A family business is any business in which two or more members of the same family are involved and most of the ownership or control lies within such a family. The earliest example of a family business may be farming in which members of the same family worked together, thus intertwining both the personal life and work-life of the members. This also makes it very much possible that a family-owned business may be the oldest form of business organisation in human history.
Come 19th century when the modern concept and understanding of family offices was developed. In 1838, the family of JP Morgan founded the House of Morgan, which managed the family's assets. Over four decades later, the famous Rockefeller family also founded their family office.
In essence, a family office is a privately held entity that owns several family businesses and handles wealth and investment management for a high net worth (or ultra-high net worth) family with the aim to successfully grow and transfer the family wealth down to the generations. Family offices may also be involved in providing back-office or support functions (such as accounting or payroll services) to family owed entities and managing legal and financial affairs for such entities. Tax and succession planning is another important aspect that family offices undertake for wealthy family members.
It is an established fact that many business conglomerates in the GCC region are family-owned. Such businesses are major employers and play a significant role in the development of national economies. A study by an international trust and corporate management company Intertrust Group found that family offices are the fastest-growing structuring vehicle among the rich Middle Eastern families, largely because of a change in way of thinking of such families influenced by global trends.
The UAE has legal and regulatory frameworks in place when it comes to setting up family offices. Each of ADGM, DIFC and DMCC have their own piece of regulations on setting up family offices in respective free zones. The definition of family members, minimum paid-up capital requirements, and compliance and reporting requirements, amongst others, vary in each of these three free zones. However, all three of them do not tax any corporate income or capital gains of the family offices. They also allow the family offices in their free zones to provide asset and wealth management services, day to day accounting and management of legal affairs, and administrative services to the family-owned business falling under the umbrella of a family office.
In addition, the Government of Dubai promulgated the Family Business Law last year which allows families in the Emirate to enter a family ownership contract. This contract can be entered into by the family members to structure the family's assets. Both immovable and movable assets such as shares (except those in listed companies) can be included in such contract. The share of each partner is determined in the contract, with the contractual duration not exceeding 15 years. The contract may be renewed for a further period. The contract may also include the formation of a board of directors to supervise the administration of the family businesses.
Whether it is small or large, managed by in-house employees or outsourced to third-party professionals, a family office should always be motivated by its ultimate goal, which is to align business and financial interests of a family, making it easier for the family to manage its assets, obtain sound advice when it comes to tax and succession planning, and enhance cooperation between family members.
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