The new rule will also prevent the sale of shares to third parties
A legal expert from the United Arab Emirates explained the new Family Business Ownership Governance Law by pointing out that it will ensure that family businesses remain in the family as it prevents the sale of shares to third parties.
Last week, President His Highness Sheikh Khalifa bin Zayed Al Nahyan, in his capacity as Ruler of Abu Dhabi, released the new Family Business Ownership Governance Law which further enhances the sector’s contribution to the economy. and facilitates the transition between successive generations.
Jimmy Haoula, Managing Partner, BSA Ahmad Bin Hezeem & Associates LLP explained that one of the main attributes of the new law is to prevent the sale of shares or dividends from family businesses to individuals or outside companies. to the family.
“To do this, the prior approval of family members is now required before a shareholder can sell a stake to a non-family member. This protects the company from potentially hostile situations or unpredictable agreements that could have a negative impact on company operations and family shareholders within the company,” Haoula said.
“Owners of family businesses can also issue family shares with weighted voting rights and prevent the pledging of family businesses as encumbered assets, in order to avoid expropriation.”
On how the new law is different from the existing law, the legal expert says that the current law does not apply to family businesses where non-family members hold more than 40% of the shares, while the new law will applied to family businesses. -businesses on an opt-in basis for owners or co-founders by submitting an application to the Department of Economic Development (DED).
The DED will publish implementing and administrative regulations for the new law in March 2022.
The law stipulates that no partner can transfer the share to a person outside the family, outside the framework of the law, without the agreement of all the partners. In the event that someone outside the family owns shares or shares of the company for any reason, then the company can recover those shares at their fair market value.
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In accordance with the law, family businesses are no longer entitled to the capacity and advantages granted to them under this law in the event that new partners outside the family hold more than 40% of the shares. Shares with double voting rights lose their characteristics; the preferred shares become ordinary shares or debts that the company will have to immediately pay in the event of a reduction in its capital up to the amount of the redeemed preferred shares.
According to the authorities, the new law aims to further strengthen the legislative ecosystem for family businesses by following a sustainable business model.
What is a family business?
According to the law, a business is considered a family business, regardless of its legal form, if it meets the following conditions:
- Members of the same family hold all of the company’s capital.
- Members of the same family own a company owned by many legal entities that are wholly owned by members of that family.
- The founder is the owner of a sole proprietorship and allocates all or part of its profits to members of his family.
- The family holds the majority of the capital or retains the majority of the votes in the event of the involvement of new partners outside the family to the extent provided for by this law.
- The family business allocates part of its profits to the Beneficiaries as agreed by the Founders or as prescribed in the rules of the business.
The family business is constituted or its situations are brought into compliance with this law, by virtue of the articles of association, articles of association and their annexes, as stipulated in Federal Law no. (2) of 2015 as well as the regulations relating to the organization of economic activities in the Emirate of Abu Dhabi.