Family businesses are very common in all the Emirates of the UAE. Here, many families run their own businesses that pass from one generation to another. Family businesses contribute a lot to the Emirate’s economy. The fact is, these businesses fail to maintain long-term sustainability in the country due to the absence of proper rules and regulations.
This happens because the vision of the company’s founder may not match the interests of other family members. Sometimes, the difference between the prospect and the plan can also lead to a lack of involvement and put the family’s business legacy at risk. However, to address this situation, the Sharjah Executive Council made a new law called Resolution No. 31 of 2024.
New Sharjah Resolution
The new Sharjah Resolution for family businesses was introduced by the Executive Council on 1st October 2024. It highlights a new legal framework for supporting the growth and management the family businesses in the UAE.
The main goal of this resolution is to safeguard the long-term stability and growth of family-owned enterprises in Sharjah. The reason is the business’s strong supporting role in the Emirates economy and strengthening their position in this.
The law introduces legal guidelines for families to maintain business continuity and protect their legacy.
Ownership, Management, Governing, and Inheritance of Family Businesses
Under this law, the family businesses can register officially as Family Enterprises in the Emirates. Every family-owned business must have an Articles of Association (AOA). This can identify it as a Family Business.
The resolution also defines the legal structures that family businesses can adopt. These can be Private Joint Stock Companies (PJSCs) and Limited Liability Companies (LLCs). The documents and legal requirements are also necessary for maintaining transparency in business management and accountability among all the family members and stakeholders involved in it.
What are the Rights of the Shareholders According to the New Law
The new resolution has introduced the rights of shareholders in family-owned businesses in the UAE. According to the law, the company should issue voting and non-voting shares to let the businesses align with their goal and shareholder rights. The shareholder rights can be described through the “Company General Assembly Voting System.
Under this law, even if the shareholder does not vote, he still has the right to receive profit from the business. Voting and non-voting shares easily defines the power holder in the company who can make decisions. It also helps in managing the business roles and the money involved by giving control to one of the family members. This system makes it easier to handle the business without giving rise to any dispute. You can also get help about this system and the law from the legal experts and lawyers in the UAE.
Rules for Transferring & Selling Shares in Family Business under the New Resolution
The new resolution has also highlighted some rules for selling, transferring, and redeeming the shares. According to the New Resolution article 5, the shareholder is exempt from selling and transferring their shares to anyone outside the family. This is why this new rule was introduced to keep the ownership within the family and protect the family business.
It is also seen that things never go as planned, and family matters usually give rise to many disputes. However, if the dispute within the family arises due to any reason and any of the shareholders sells his shares outside the family, the resolution will solve this issue too.
For this, there are two ways to decide the share value: one is the agreed value method and the other is expert valuation.
- In an agreed value method, the family business (the buyer back) and the non-family shareholder (to whom the shares were sold) can agree mutually on a buy-back price.
- Expert valuation method is used when both sides can’t agree on a price.
There is one more option that can happen. If no family member wants to buy the shares, the family business itself must buy them back. These rules are necessary for the business’s sustainability so it can stay under one family and operate well.
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Dispute Resolution & Governance in Family Businesses
Disputes often arise in family businesses due to internal conflicts and differences in opinion. The new resolution has also introduced a proper system where disputes can be handled.
In this family business, a business council must be formed to make decisions. It should include shareholders, where they can discuss and resolve disputes peacefully without affecting business operations.
If the family council cannot settle a dispute, the matter can be referred to the Sharjah International Commercial Arbitration Centre (TAHKEEM). TAHKEEM is a professional arbitration service that resolves conflicts in a fair, fast, and also confidential manner if needed.
The family businesses must also create a family charter that should organize the rules of the company which include:
- Its ownership
- The profit distribution
- How family members can be involved in the business.
This is necessary to because it prevent disagreement and set expectations for all members.
However, if any conflict happen between the Family Charter and the Articles of Association (AOA), the AOA will take priority, as it is the main governing document of the business. AOA is a legal document or we can say it as a rulebook for managing the business.
The Company General Assembly can appoint a supervisor to manage its properties so that things can be handled fairly.
This new Resolution has highlighted the need for family businesses to apply the Family Charter and AOA for a strong foundation of the businesses and to let them grow successfully.
Through this law, the family businesses can be passed to the next generations without problems. However, this new resolution aims to build stability of the business and encourage teamwork and a shared vision among the members.
This is all about the new family business law introduced by the government. For better consultation and understanding of the law, it is recommended to consult family business lawyers in the UAE.
