Changes to the legal system are necessary to help the continuity of GCC family businesses, said a recent briefing by the Family Business Network GCC
With more than $1 trillion in assets expected to be transferred to the next generation of family businesses in the Middle East in the next decade, there’s a growing need to strengthen the existing legal system to assist companies with succession planning, a new white paper found.
After conducting workshops with family businesses across Gulf Arab countries, the Family Business Network (FBN) GCC heard their biggest challenge was in the legal structure, said His Excellency Abdul Aziz Abdulla Al Ghurair, chairman of FBN GCC and head of one of the UAE’s largest family businesses.
“We came to this conclusion because we had workshops in Kuwait, Qatar, Oman, and the biggest challenge was the legal structure. The legal system must change,” he said.
Due to a gap in legislation, some family-owned companies register their assets abroad in jurisdictions such as Cayman Islands, which means the region’s economies lose that wealth.
“Some family businesses go overseas for the legal structure. Luckily we have the DIFC (Dubai International Financial Centre) here in Dubai, but that is not enough. We want to have it onshore in the UAE, Qatar, Saudi Arabia, Kuwait and Oman,” said Al Ghurair.
Changing the legal system is not easy, but we want to initiate it to try to help family businesses succeed
This has pushed the FBN to make a set of recommendations in the white paper to help improve the legal framework and enable family businesses to plan better for the future, especially with founders seeking efficient ways to transfer ownership to future generations. The white paper analysed the effectiveness of legal structures such as the Trust legal framework in the DIFC, and the Waqf, an Islamic legal concept, as a succession planning tool.
“Effective family business succession planning aims to achieve management and ownership continuity,” said Fadi Hammadeh, General Counsel at Al-Futtaim Group, another large family business in the UAE. “GCC family businesses are particularly vulnerable to risk of fragmentation due to lack of impenetrable legal frameworks to support their continuity. Given their importance to GCC economies, there is an urgent need for specific laws to assist family business generational transition in this region.”
The FBN is planning to lobby decision makers to initiate a new legal system to allow a legal choice and expects to submit a draft for a legal structure this year.
“Changing the legal system is not easy, but we want to initiate it to try to help family businesses succeed,” said Al Ghurair. “We want to work closely with decision makers. I think this… should not take more than two to three years.”
The enhanced legal system “should cover everybody, big and small” and will be Shariah-compliant, he added. “I believe policymakers will endorse it because during this transition you lose the harmony between family members."
The FBN GCC is a Gulf-focused non-profit established to facilitate continuity of the region’s family businesses from one generation to the next.
Among the recommendations it made in the paper are legally enforcing a family charter, obtaining approval for share sales, permitting buy-back of shares by the company, and introducing a dedicated law for family business.