In the Middle East, family businesses form the backbone of many economies, with a recent 2025 Global Family Business Report from a major professional services firm showing that family businesses account for 90% of the United Arab Emirates’ (UAE) private sector, contribute nearly 40% of the national GDP and employ over 70% of the sector’s workforce. With unique cultural values, complex family ties and evolving legal frameworks, succession planning in the Middle East is both a critical challenge and a vital opportunity for family businesses to align family members towards a unified vision for the future.
Passing a family business smoothly to the next generation in the Middle East requires careful attention to governance, ownership structures, asset protection and succession planning. Here, we explore in detail four key considerations for family businesses to ensure successful transfer of their businesses to the next generation.
Family constitutions and governance: Defining authority alongside family values
In the Middle East, family ties and traditions play a central role in business operations. The extended family often acts as both the primary stakeholders and key decision-makers in a business. However, this closeness can sometimes blur the lines of authority and cause conflicts, especially as businesses expand or newer generations join the business.
One approach to ensuring that families, especially those with many heirs, are aligned in terms of their plans for the business is for families to establish a family constitution (also known as a family charter under the Federal Decree by Law No. (37) of 2022 on concerning the family businesses in the UAE). While not a legally binding document, a family constitution is a formalised document setting out the long-term goals of the family and their mutually agreed approach to governing the transition of the business to the next generation.
Establishing a family constitution in the Middle East is a strategic way to balance respect for tradition with the demands of modern governance. This normally codifies key provisions that can impact a business including, but not limited to:
- Enforceability: Ensuring that the family constitution is enforceable from a legal perspective as far as possible, by having key provisions be reflected in shareholders’ agreements or constitutional documents of entities within the corporate structure.
- Exit provisions of shareholders: To govern how shareholders can exit.
- Roles and responsibilities: Aligned with family hierarchy but balanced by professional qualifications.
- Decision-making processes/ authority matrices: That combine family consensus with clear delegation to avoid stalemates.
- Mechanisms for dispute resolution: That may involve arbitration or trusted independent individuals as part of event-driven formed committees or councils to resolve conflicts amicably. Formal governance bodies like family councils or boards with independent advisors are increasingly embraced by Middle East family businesses to enhance transparency and professionalism.
It is advised that families consider whether having a family constitution would be beneficial for their business as formalisation of procedures helps provide guidance for the next generation to step into leadership roles with clarity and confidence. It also prompts the exiting generations to scrutinise the current governance of the business and to examine whether the current corporate structure is fit for purpose.
Ownership structuring via corporate vehicles: Navigating legal and regulatory complexities
Ownership structures vary considerably across the Middle East as many family businesses have existed for decades, responding to historic ownership restrictions and legal and regulatory environments. To safeguard the transition to the next generation, family businesses should review whether their corporate structures align with their vision for the succession of the business. Families are increasingly opting to introduce corporate vehicles such as foundations, family holding companies or trusts into their structure (where legally permissible) to:
- Centralise ownership: A holding company, foundation or trust can consolidate family shares in a separate corporate layer, simplifying governance at an ownership level and enabling strategic planning by introducing authority matrices at the top ownership level.
- Minimise inheritance disputes: Islamic inheritance laws (Sharia) are prevalent in the Middle East and have forced heirship laws specifying prescribed division of assets among heirs. Using a corporate vehicle instead of owning shares personally can provide clarity to families to plan for the transfer of the business upon the death of shareholders to clarify how shares should be treated once inherited.
- Enhanced protection: Instead of individuals owning their shares in their personal capacity, with an addition of a corporate ownership vehicle and another corporate layer, family members can benefit from enhanced protection from a liability and risk perspective.
- Provide continuity: With governance managed at an ownership rather than operational level, the impact on operating companies sitting underneath the individual corporate vehicles will be minimised in the event of the death of any ultimate beneficial owners as probate will occur at an ownership rather than operating level.
- Optimise tax efficiencies: Alongside tax advice, structures can be planned and designed to optimise tax efficiencies within the corporate structure.
Given the diversity of legal frameworks in the region, ranging from civil law to Sharia law, it is critical to seek expert advice on which ownership structure best suits the family’s goals and local regulatory environment.
Asset protection strategy: Safeguarding wealth amid regional and international risks
From geopolitical tensions to local regulatory changes, family businesses must safeguard their assets proactively against any unexpected risks. Family businesses should ensure that they have in place an effective asset protection strategy which includes:
- Due diligence exercises: To ensure that the assets held by the family business are held as expected. Due to historic ownership restrictions, assets held by family businesses may not always reflect the legal owner, for example, a local family member may hold a real estate asset on behalf of the business or vice versa. A due diligence exercise may be necessary for the business to map their assets and determine whether the legal ownership of assets reflects the business’ needs.
- Fit for purpose: Family businesses may consider whether assets should be held by parallel structures in foundations or via holding companies as this can minimise liability against creditor claims, family disputes and external challenges. This will ensure that assets are preserved for the next generation.
Following a review of the family business’ assets, the business can then consider whether a restructuring is required in relation to the assets and can devise an asset protection strategy. This is particularly important for businesses with an international portfolio which may require local counsel in various jurisdictions and tax advice to determine the most appropriate structure.
Wills: Aligning family wishes with legal realities
In the Middle East, wills are critical yet often underutilised in succession planning. Sharia law governs inheritance in many Middle Eastern countries, prescribing fixed shares for heirs, which can complicate estate planning.
However, wills are still necessary to:
- Appoint executors: Trusted family members or legal professionals who understand the business and cultural sensitivities.
- Address international non-Sharia assets: Wills can manage assets not governed by Islamic inheritance laws in international countries where Sharia law is not applied, such as foreign holdings or investments in countries with different legal systems.
- Complement ownership structures: Wills must align with corporate vehicles to prevent conflicting instructions.
Family businesses in the Middle East should consider whether wills are a necessary tool to ensure their wishes are respected especially in respect to family members with shares in the family business. This is especially true for non-Muslim families, for instance, in the UAE, Federal Decree-Law No. (41) of 2022 on the Civil Personal Status introduced new provisions in relation to inheritance for non-Muslim residents, permitting the disapplication of Sharia and providing non-Muslims flexibility in distributing their estate and ensuring the estate does not go towards unintended beneficiaries. Families should work with their legal advisors to determine whether a will should be registered to reflect their wishes and align with the succession plan for the business.
Preparing your family business for the next generation
Overall, families need to take a proactive approach to succession planning. While this discussion is sensitive and time-consuming, leaving succession plans vague and unclear can lead to protracted probate and long-lasting disputes between heirs as seen in the ongoing succession of major family businesses in the UAE where the government has had to step in to mitigate disputes. Succession planning is a multifaceted challenge shaped by deep family bonds, religious considerations and dynamic legal landscapes. Successful families embrace governance through family constitutions, tailor ownership structures to local laws, implement robust asset protection and draft culturally compliant wills, where applicable.
By addressing these four considerations early and thoughtfully, your family business is more likely to achieve continuity, harmony and growth for generations to come. The time to start preparing is now ensuring your legacy thrives well beyond your business’ current leadership.
First published by The Oath Legal Magazine