New Sharjah Executive Council Resolution

Legal Framework for Family Businesses

In the United Arab Emirates (UAE), family businesses contribute a lot to the country’s economic growth, in all the Emirates. Every family business’s common challenge is its sustainability, its growth and its continuous improvement. But sometimes, the sentiments of the company founder do not align with those of other family members.

It causes the reason of lacking the interest of many individuals in the family business, so the generation may not lead the legacy of their families. To ensure that the family enterprise remains protected, family members have an interest and avoid as many disruptions as possible, a new regime has been set in Sharjah. We are discussing the new resolution passed in Emirate of Sharjah.

Sharjah Executive Council introduced Resolution No. 31, on 1^st October 2024, which is a comprehensive legal framework. A legal interpretation for owning, and managing a family businesses in Sharjah. It is about the important role in Sharjah’s economy, and this new resolution ensures that family businesses can be operated and forwarded across generations with ease and without hurdles.

The new resolution aims to protect the long-term stability and growth for Sharjah based family-owned businesses/enterprises through detailed guidelines and legal mechanisms.

The primary focus of the Resolution is to promote the family businesses and provide a stability. The focus is to establish a non-stop contribution to Sharjah’s economy and its rapid growth. By permitting family businesses to pass down through generations with the fewest disruptions, the new resolution promotes the sustainability and growth within Emirate of Sharjah.

The new resolution has specified the important requirements for registration of family enterprises in Emirate of Sharjah to run business operations smoothly. Every family-owned corporation has to have Articles of Association (AOA) that identifies itself as a “Family Business”. Moreover, it specifies the legal explanations and requirements, that family businesses can have, including private joint stock companies (PJSC) and limited liability companies (LLCs). Such paperwork requirements Makes sure:

1. Transparency
2. Accountability

The Resolution pays the special attention to rights of shareholders, in family owned businesses. It allows the flexibility to issue voting and non-voting shares to ensure family goals are fully aligned with shareholder rights. The shareholder rights in family businesses can be explained through the “Company General Assembly Voting System”. You can contact our lawyers and legal consultants, for the further services and support. Whether or not the owner votes, they can still enjoy the profits in the business. It explains the ownership of the family business that aligns with its family business goals and responsibilities, For example, managing the financial benefits amongst family members. With the integration of voting and non-voting shares, it is easier to explain the ownership rights and decision-making power in family businesses. The new resolution makes it easier to manage the family businesses in Sharjah. For details and legal support, book a legal appointment with or legal experts. Our law firm offers the legal services not just in Sharjah, all over the United Arab Emirates indeed.

Article 5 of this new resolution stops shareholders from selling or transferring their shares outside the family, in order to maintain the family ownership. If Article 5 is violated, the family business can reacquire those shares. Let us explain the two valuation methods to redeem shares:

• Agreed Value Method: This method is for buy-back price which can be agreed between family business and a non-family shareholder.
• Expert Valuation: This method is about acquiring the expert services. If both parties cannot agree on a value, an expert will determine the value of the share.

However, if a family shareholder does not want a share or no one in the family wants to purchase those shares, then the family business has to reacquire those shares. Such strategies keep the family business secure, and ownership remains in the family.

The dynamics of family businesses might be very complicated to understand. It can also lead to disputes. The Resolution has introduced a dispute resolution strategy under Article 9. Under this article, a council will be formed among family shareholders to address the dispute, resolve it with zero disturbance, and encourage cooperation within the family business.

If the family council has not successfully addressed the conflict, Article 9 allows disputes to be referred to the Sharjah International Commercial Arbitration Centre (TAHKEEM), a professional and efficient arbitration service. Check with Arbitrators in Sharjah for this.

The Resolution enables family businesses to create a Family Charter to withhold policies regarding family ownership rights, profit distribution, and shareholding value. Furthermore, the Family Charter indicates the responsibilities and expectations of the family members to avoid major disputes within the family. In another event, if there is a dispute between the AoA and the Family Charter, the AOA or Article of Association will rule the family business and have an authoritative view in the company’s governance documents.

The Resolution allows family enterprises to be considered endowed properties under Law No.8 of 2018, which regulates endowed properties in Sharjah. The Company General Assembly can appoint a supervisor for the endowment and conform their duties as supervisors of the family business. Article 7 of the Resolution takes adequate measures for transparency purposes to avoid disputes and manage effective endowments.

The Regime allows family business founders to pass down their legacy to family members across the UAE and promote cohesion rather than ruining the business with disputes amongst the family members. However, the family businesses will run smoothly if the founders’ vision is available to all the family members and their shareholders. It will keep the family enterprise safe from any potential threat or governance. The implementation of the Family Charter and AOA highlights the commitment of the UAE government to family businesses in Sharjah. The law has formed a solid foundation for the business to sustain and strengthen the private sector of the UAE.

Family businesses play a vital role in the economic growth of the UAE. Therefore, family business regimes are comprehensive to ensure the rights of family members as shareholders as a preventive measure for dispute resolution. The lawyers in Sharjah can guide you more about family businesses and how you can manage the family legacy with the intervention of the new laws of the family business. However, a family business can only sustain itself if it has a goal to achieve.

Content can be outdated or incomplete. Therefore no liability is owned. It is always recommended to consult the experts first then take a legal action.