An existing charter and the law now in force

Federal Decree-Law No. 37 of 2022 on Family Businesses took effect in January 2023. The guidebook published by the Dubai Department of Economy and Tourism with the Dubai Centre for Family Businesses records that, unlike the UAE Commercial Companies Law, the Family Business Law allows companies to include a further set of provisions in their constitutive documents. Documents drafted before January 2023 predate the availability of those provisions in that form.

Three features frame the rest. The law is opt-in, so a family business obtains the status only by formally registering with the registry office in the relevant emirate. A registered family business may choose which specific provisions of the law apply to it. It may leave by special resolution and de-registration, at which point the Dubai procedure records that the company continues in the legal form in which it existed prior to acquiring family business status, with its memorandum and articles of association amended accordingly.

The mechanics the guidebook records as available in the constitutive documents of a registered family business, with its article citations, are the creation of various classes of shares (Article 21.1), rights of first refusal where a shareholder wishes to sell (Article 8.1), share buy-back options in the event of a capital reduction or the bankruptcy or incapacity of a shareholder (Article 11.1), a redemption right where one holder's stake becomes very large, which the guidebook describes as squeeze-out rights and which Article 9 in the Arabic text, which prevails, words as a duty on the holder who reaches 90 per cent of the shares, or 95 per cent of the voting shares, to notify the other partners of a wish to buy their shares, and as a right for those partners to sell at a price agreed between them or at a price the committee determines, and an unlimited number of shareholders in a limited liability company (Article 7.1). The obligation Article 9 states is the obligation to give notice; the article sets no period within which the other partners must answer and states no consequence where they do not sell, and both official English texts render their position as a right or a permission to sell. Published commentary divides on the point, with some analyses describing Article 9 as a compulsory purchase and others as an exit route for the other partners, and no decision applying it is described here. Published law firm analysis of the law describes the buy-back as subject to a maximum cap of 30 per cent of the company's shares.

Amendment procedure is itself a component of the document. The guidebook records that the law requires a family charter to be approved by a majority of the members of a family council. The Governance Guidelines treat the amendment process as a section of the constitution in its own right, listing the timeframe for amendment, the trigger events that lead to a revisit, who can initiate the process, who leads it, who can approve or sign off revisions, and the percentage majority required.

Where a charter has been filed, amendment is a filing matter as well as a family one. The Dubai procedure for amending a family business registration lists amendment of the charter as an optional step alongside amendment of the memorandum and articles of association. On reclassification to a non-family business, a charter filed with the Dubai Business Registration and Licensing Corporation is automatically cancelled, and where the charter was registered with the Ministry of Economy, the Ministry will automatically cancel and remove it from its records.

The sample family constitution published by the Dubai Centre for Family Businesses suggests that family shareholders establish an entity, which could be a limited liability company, a trust, a partnership, a holding company or another available option, for the sole purpose of holding an interest in the family business. A DIFC foundation offers an architecture in which the split between a public and a private document is built into the law. Under the DIFC Foundations Law, DIFC Law No. 3 of 2018 as amended:

• the constitution of a foundation comprises its charter and, subject to Article 20(4), its by-laws
• the charter must be in English and must contain the name, the objects, a description of the initial capital, the duration where limited, and a declaration by each founder requesting the council to comply with its terms
• the charter may be amended only if the charter so provides or the court so orders, and an amended charter comes into force upon registration by the Registrar
• the by-laws must prescribe the functions of the council, the procedures for appointment, resignation and removal of council members and any guardian, the details of any remuneration, how council decisions are made and whose approval a decision requires, the extent of any delegation, and what is to happen to remaining property if the foundation is wound up and dissolved
• where all the matters required or authorised to be in the by-laws are contained in the charter, a foundation need not have any by-laws

The Governance Guidelines describe the engagement of third-party external advisers as common practice, and record that a third-party adviser can bring an informed, independent perspective where family dynamics combine with management, ownership and economic interests. The guidebook records that the Dubai Centre for Family Businesses runs an Advisors' Certification Programme, which aims to develop a pool of certified and accredited advisers for family businesses included on a central directory.

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.