Purpose, values and giving in a charter: recording intent and its limits

Article 6 of Federal Decree-Law No. 37 of 2022 expressly allows a family constitution to contain the family's objectives and values. Those sections do not bind. The Governance Guidelines published by the Dubai Centre for Family Businesses state that, given the breadth of a family constitution, certain guiding principles for the family, such as family vision statements and family values, cannot be binding, although they can still bind family members emotionally in their dealings with each other. The same guidelines state that provisions on family vision and values, family employment, next generation involvement, the family office and matters relating to the welfare of the family, unity and cohesion typically cannot be legalised through a shareholders' agreement or articles of association.

The components tables in those guidelines record, among other things:

• family philosophy, including whether the family has a family first or business first orientation, and how it prioritises between the needs of the business and the needs of individual family members
• a statement of values and a shared vision, described as setting expectations with respect to actions and behaviour and promoting alignment among the family and the business
• family welfare, including the services provided to family members, the funds and allowances that can be offered such as an education trust fund or medical insurance, how they are funded and monitored, and how family members who are disadvantaged or have disabilities are supported
• next generation development, including the development agenda for next generation family members and the policy on loans to family members, for example a venture programme where a family member wants to start a new business
• rules on family members' personal investments and private businesses and on conflicts of interest, and their application to family members working in the business, those active on the board and passive members

Philanthropy sits in the same component. The guidelines describe recording the manner in which family charitable activities are undertaken, including how they are organised and the causes to support, and whether contributions are carried out collectively by the family or are the responsibility of individual members. They note that philanthropy is often used to maintain the family legacy and as a tool to build family alignment, particularly among the next generation. They also record the question whether formal vehicles such as waqfs or foundations are needed to manage charitable giving.

The sample family constitution published by the centre illustrates one form. It provides for a charity committee which seeks charitable causes based on an overall strategy communicated by the shareholders' assembly, and which ensures the family office manages its administration and finances, receives annual income from the company, invests reserves, and monitors and makes payments to charities as directed. The amount dedicated to charitable activities is set as a percentage of the previous year's annual profit equal to the Zakat requirements of the shareholders.

Where charitable intent acquires legal form, it does so through separate instruments. The guidebook published by the Dubai Department of Economy and Tourism with the Dubai Centre for Family Businesses points to waqf under Federal Law No. 5 of 2018 on Waqf, to Dubai Law No. 14 of 2017 regulating endowments and gifts, to Dubai Law No. 17 of 2022 on the emirate's Endowments and Minors' Trust Foundation, and to foundations. Under the DIFC Foundations Law a foundation may be established for objects which are exclusively charitable. Its objects must be certain, reasonable and possible, and must not be unlawful or contrary to public policy in the DIFC. They may be amended only where there is an express power in the charter or by order of the court, and where a charter specifies an exclusively charitable object it may not provide for amendment substituting a non-charitable object.

The Governance Guidelines state that the process of producing and drafting a family constitution is a useful exercise in itself, as it will engage the whole family and provide a platform to explore all aspects of the family's dynamic and circumstances, and that any underlying issues with the potential to cause conflict in the future may be detected during it and addressed by facilitating dialogue among family members.

The guidelines record a set period in which the constitution is revisited, typically every two to three years, so that the rules remain applicable, and the examination and renewal of the rules at minimum in every generational cycle so that family members in all generations feel ownership of its contents.

This article is educational and is written with law firms. It describes general positions under the law in force and is not advice on any family's circumstances. A family should take its own legal advice. Nothing here indicates that the programme has verified or endorsed any structure, document or arrangement.