An Overview of Family Offices in the UAE
An Overview of Family Offices in the UAE
Based on the results from the “2023 Global Family Office Compensation Benchmark Report” by KPMG and Agreus, there is a projection that the financial wealth in the UAE, primarily generated from ultra-high-net-worth individuals and family offices, is set to experience a 46% growth by the year 2026. The overall financial wealth of the UAE is expected to sustain a consistent compound annual growth rate (CAGR) of 6.7%, reaching a total of USD 1 trillion by 2026.
Following the issuance of Federal Law no. 37 of 2022 (“Family Business Law”) in October 2022, which became effective on 11 January 2023, this Guide provides a comprehensive introduction to the legal considerations and structure in relation to the establishment of Family Offices in UAE (“Family Office(s)”).
Introduction to Family Offices in UAE
Family Offices are established to serve specific families by overseeing their financial affairs, which can include a variety of services, such as asset management. These Family Offices are owned by members of that family (“Family Shareholder(s)”). The largest Family Offices, those owning a significant number of assets, often prefer not to outsource services to reduce costs, reduce expenses, and improve the productivity of their in-house team.
Objectives of the Family Business Law
The Ministry of Economy reports nearly 90% of private companies in the UAE are family businesses involved in various sectors, contributing approximately 70% of the country’s gross domestic product (GDP).
The Family Business Law, as outlined in the Article 2, is designed to support the sustainability of family businesses, strengthen the private sector’s role in the UAE’s economic growth, and enhance the contributions of family businesses to the UAE’s and competitiveness. It also addresses the management of structures such as trusts and other assets-holding entities for preserving generational wealth and offers mechanisms for resolving family disputes.
Certain key services are kept within the Family Office for reasons of confidentiality, privacy, asset control, consolidated asset management, and independence. Therefore, opting for a Family Office structure is the appropriate choice for managing these services.
Scope of Application 1
I. According to Article 3.1, the Family Business Law applies throughout the UAE, unless a specific emirate has its own regulations for such companies. In this case, the law only applies to the aspects not regulated by the local regulations.
II. Article 3.2 of the Family Business Law states the law covers any Family Office in the UAE, whether it existed before or after the law’s enactment, with the exceptions for public joint stock companies and general partnerships.
III. Under Article 3.3 of the Family Business Law, Family Offices established in Free Zones are subject to the law as long as their operations align with the laws, regulations and legislation of the relevant Free Zone in relation to their formation, registration, and other related matters.
Family Business Register
It is important understand that, as per Article 4 of The Family Business Law, a Family Office must be officially registered in a dedicated register, established through collaboration between the Ministry and the Competent Authority. This means there will be a specific record for Family Offices. The Ministry will issue a document certifying the registration of a company as a Family Office, and this document will be amended whenever there are changes in the Family Office’s information.
A Family Office is also required to have a Memorandum of Association (“MoA”) outlining the fundamental aspects. A Family Office also has the option to create a family charter that governs more detailed family-related aspects of the office, including ownership, objectives, family values, family members’ qualifications for working in the Family Office and its subsidiaries, resolution of family disputes related to the Family Office, and other relevant rules and provisions.
Shareholders the Family Office
Article 6 of The Family Business Law outlines the option for the family to create a “Family Charter” specifying the minimum educational and experience requirements for shareholders and family members working in the Family Office and its subsidiaries. In the event of conflict between the MoA and the Family Charter, the provision of the MoA takes precedence, and any conflicting Charter provisions are voided.
Article 7.2 states that the capital of the businesses will be comprised of shares that may grant shareholders varying rights in the business’s profits, as detailed in the MoA. The ownership of shares in the Family Office is opened to a minimum of one shareholder with no maximum limit, allowing multiple generations of the family to possess these shares.
Article 8 explains that if a shareholder wishes to sell their shares, they must first offer them to other Family Members, unless the transfer is to a spouse or first-degree relative.
Transferring shares to a third party outside the family requires approval from shareholders holding at least 75% of the capital unless the MoA specifies differently.
Additionally, within 60 days of a non-member acquiring these shares, family member shareholders have the right to request the redemption, based on their share in the family business or more if some shareholders opt not to redeem. If no family member shareholder requests redemption, the shares are offered to the Family Office. If the Family Office does not wholly or partially redeem the shares within 30 days, the non-member is allowed to take ownership of them.
To safeguard the family enterprise and ensure the Family Office shares remain within the family, Article 8 imposes strict controls and procedures on the transfer of shares to non-family members. Recognizing the potential disruption caused by conflicts among family members and their impact on business management, the Law provides flexible mechanisms and dispute resolution options to settle issues within the family and their partners. This approach aims to foster trust and a sense of security among family members.
According to Article 9.1, if a single shareholder owns 90% or more of the Family Office shares, that shareholder must inform non-family member shareholders of their intention to purchase their shares. Non-family members can then sell their shares to this majority shareholder at a mutually agreed-upon price, in the event of disagreement, the Committee can determine the price.
As per Article 9.5, if a single shareholder possesses 95% or more of the voting shares, they must notify family member shareholders of their intent to acquire their shares. In this case, family members have the option to sell their shares this majority shareholder at a price agreed upon between them or determined by the Committee in the event of a disagreement.
Finally, Article 11 grants the Family Office the authority to repurchase its own shares, but this is limited to a maximum of 30% of its shares. This provision serves many purposes, including capital reduction, and the acquisition or redemption of shares from shareholders wishing to sell, experiencing bankruptcy or insolvency when no other shareholders are interested in purchasing or redeeming those shares.
Family Office’s Shares
Article 12 allows the Family Office to authorise the issuance of two types of shares:
i. Class (A) shares provide their owners the right of both receiving profits and voting during the general assembly meetings of the business.
ii. Class (B) shares provide their owners with the right to receive profits but do not provide voting rights.
Article 13 requires the Family Office to distribute a portion of the annual profits to the shareholders at the end of each fiscal year.
Family Office’s Management and Board of Directors’ Structure
According to Article 14, the appointment of the Family Office Manager can be made in accordance with the MoA or by a subsequent decision issued by shareholders holding a minimum of 51% of the shares. The Manager may an individual or individuals, either from the partners themselves or from third parties, including legal entities. However, if there is more than one Manager, at least one of them must be a natural person.
Article 14.3 states that the Manager is eligible to serve as a board member within in the Family Office but cannot hold the position of the Chairman. The manager is expected to maintain independence, free from bias and personal interests, and must prioritize the interests of the Family Office over all other considerations.
The MoA of the Family Office has the authority to outline the formation of a Board of Directors to oversee the management of the Family Office. This MoA can also include the regulations, criteria, and conditions governing the board’s formation, powers, term of membership, member remuneration, dismissal procedures, appointment of substitutions, decision-making processes, and any affiliated committees and their powers. The MoA can also include specific personal and objective qualifications for board membership and committee participation.
As per Article 15.1, the Manager is responsible for the executive management of the Family Office and serves as its representative in dealing with courts, shareholders, and third parties. The extent of this representation and the Manager’s signatory should be documented in the Family Office MoA.
Article 16 states that the Manager must exercise the necessary due care and diligence in the management of the Family Office. The Manager is prohibited from directly or indirectly engaging in any economic activities that compete with the Family Office or its subsidiaries. The sale of Family Office assets is allowed within certain limits, unless otherwise agreed upon in the MoA or by a majority of the Partners.
Article 17 outlines the conditions for the Manager’s dismissal, as specified in the employment agreement or MoA. If the Manager has been employed for an indefinite term as explicitly mentioned in the MoA, the same majority required for amending the MoA is necessary for dismissing the Manager.
According to 19, the MoA or the Family Charter can include a provision allowing the establishment of a board composed of the Shareholders, Family Members or third parties. The purpose of this board is to address disputes that may arise among Shareholders themselves, between Shareholders and family members, or between Shareholders and the Family Office. The board members will define their authority and the procedures for managing their deliberations and issuing recommendations.
However, if the MoA or the Family Charter do not include a special provision for the formation of this board or if the board fails to resolve disputes within a maximum period of three months from the date of receiving the dispute or if the involved parties mutually agree not to refer their disputes to the board, then the matter will be forwarded to the Committee. This timeframe can be extended through an agreement between the parties.
Article 19 also states the Committee will make a decision on the appeal within a maximum of three months, with the possibility of an extension for a similar period if requested reasonably by the concerned parties. The committee is authorized to implement any necessary preventive and urgent measures to ensure the continuity of the Family Office, prevent business disruption, and safeguard its reputation and financial position throughout the dispute resolution period.
Furthermore, any decision made by the Committee can be appealed before the Competent Court in the UAE, as indicated in Article 19.
As an exemption to the Committee’s jurisdiction, Article 21 allows the parties involved in the dispute to agree to refer the matter either to arbitration, following the applicable laws in the UAE, or to the existing courts in the Dubai International Financial Centre (DIFC) or the Abu Dhabi Global Market (ADGM).
Invalidity of Family Office
Article 23 specifies that the legal standing of the Family Office will not be terminated in the event of a shareholder’s death, interdiction, bankruptcy, or insolvency, unless otherwise agreed upon in the MOA. In such events, the surviving shareholders have a three-month window from the events to bring the company’s status in line with the requirements outlined in the Family Business Law and the Companies Law. This period can be extended by the competent authority if necessary.
With the approval of the shareholders who collectively own at least 75% of the Family Office’s shares, they have the option to request the Ministry to remove the Family Company from the Family Business Register.
Finally, the Ministry of Economy in UAE remains committed to working alongside its strategic partners at the local and global levels to implement this law. This law represents a significant stride in the country’s efforts to attract domestic and foreign investments in the family business sector, a key element of the UAE’s new economic model founded on knowledge, innovation, and creativity.
The author of this Galadari Insight is Bassem ElAzhary.
Bassem is a Senior Associate on the Corporate Commercial team at Galadari. He has almost two decades of experience in general corporate, commercial, and M&A transactions for listed companies across the MENA region.
For more information on Galadari’s Corporate Commercial Practice, please contact Bassem directly.
1 The Family Companies Law provides that a Cabinet Decision shall be issued setting out the documents required and the procedure that will need to be followed in respect of such registration.