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Jimmy Haoula explains, to Khaleej Times, that one of the key attributes of the new law is the prevention of the sale of shares or dividends of family-owned businesses to individuals or companies outside the family. “In order to do so, prior approval from family members
is now required before any shareholder can sell an equity stake to a non-family
member. This safeguards the business from potentially hostile situations or
unpredictable deals which could negatively impact the operations of the
business and the family shareholders within the company,” said Haoula.

“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.”

On how the new law is different from the existing law,
the legal expert says the current law does not apply to family-owned businesses
where non-family members own more than 40 per cent of shares, whereas the new
law will be applied to family-owned businesses on an opt-in basis for owners or
co-founders by submitting a request to the Department of Economic Development
(DED).

The DED will issue the implementing and administrative
regulations to the new law in March 2022.

The law stipulates that no partner may dispose the
share thereof to a person from outside the family, outside the framework of the
law, unless by approval of all partners. In case a person from outside the
family owns shares or equities in the company for any reason whatsoever, then
the company may recover such shares at fair market value.

According to the law, family
businesses shall no longer be entitled to the capacity and benefits granted
thereto by virtue of this law in case the new partners from outside the family
own more than 40 per cent of the shares. The dual voting shares lose their
characteristics; the preference shares become ordinary shares or debts that the
company shall immediately pay if its capital is reduced as per the amount of
the preference shares written off.

According to authorities, the new
law aims to further strengthen the family-owned business legislative ecosystem
by following a sustainable economic model.

What is a family business?

According to the law, a company
shall be deemed as a family business, regardless of its legal form, in case it
meets the following:

• The
  members of the same Family own the whole capital of the company.

• The
  members of the same Family own a company owned by many juristic entities
  which are totally owned by the members of such Family.

• The
  founder solely owns a single shareholder company and allocates all or some
  of its benefits to the members of his Family.

• The family
  owns the majority of the capital or keeps the majority of votes in case of
  involvement of new partners from outside the Family to the extent
  stipulated in this Law.

• The family
  business allocates a part of its profits to the Beneficiaries as agreed by
  the Founders or as prescribed in the regulations of the company.

The family business is established
or its situations are adjusted to be in conformity with this law, by virtue of
the articles of incorporation, bylaws and the annexes thereof, as stipulated in
aforementioned Federal Law no. (2) of 2015 as well as the regulations related
to the organisation of the economic activities in the Emirate of Abu Dhabi.

 This article was originally published in Khaleej Times > ‘Explained: How the UAE’s new family business ownership law protects against ‘hostile situations’, surprise deals’.