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29 March 2024

How Dh3.7 trillion is set to change hands sans in-family conflicts

Published
By Waheed Abbas

A new family business legal framework will be submitted to GCC governments this year, which will be fully in line with the Shariah laws in order to streamline the transition of power and business to the next generation smoothly, said a senior UAE official.

Addressing media persons in Dubai on Monday, Abdul Aziz Abdulla Al Ghurair, Chairman of Family Business Network (FBN), said the new legal framework is expected to approved in 2 to 3 years’ time by the GCC governments.

According to FBN, an estimated $1 trillion (Dh3.67 trillion) in assets will be transferred to the next generation of family owned companies over the next decade in the Middle East.

"We expect to submit a draft law this year and we believe policymakers will endorse the family business legal framework because it’s good for the economy, social stability of the region and harmony of family members," said Al Ghurair, who is also Chairman of Al Ghurair Investments and CEO of Mashreq Bank.

The new laws will be presented under the umbrella of the FBN, a GCC-focused non-profit established with a central mandate to facilitate the continuity of Gulf family businesses from one generation to the next. FBN GCC is part of a global network with over 3,000 family businesses and 8,000 individual members across 50 countries.

The legal paper will be distributed to FBN GCC network members at the annual summit to be held in Dubai on April 29-30.

Al Ghurair said many family businesses register their companies outside the region due to lack of legal structure so the umbrella body of family-owned businesses is engaged in dialogues with the governments to come up with legal system of choice for the founders.

"Being a GCC-wide body, we want a [standard] legal system across the region," he added.

Led by Dubai International Financial Centre (DIFC), the UAE’s legal framework is the most advanced in the region along with Qatar and Bahrain, said Fadi Hammadeh, General Counsel at Dubai-based family-owned conglomerate Al Futtaim Group, who was instrumental in authoring the legal paper.

Hammadeh said: "Only 30 per cent of all family businesses make it to the second generation with even fewer making it to the third and fourth generations – some estimates as low as 12 and 3 per cent, respectively."

An FBN study found that around 80 per cent of GCC family businesses are in critical transition stage of first to second or second to third generation.

The study estimated that a typical GCC family business has to grow 18 per cent year-on-year to maintain the same level of wealth as the families’ size grows exponentially.

"The likelihood of conflict and disputes increases with more family members who may have different views about the management of the family business, such as its future direction, investment decisions and who should and can run the company," it added.

FBN chairman Al Ghurair said the legal framework will not just cover the large family businesses but also the small and medium enterprises.

"Large family businesses have resources to manage the transition but the legal framework will also cater the small and medium segment of family businesses," he said.