UAE new family companies law Update – The three main differences to note
Family companies are not considered a new form to be added to the forms of commercial companies mentioned in Law No. (32), Rather, they are closer to a legal definition or description that gives some unique characteristics to any of the legal forms that already exist in the Companies Law. With the exception of public joint stock companies and joint venture companies, due to the difference in nature of the latter two from the nature of family companies.
The status of a family company can be given to any of the companies, taking into account the aforementioned exception, whether it is affiliated with the Free Zones Authority or the local economic authorities, with the need to ensure that the characteristics of the family company do not conflict with any of these free zones or the local laws of each Emirate separately.
The most important exceptions related to family companies, which distinguish them from other type of companies:
A. Family Company Charter:
According to the text of Article 6 of the Family Companies Law, we find that the legislator set a definition for what is called the family charter and the permissibility of forming one for family companies, provided that it includes the following:
- Rules of ownership, family goals and values.
- Mechanisms for evaluating shares and methods of distributing profits.
- Educating and qualifying family members to work in the company or its subsidiaries -the charter determines the minimum educational qualifications and practical experience that must be available for partners and family members to work in the family company and its subsidiaries, provided that this is checked by a committee affiliated with the Family Council.
- In the event of a conflict between the Memorandum of Association and the Charter, the Memorandum of Association shall prevail over the Charter, and any conflict contained in the Charter should be cancelled.
- The charter shall be approved or amended by the majority of the members of the family council, and in the absence of a council, by the majority of the partners.
B. Classes of shares:
1. Rules for partners’ ownership of their shares
- The company may have an unlimited number of partners as an exception to the general provisions of the companies or free zones law
- Partners’ shares may not be assigned except in accordance with the conditions stipulated in the Family Companies Law, which are more complex than the general rules for assignment of shares in accordance with Law No. 32 of 2022 regarding commercial companies.
2. Rules Assignment of the partner to his wife or relatives of the first degree
A partner may assign his share, with or without compensation, to his wife or one of his relatives of the first degree without presenting it to the rest of the partners in the family – unless otherwise agreed upon.
3. The partner’s assignment of his share to a foreign person
- It is not permissible to waive such share to a foreign person except with the approval of partners who own at least 75% of the capital, unless the Memorandum of Association provides for another percentage.
- It is also permissible to agree between the partner wishing to sell and the rest of the partners that such shares to be sold are reallocated to a lower classification in the rights associated with, either temporarily or permanently.
4. Rules for recovering family shares sold to a foreigner with respect to the rest of the partners and with respect to the family company itself
- In the event that the consent of the rest of the family partners is not obtained to sell the shares to a foreigner, or the percentage required in the previous item is not available, then any of the partners has the right to recover the sold shares within 60 days from the date of ownership by a foreigner.
- In the event that the consent of the rest of the family partners is not obtained to sell the shares to a foreigner, or the percentage required in the previous item is not available and no partner claims the recovery as per the previously mentioned procedure, then the company has the right to recover the sold shares within 30 days from the date of offering those shares to the family company.
- A foreigner’s ownership of a share in the family company does not lead to the disappearance of the status of the family company, provided that the percentage of family members’ ownership is not less than the majority of the shares.
5. In the event of disagreement over the price of the shares subject to sale, the shares shall be evaluated by a committee according to the Memorandum of Association or the Charter. if the Memorandum of Association or the Charter not determining the rules for forming a committee to evaluate the shares, the evaluation shall be under the general rules in the Companies Law through evaluation by one or more experts to be selected. And set it at the expense of the buyer.
6. It is permissible to issue two categories of shares or more
- The first category gives its owner the right to profits and to vote in the company’s general assembly.
- The second category entitles its owner to profits only without voting.
- This is with the possibility of setting terms & conditions in the Memorandum of Association related to the transfer between the two categories, such as setting a time frame or ruling them on the number of votes or profits allocated to those shares according to their category.
- It is also permissible to form other categories other than the previous two categories, and to set other terms & conditions related to these newly created categories
7. In the event of the death of one of the partners:
Contrary to the general rules, in the event of the death of one of the partners – unless otherwise agreed upon – the company manager shall be the guardian of the shares associated with the deceased partner and supervise the procedures for transferring the ownership of those shares to the heirs, after settling any rights or debts related to these shares.
C. Dispute resolution and settlement for family companies:
- The Memorandum of Association or Charter may include a text laying down the rules for forming a board of partners for the purpose of considering disputes that may arise between the partners and trying to reconcile them.
- If the aforementioned council was not formed by the memorandum of association or the charter, or if the council failed to resolve the dispute within 3 months from the date the dispute was presented to it, the dispute shall be referred to the Dispute Settlement Committee for Family Companies.
- The committee’s decisions shall be subject to appeal before the competent court in UAE.
- It is permissible to agree to resort to arbitration
- It is also permissible to agree to resort to the courts existing in the financial free zones in UAE.
- The committee shall be formed by a decision of the Minister of Justice or the head of the local judicial authority.
D. The Council of Ministers, as well as the competent authority in the local emirates, may grant more benefits and incentives to family companies, and the conditions, requirements for those incentives, in accordance with the text of Article 25 of the law.
Coclusion:
The UAE Government has enacted the Family Companies Law, allowing family businesses to overcome the challenges of succession planning under the existing legal framework of UAE Companies Law.
As a result of this important development, we strongly encourage family businesses to consider the extent to which they can benefit from the provisions of the Family Companies Law so that any potential risks or issues that may disrupt their business during succession can be mitigated.
| If you have any questions about company Law or any other query related to the article above, please get in touch with the author Mohamed El Sayed Waaer directly on info@hlootahlaw.com About the Author: Mohamed is a Legal Consultant at HL & A. He is bilingual with fluency in English and Arabic, with extensive experience in dispute resolution, commercial law, arbitration, rental disputes, employment law, and trademark registration |
