will have to opt-in to take advantage of the benefits of the UAE family company law,” he said .
“Family company law also deals with foreclosure rights, management, succession, etc.,” he added.
Referring to several studies, experts say that only 10% to 15% of family businesses survive to the third generation. The next generation of family members may not have the same level of commitment as the founder of the family business.
“It is therefore important that the legal framework provides families with sufficient tools and the necessary flexibility to ensure that succession proceeds in a smooth and efficient manner to meet their objectives,” they said, adding that the legislation should help families Business Succession planning under the existing legal framework of the UAE Companies Law.
— muzaffarrizvi@khaleejtimes.com
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