Understanding Dubai Law Number 9 of 2020 Regulating Family Businesses

‘’Any moment of crisis can either unite the family or can tear them apart.’ The quote itself explains the perils of a family business. Most of the UAE markets are dominated by family businesses. Any person doing any kind of business in the UAE will be well known by the family names who control the UAE market. Since the family businesses in the UAE have become the power system across a different range of industries, including real estate, construction, hospitality, retail, automotive, etc., financial market analysts believe that the progression of family businesses dominates wealth which is worthy of billions of dollars and employs more than thousands of people in the UAE and its other region. This not only will stimulate the initial local public markets but also give more significant depths to the domestic markets and produce more wealth.

However, when throwing light to the Law background, historically, there was no regulatory legal framework to tailor up the family businesses. The family businesses often have a good number of shareholders having different interests. Thus, risks of unorganized & confused structures usually end up in family disputes over ownership, succession, management, and right to income which could panic the third-party investors from investing in the family businesses. Understanding the necessity of a legal framework, keeping in mind of long term develop oriented and sustainable business which could bring more transparency, governance in the system and increase investor’s confidence in investment, The Dubai Ruler His Highness Sheik Mohammed bin Rashid Al Maktoum, Vice President and the Prime Minister of UAE, issued Dubai Law Number 9 of 2020 (the Law) regulating family ownership on 13 August 2020 chartered under a Special Judicial committee.

The Law was explicitly made in light of the significant offerings contributed by the family enterprises in the UAE, which magnified the Emirate’s economic structure and social cohesion. Under this Law, it enables the family members (pertinent to the fourth degree of successors) to enter into a legally binding and notarized contract. Family members with a common interest can opt to enter into such notarized family ownership contracts. All the Family members will hold collective ownership and administration over the family-owned properties except the public stocks. The purpose of the Law is to grant a comprehensible Legal Framework for all such family businesses to accelerate the protection, development & effectual progress of the assets and other properties of the family and their members.

 

Provisions under the Law

The Law elaborates each member’s share, distribution of wealth, proprietorship of the ownership, and the government’s role in corresponding to the new statute. Throwing light on the rule of Law number (9) of 2020:

1. According to the Law, the family contract ownership could be extended up to 15 years and is valid. The expired contract could be renewed if there is the consent of the other parties under the contract. The parties under the contract can tailor their Laws under the family contract if it deems to be appropriate, corresponding to other family members’ preferences. But there must be a majority of 75% of the consent of other members.
2. The contract ensures legal rights to the parties under the contract. The family assets could be movable or immovable, and the share of each of the family members should be specified in the contract. A date on which the contract becomes forceful should be enumerated in the contract. The contract will be accepted only after the demise of any family members who hold a title in the contract or bankruptcy cases. When dealt with bankruptcy and by disposing to the third party, the share could be offered to the third parties only after offered to the members first, and there should be 51% of consent from the members.
3. The special judicial committee consisting of experts in Legal, Family Management & Finance will be responsible for settling the disputes emerging from the family property contract and securing the contract’s confidential matters and privacy. The Law further quash any other laws that can refute the provisions of ‘Dubai Law Number (9) of 2020 Regulating Family Ownership’.
4. The Contract should be properly testified to the Notary public under the orders and regulations specified by Notary Public in the Emirates of Dubai in Law Number (4) of 2013.
5. A party under the contract could acquire the interest of another member’s property under the contract through the transfer of the interest or via successors only under the special provisions and consent of other members.
6. The family must appoint a manager for the administration of the family properties. The manager should be selected by a two-thirds majority of decisions of the members of the contract. He could be a group of people or a legal individual. They will have specific duties and commitments specified under the contracts (not like other trust’s fiduciary duties). A Manager should be meticulous and should outline the family property’s financial performance and are not supposed to engage in the subject of family assets without the parties’ consent. The family can also appoint a board of directors to supervise if the parties wanted to check the family finance’s performance standards and ensure the concept of quality governance.

 

Significance and Implications of the Law

Previously, there was no other compressive Legal framework to address the issues corresponding to the family disputes arising from the ownership, right, and distribution over the family properties. These often-repeated conflicts often negatively affect the family enterprises’ financial growth, resulting in the predicted downward spiral. Hence, the Law’s establishment could bring out positive implications in the economic stability and social harmony in the family business.

The comprehensive legal framework regulating family business could ensure Progression, smooth transition, and family asset development to successive generations. Continuity maintained helps to amplify its role to achieve economic and social growth in Emirate, which also protects the wealth and modulates inter-family relationships. Social harmony will be held, resulting in eluding disputes between the family members, which unify them into substantial and solid partners competing in all economic activities, motivating them to serve the society in terms of education, culture, and health. The framework is hospitable for the family who is anxious to safeguard their assets for their future successive generations and also enhances transparency & stability between family members and their businesses.

Preparing of relevant management and real estate logbook should be duly executed since the mere existence of this Law is to recognize such eminent issues of governance and succession that take part in the future triumph of the Family Businesses and Dubai.