Overview of UAE and KSA recent legislative developments

The UAE and KSA have each witnessed new developments with the enactment of legislation designed to support family businesses and provide them with robust ownership options and mechanisms to sustain effective governance and management.

The stability of all family businesses is critical to ensuring the ongoing economic stability of these key strategic Middle Eastern countries, given the fact that a significant proportion of each economy is dependent upon such dynastically-owned business empires remaining operational and successfully profitable. Disruption to family-owned businesses can directly translate into disruption of these fast-developing economies. The UAE’s recent family business legislation aims to enable long-term legacy and succession planning. Interestingly, the amended Companies Law of Saudi Arabia that came into force in January 2023 ensures that similar objectives are fully achievable if the right steps are taken by Saudi business families.

Progressive measures

Saudi Arabia

The Kingdom of Saudi Arabia introduced a new Companies Law (KSA Companies Law), which came into effect in January 2023.

In line with the Kingdom’s 2030 Vision, the KSA Companies Law introduces new changes to legalize and safeguard the management and governance of family-run businesses and encourage families to address issues of succession that had remained unaddressed to date. Indeed, the KSA Companies Law fills a regulatory gap relating to Shareholders’ Agreements and Family Charters, where the operative provisions of such arrangements and agreements may now be formally incorporated with the company’s constitutional documents and Articles of Association. Previously, neither the Shareholders’ Agreement or Family Charters were formally recognized by courts or given legal validity.

As the operative provisions of a Family Charter will now be legally enforceable (provided they are not in contravention of Saudi law or public policy), it is possible to benefit from these provisions in order to: a) simplify archaic ownership structures; b) enhance governance mechanisms to create a more equitable, inclusive and sustainable governance framework; and c) enforce the shareholder distribution policies contained within Family Charters thereby protecting the economic interests of all family members.

United Arab Emirates

The Family Business Law which came into effect in January 2023 (Family Business Law), constitutes a welcome development in support of UAE-based businesses privately owned by a single family. It functions as an opt-in legislation that requires family businesses to register in order to obtain a recognized status and avail various benefits. The Family Business Law establishes an accessible legal framework that regulates ownership and governance of family businesses and facilitates the transition of such corporate ownership between existing family members and their successors, so as to ensure the smooth continuation of family businesses from one generation to the next.

A Private Wealth Centre in the Dubai International Financial Centre (DIFC)

Another key innovation in the UAE, which is arguably the first of its kind worldwide, is the DIFC’s Family Wealth Centre (Centre) established in September 2022. The Centre was created with the aim of strategically positioning the DIFC as an optimal jurisdiction for international family businesses, family offices and for wealth preservation and asset protection using foundations, trusts and related corporate structures.

The Centre also aims to raise awareness of wealth preservation and asset protection by providing advisory and educational services, promoting best practices and by organizing focused networking and business development events for members of the Centre.

DIFC Family Arrangements Regulations (FA Regulations)

The DIFC Authority’s recent introduction of the extensive FA Regulations governing the constitution and conduct of family businesses, family offices and wealth structuring activities in the DIFC, which came into force in January 2023, will position the DIFC as the ‘jurisdiction of choice’ for family offices and family businesses in the MEASA region and beyond.

The detailed provisions of the FA Regulations will serve as a formal framework which aim to enhance and elevate the newly created Centre and enable the DIFC to truly position itself as a superior global jurisdiction of choice for all family enterprises.

Authored by: Sunita Singh-Dalal, Ellen Ray, Jennifer Abou Fadel, Ella Moldoveanu