UAE’s President Sheikh Khalifa has approved a new family business ownership governance law, bolstering the sector’s contribution to the economy and easing the transition to succeeding generations.
The new rule prohibits family-owned enterprises from selling shares or dividends to persons or corporations outside the family, and needs prior consent from family partners before a shareholder sells an ownership position to a non-family member, according to an Abu Dhabi Media Office statement on Tuesday.
It intends to further improve the family-owned company legislative ecosystem by implementing a more flexible and sustainable economic model that is consistent with top international governance standards, according to the statement.
The law also intends to increase the contribution of family companies to the economy’s diversity and growth.
Family firms account for over 90% of all private companies in the UAE. Last year, the UAE Ministry of Economy stated that it is contemplating new rules to assist family companies in growing, since they are an important element of the UAE’s ongoing transformation to a more sustainable economy.
“With decades of market experience, 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, family-owned businesses in Abu Dhabi continue to contribute to economic diversification and the knowledge-based economy,” said Mohammed Ali Al Shorafa, chairman of the Abu Dhabi Department of Economic Development.
According to the statement, family company owners can also issue family-owned shares with weighted voting rights and restrict pledging of family-owned firms as encumbered assets to escape expropriation.
The existing regulation does not apply to family-owned enterprises in which non-family members possess more than 40% of the stock, it noted.
“This law is a critical pillar in increasing the critical role that these enterprises play in promoting economic growth.” It also offers a legal framework to enable the expansion and viability of family-owned businesses in pace with the expanding business sector, since it permits non-family members to own up to 40% of the capital. This will help family-owned businesses grow and expand, according to Mr. Al Shorafa.
The new law’s rules are applied to family-owned enterprises on an opt-in basis for owners or co-founders by making a request to Added, which will publish the new law’s executive and administrative regulations beginning in March 2022, according to the statement.