The Dubai government passed a new law that seeks to promote continuity, sustainability, and the flexibility of a family’s wealth. It also aims to promote solidarity among family members and ensure that each generation takes over the family businesses smoothly. This law recognizes that family businesses contribute to the UAE’s social and economic development.
The Prime Minister and Ruler of Dubai Sheikh Mohammed bin Rashid issued the law that allows for the formation of new family contract ownerships outlining every member’s rights and responsibilities.
Family Businesses Can Now List on Financial Markets
The UAE cabinet approved a draft law to allow family businesses to list on the country’s stock markets. This law aims to provide opportunities to grow in the future. This will allow family-owned businesses to act as public joint-stock companies. It will also boost the continuity of family businesses and create rules for their governance. Family businesses have been around in the UAE and are some of the significant elements of the economy.
Apart from the oil businesses, family-owned companies account for a larger part of the gross domestic product. This law targets local and foreign investors; this will strengthen the UAE’s competitive environment.
The New Law Regulating Family Ownership
Law No. (9) of 2020 regulates family businesses in Dubai; it outlines a clear legal framework of what family-owned means and how to smoothly transition from one generation to the next.
Here is what you need to know.
The law recognizes that basic non-economic family life concerns are fundamental, not secondary to the business structure and members’ mutual expectations. Family relations often get in the way of business matters. It is necessary to consult a legal expert from a law firm in Dubai to help you solve family issues. The constitution provides ways of dispute resolutions within a family-owned business.
Conflicts are a part of everyday life and they can bring down a business. It is necessary to settle these disputes for the preservation of the company. When managed correctly, conflicts can be beneficial. It can promote change, fresh ideas, creativity, and foster unity.
The law allows family members to enter a legally-binding and notarized contract; it allows the collective administration and ownership of the property for the members who are part of the contract and their successors. The law allows up to the fourth-degree family members with a mutual interest to own property jointly in line with the family property contract regulations. This law applies to new and existing family ownerships like proprietorships and corporate equity securities. Movable and immovable properties and public joint-stock companies are excluded.
What Makes a Legally-Binding Contract?
For the law to recognize a family ownership contract as a legally-binding entity, involved parties must belong to the same family and have a mutual interest. The contract must also clearly outline each member’s share. Involved parties must own all the legal rights of the assets and monies under the contract. The contract must be verified by the notary public in adherence to the rules and regulations of the Notaries Public law of Dubai (Law No. (4) of 2013).
This law stipulates that family ownership contract validity can last up to 15 years. The contract can also be renewed for a similar period if all concerned members agree. An expert from a law firm in Dubai can help you to draft and renew your contract according to the requirements. The law controls the details of the family ownership contract, the formation of the board, business structure and management, authorities, management and board responsibilities, and the power and limitations of the management. The law also outlines the role of government bodies in the formation of these businesses.
The Significance of the Law
The objective of this law is to encourage and support family members who have a mutual interest to engage in a venture. Family members are free to establish the terms of the contract. This allows the parties to cater to various ideas for the mutual benefit of every member this includes outlining the specific ownership proportions according to the rights to capital and income and management and administration of the property.
The family property administration responsibility lies in one or more managers. The family property contract outlines the terms of management, the managers’ roles, and their appointment and dismissal. The law also provides that members can acquire interests when an individual transfers his interests in the family property contract. This could be through inheritance by successors or by other provisions like transfer to third parties or bankruptcy.
This new law was established to support family members with mutual interests willing to invest in a profitable venture. It allows for the preservation and smooth transition of family businesses to the next generations. The family property contract is a legally-binding entity with provisions on administration and management.