18 Apr 2022
Family-owned businesses are significant to the economies of Middle Eastern countries, and the United Arab Emirates does not constitute an exception. Family business ownership structures in the region are not all the same and they vary a lot in size. Some can even become multinational groups, following the examples of Al Rajhi Banking Investment Corporation in Saudi Arabia and Al Habtoor Group in UAE.
There is a famous adage saying that it only takes three generations for a family business to go from rags to riches and back to rags. To prevent this from happening, the right family business ownership structure must be set up.
It starts with the form of the company. The best option for a family business is to have a holding company and subsidiaries constituted as LLCs. The holding company should have limited if any, liability regarding the activities conducted by the subsidiaries.
Moreover, the family business should implement comprehensive governance, including a family business constitution, a code of conduct and a thorough voting system before making decisions. Such governance should enable the future generation to deal efficiently with changes in the business activities and structure. This governance demands thorough thinking and consultations before making significant decisions and will enable to set up and achieve goals through consensual agreements.