Setting up a Family Business in UAE

A family business is a unique kind of business. It ought to be handled with uttermost care. Families own or control a vast majority of businesses around the world. By far, the most prevalent form of organization in the world is a family business. In the United States, family-owned businesses account for 80%– 95% of all businesses. Family businesses account for 70%-80% of all businesses in Europe, and in the Middle East, 75%– 90% are family-owned. Family businesses can be found in every country around the globe. Family businesses often control the economy of their respective countries or regions. A family-owned business can be defined as a business wherein two or more family members have been involved, and the majority of ownership lies within the family. These businesses are the oldest form of a business structure, having farms as an early form of the family business. Historically, no legal system has been developed expressly for family-owned companies. This also means that informal agreements are placed in order to deal with the rights and responsibilities of businesses of this kind, leading to disorganization and incoherence. This will lead to confusion and conflicts over possession, rights, administration or management, and succession. It can also affect regular operations, business plans derailed, and investors deterred. Many family businesses still have difficulties identifying guidelines and qualifications for family members who hope to participate in the company. In order to minimize conflicts, certain companies aim to restrict the involvement of individuals of some connections to the family, such as in-laws. Family companies also face pressures to recruit relatives or close friends who may lack the skills or talent to contribute to the company. If employed, such people cost money to the company or decrease morale by displaying a negative attitude, which can be hard to fire. Suppose a company is required to recruit a less-than-desirable employee. In that case, it is recommended to have extra training to cultivate a useful skill, enlisting the assistance of a non-family employee in training and supervising, and assigning tasks that minimize negative contact with other workers.

Laws for Family Businesses in the UAE

Family-owned businesses represent a significant part of the business community in the UAE and play a key role in the development and expansion of the UAE and the GCC economy. Many of these enterprises have expanded rapidly with broad and very ambitious investment objectives and prospects. Recently, a family business law was enacted by the Dubai government. The legislation is intended to preserve, the scalability of family wealth and sustainability and encourages solidity between family members. Law No. 9/2020 acknowledges that family enterprises make a valuable contribution to the social and economic development of the UAE. Effective legal advice from family lawyers can help them to make the business more reliable and transparent for both parties. In the context of the convergence of business and family law, Dubai’s family business law is a bold attempt to compensate for the vacuum. Families are characterized as extensions of family life through broader economic objectives and closer relationships.

  1. Firstly, contracts will definitely help to define various questions to be answered while creating guidelines for default rules adapted to the needs of a business-owning family. A well-written family constitution or agreement will have ownership rights and family employment policies.
  2. Secondly, the current legislation aims to promote the voluntary involvement of the family by identifying and managing their expectations. It also reaffirms the fundamental objective of developing contractual documents that enable people to take responsibility for their matters, which is of specific importance in the context of the family business where the ties with their members are complicated and impact all decisions choices about business planning.

Single-Family Offices and its Regulation

A company that manages the personal and financial affairs of a wealthy family is commonly known as a single-family. Because of significant differences, several problems may emerge related to the transition from one generation to the next. The complexities of family businesses may also include:

  1. How does one handle succession from one generation to another?
  2. How will we make our company grow exponentially without compromising family spirit and values?
  3. How will family and non-family members be better rewarded?
  4. Will we attract a non-family member CEO?
  5. How do we distinguish between ownership and management?

There is a burst in the number of offices of a single-family with the boom in the creation of private wealth, particularly at the very high end. The main attraction for the ultra-rich in single-family offices is power and control. The owners of single-family offices will build an organization that suits and meets the needs and preferences of the individual and their family. In order to meet the needs of family-run institutions, the DIFC Single Family Office (SFO) regulations provide a platform for rich families to set up holding companies in DIFC to control private family wealth and family structures in all parts of the world. Unlike the conventional financial institutions, Single Family Offices (SFOs), when all their shareholders are bloodline descendants of a common ancestor, have no direct public liabilities. Therefore, their regulatory requirements vary considerably. DIFC has become a center for state, regional and international family offices by implementing certain regulations. The regulations follow establishing the DIFC Family Office initiative, which offers comprehensive infrastructure solutions for family businesses operating within the region. The DIFC Family Office initiative also aims at promoting the DIFC area as an ideal location for family offices.