As of October 1, 2024, the Emirate of Sharjah introduced a new legal framework for family businesses through the Sharjah Executive Council Resolution No. 31 of 2024. This resolution provides a comprehensive regulatory foundation to ensure the longevity and stability of family businesses, a cornerstone of the UAE's economy. Omam Legal Consultancy, a leading legal consultancy in Dubai, is dedicated to helping family businesses navigate these new regulations, ensuring smooth ownership transition across generations while safeguarding their legal interests within the context of companies law UAE.
Ensuring Continuity and Economic Contribution
One of the key objectives of the resolution is to promote the continuity of family-owned businesses by establishing clear guidelines on family business ownership, governance, and operations. The resolution enables family businesses to thrive over generations, strengthening their economic impact in Sharjah and contributing to overall economic stability. At Omam Legal Consultancy, we recognize that family businesses in the UAE require a robust legal foundation to transition successfully between generations and play a vital role in the local economy.
Ownership and Governance Structure
The resolution mandates that family businesses register under specific legal frameworks, such as Private Joint Stock Companies (PJSC) or Limited Liability Companies (LLC). It also requires the inclusion of "Family Business" in the articles of association (AoA). This structure not only provides clarity but also ensures transparency in operations, a core aspect of family business law in the UAE. Our legal experts at Omam Legal Consultancy guide businesses through each step of forming a corporate governance structure that aligns with family business law in the UAE and meets compliance standards, including the establishment of a board of directors when necessary.
Enhanced Shareholder Flexibility
The new family business legal framework allows family businesses to issue two types of shares: those with voting rights and non-voting shares. This flexibility enables families to maintain decision-making power within a core group while allowing broader family participation in profits through dividend distribution. Differentiating between voting and non-voting shares can create a governance framework that aligns with the family's strategic goals while maintaining stability and inclusivity. Omam Legal Consultancy offers expertise in structuring shareholder agreements that reflect these unique needs, ensuring a sustainable governance model for family businesses.
Safeguarding Family Ownership: Buy-Back Provisions
Under Article 5, the resolution prohibits the transfer of family business shares to non-family members, effectively implementing share transfer restrictions. If a non-family member acquires shares, the family business retains the right of redemption to buy back these shares at an agreed-upon value. In cases where a valuation dispute arises, an expert valuation process is in place to determine the share value fairly. This provision protects family businesses from external influence and maintains family control, a priority for many clients seeking stability within their family office framework. Omam Legal Consultancy's team provides guidance on buy-back agreements and risk management strategies to ensure the continuity of family ownership.
Internal and Formal Dispute Resolution Mechanisms
Disputes can be a significant challenge for family businesses. The resolution allows for the creation of an internal council, comprising family members, to resolve disagreements amicably. This council can function similarly to a family companies disputes resolution committee. Should internal efforts fail, disputes may be brought to the Sharjah International Commercial Arbitration Centre (TAHKEEM) for formal arbitration. By addressing conflicts within a legally recognized framework, this resolution mitigates risks that could threaten the family business's integrity. Omam Legal Consultancy is committed to helping clients establish family charters and governance frameworks that minimize conflict and promote harmony.
Establishing a Family Charter and Articles of Association
The resolution permits the creation of a Family Charter that outlines the rules for ownership, profit distribution, and dispute resolution, among other aspects. This charter plays a preventive role in dispute resolution by setting clear expectations for all family members involved in the business. In instances where conflicts arise between the AoA and the Family Charter, the AoA prevails, ensuring a legally sound governance structure. Omam Legal Consultancy assists families in drafting these critical documents to support long-term growth and stability, including provisions for inheritance and generational succession.
Incorporating Endowments and Appointing Supervisors
Article 7 of the resolution allows family business assets to be designated as endowments, managed under Sharjah's endowment law. This can serve as a safeguard for family assets while ensuring transparent management. Families can appoint supervisors, who may act as a family company manager, to oversee these endowments, adding another layer of security. With our in-depth knowledge of UAE legal frameworks, Omam Legal Consultancy helps families implement effective asset management strategies that align with both legacy planning and legal obligations.
Summary
The new Executive Council Resolution No. 31 of 2024 provides a structured approach to family business law in the UAE, particularly in Sharjah, creating a foundation that encourages family business continuity while addressing potential legal issues. It introduces concepts such as the family business registry and preemption rights to protect family interests. Omam Legal Consultancy is here to guide family businesses in understanding and applying this framework, supporting their growth across generations.
As the leading legal consultancy in Dubai, Omam Legal Consultancy specializes in navigating the complexities of family business law, including family companies law in the UAE and the legal framework for family businesses. Our expertise in this evolving legal landscape allows us to offer tailored, actionable solutions that support the legacy and economic role of family-owned businesses in Sharjah and across the UAE. For more information on how we can help with your family company register needs or other aspects of family business management, reach out to Omam Legal Consultancy today.
No Comment