The founder often plays an integral role in the business. They may have control over major clients, responsibility for approving financial commitments, managing relationships with banks and overseeing senior staff. As a result, the founder may hold considerable commercial knowledge, established relationships and decision-making authority.
This arrangement can work well, but as the founder approaches retirement, it can create risks if the business has not developed a strong management structure. A sudden departure may expose weaknesses, such as unclear decision-making powers, undocumented commercial agreements and reliance on a small number of key employees.
Succession planning is often viewed as a family matter, particularly where ownership rests with a parent and child or where the business has passed through several generations. However, it is important to consider its impact on the business as a whole. This involves examining corporate governance and considering what will happen to employees, creditors, investors, customers and commercial partners. Ultimately, the most important consideration is whether the business can continue to operate effectively.
Retirement provides an opportunity to separate ownership, management and oversight of the business. The founder can retain an economic interest without remaining the Chief Executive, while professional managers can be appointed to oversee day-to-day operations through a board or other management body. Making this distinction before the founder retires reduces the risk of disruption arising from a change in personal circumstances.
Choosing a Successor
A common mistake in succession planning is to assume that the eldest child, another relative or a long-serving employee will automatically become the successor. While family relationships, loyalty and length of service may influence the decision, they do not necessarily mean that the individual has the skills required to manage the business.
The successor must have the ability to manage the financial, staffing, regulatory and commercial aspects of the business. If the business operates in multiple jurisdictions, they may also need knowledge of different licensing rules, tax requirements, employment regulations and contractual risks. Inheriting shares in a business does not automatically give someone the skills or legal authority required to run it.
Before choosing a successor, the founder should identify the responsibilities that need to be handed over. These could include signing contracts, managing bank accounts, approving expenditure, appointing senior staff, representing the business before government authorities and making strategic investment decisions. Each responsibility should have a clearly identified successor, supported by the necessary approvals and documentation.
If no family member is ready to take on the role of Chief Executive, employing an experienced professional may be a more sustainable option. Family members can retain ownership and have an input into strategic decisions, while a suitably qualified management team oversees day-to-day operations. This allows the business to remain within the family without depending on a particular relative to manage it.
Separating Ownership and Management
A founder's retirement does not necessarily mean that the business must sell its shares. Ownership and management are separate, and the founder can continue to hold shares, receive dividends and exercise agreed shareholder rights. This can be achieved through an appropriate ownership and management structure.
The arrangements will depend on how the business is established. In the UAE, many mainland companies operate under Federal Decree-Law No. 32 of 2021 on Commercial Companies, as amended, together with specific rules applicable to certain types of companies and free zones.
Before the founder steps down, it is important to review the Memorandum of Association, Articles of Association and shareholders' agreements. These may need to be updated to address the appointment and removal of directors, voting rights, reserved matters, share transfers, dividend policies and dispute resolution. Any powers previously exercised by the founder should be assigned to the appropriate corporate bodies.
This is particularly important if the founder wants to remain a shareholder without having any executive involvement. Without clear provisions, other shareholders may assume that they are entitled to influence how the business is managed. Alternatively, the successor may find that they do not have sufficient authority to carry out their responsibilities.
The objective is to structure the business so that the person responsible for running it has the necessary authority, while shareholders retain the rights to which they are legally entitled.
The UAE Family Business Framework
The UAE has introduced a specific framework to support family businesses. Under Federal Decree-Law No. 37 of 2022 on Family Businesses, qualifying companies can organise their family ownership, governance and succession arrangements.
The legislation recognises that family businesses can face challenges that differ from those encountered by other companies. Disagreements may arise over management, succession, share transfers and the involvement of relatives in the business. Such disputes can affect the company's operations if they are not addressed appropriately.
One of the key instruments available under the framework is the Family Charter. This can outline the family's principles concerning ownership, share valuations, profit distribution, the qualifications required of family members seeking employment in the business and procedures for resolving family disputes. It can also establish expectations regarding the education and preparation of younger family members who may eventually assume leadership roles.
However, the Family Charter should not replace the Articles of Association or override statutory requirements. Where conflicts arise, the applicable legislation and corporate constitutional documents must be respected. Families should ensure that their arrangements are supported by the appropriate legal documentation.
The framework also allows families to establish governance bodies, including family assemblies and family councils. These can help the founder address family concerns without involving those responsible for running the business.
If the business meets the relevant requirements, registration under the family business framework is worth considering. The regime is intended to support continuity of management, organised ownership and the prevention of fragmentation of family shareholdings.
Planning Inheritance
Retirement and inheritance planning are closely connected, but they are not the same. While a founder can transfer management responsibilities during their lifetime, the transfer of shares raises separate considerations. These include inheritance rights, share valuation and the need to protect family interests while maintaining stable ownership of the business.
In the UAE, particular attention is required where shareholders or beneficiaries are based in different countries. The applicable inheritance regime, the company's place of incorporation, the nature of its assets and the founder's personal circumstances can all affect how succession is handled. A will should not be assumed to override every restriction imposed by company law or other applicable legal requirements.
The DIFC Courts Wills Service is available to qualifying non-Muslims with assets in the UAE. It provides an option to register wills covering business shareholdings. Up to five UAE shareholdings can be included in a Business Owners Will. Executors can also be appointed to administer the specified interests. Before relying on this arrangement, business owners should check whether their shares are subject to any legal or contractual restrictions.
An important legislative development is Federal Decree-Law No. 20 of 2025, which amends provisions of the UAE Commercial Companies Law. The amendments include provisions dealing with the disposal of shares or stakes belonging to deceased partners or shareholders. Existing shareholders or the company may be given priority to purchase the interests. The price can be agreed with the heirs or determined through a specialist valuation by the competent court.
This is relevant to succession planning because the transfer of ownership does not necessarily mean that the shareholder base must expand indefinitely. The founder should consider how these provisions interact with the Articles of Association, any shareholders' agreement and the intended inheritance arrangements.
It is also important to establish whether the business has sufficient liquidity to purchase shares from heirs who would prefer to receive cash rather than retain an ownership interest. Without a realistic funding arrangement, disputes may arise over valuation and ownership.
Establishing an Independent Management Team
If the business remains completely dependent on the founder to make all significant decisions, the successor will struggle to take over effectively. The management structure must be reorganised to distribute authority and responsibility.
A board of directors or an appropriately constituted governing body can provide oversight, approve major transactions and monitor management performance. Independent directors or advisers can also contribute commercial expertise and objectivity, particularly where family relationships influence business decisions.
The founder should ensure that financial controls, reporting procedures and approval mechanisms are in place. Bank mandates, authorised signatories, powers of attorney, licensing records and contractual authorisations should all be reviewed. The appointment of a new manager does not automatically mean that the individual is legally authorised to represent the company when dealing with banks, regulators or third parties.
Important commercial knowledge may reside with the founder. This could include key customer relationships, supplier arrangements, pricing strategies, intellectual property and regulatory commitments. Documenting this information will reduce the risk of losing critical knowledge when the founder steps away.
A smooth transition should be planned. The incoming management team should be involved in major negotiations, financial reviews and strategic decisions before assuming full responsibility. The founder can also provide support in a non-executive or advisory capacity for a defined period. However, the arrangement should not create confusion over who has final decision-making authority.
Establishing the Right Ownership Structure
For larger family businesses, managing ownership can become increasingly difficult when multiple family members hold shares in operating companies. In some circumstances, establishing a holding company or another appropriate ownership structure can provide a more organised arrangement.
A holding structure can consolidate ownership of operating subsidiaries, investments and business assets. It can also establish a clearer distinction between the management of commercial operations and the family's long-term ownership interests. However, the choice of structure should reflect how the business operates, its tax position, regulatory requirements and the laws of the relevant jurisdictions.
The UAE's financial free zones, including the Dubai International Financial Centre and Abu Dhabi Global Market, provide legal frameworks that allow structures such as foundations and trusts to be established. Depending on the circumstances, these can form part of a wider succession and private wealth strategy.
However, such arrangements will only be effective if they are properly established. Asset transfers, constitutional documents, beneficial ownership requirements and the laws of the relevant jurisdictions must all be considered. A structure established in one jurisdiction may also require recognition or additional legal steps in another.
If the founder has businesses, properties or investments in multiple countries, succession planning should take a coordinated approach. Conflicting wills, incompatible ownership provisions and different approaches to inheritance can create disputes and complicate the transfer of control.
Informing Staff, Customers and Creditors
The founder's retirement can create uncertainty among other stakeholders. Employees may be unsure about their future roles, customers may be concerned about how the business will continue to operate, and lenders may reassess its management and financial position.
Communication will be important. The founder and incoming management should agree on how and when the change will be announced, particularly where the founder has been closely involved in major commercial relationships.
Employment contracts, incentive arrangements and staff retention may also need to be considered. Senior employees may be critical to maintaining business stability. Their continued involvement can preserve institutional knowledge and reassure customers during the transition.
Financing agreements and major commercial contracts should also be reviewed. Some may contain clauses relating to changes in ownership, management or control. Failure to consider these provisions could create unnecessary contractual difficulties.
The business should also review its insurance arrangements. Key-person insurance may be appropriate in certain circumstances. While it cannot replace the founder's management knowledge, it can provide financial support if the founder becomes incapacitated or dies before the succession arrangements are completed.
Gradual Retirement to Reduce Commercial Risk
For a founder who has spent years building a business, stepping away can be difficult. There may be concerns that the successor will not uphold the company's reputation and standards or that future decisions will not reflect its original values.
A gradual transition can help address these concerns. Initially, the founder can step back from day-to-day operations while retaining responsibility for selected strategic matters. As the transition progresses, the successor can assume greater authority, allowing the founder to move into an advisory or non-executive role before eventually leaving the business.
Responsibilities and timelines should be clearly defined. An informal assurance that the founder will remain available whenever needed can create confusion and undermine the successor's authority.
The business should also have a contingency plan. If the proposed successor leaves, becomes incapacitated or proves unsuitable, alternative arrangements should be available. Succession does not necessarily involve appointing just one person. A management team with complementary skills, supported by clear governance procedures, can provide greater resilience.
Measuring the Success of Succession
The successful transition of a business beyond its founder does not necessarily mean that ownership must remain within the family. In some cases, the most appropriate option may be to appoint a professional management team, sell part of the business, establish a strategic partnership or transfer the entire enterprise to another investor. The decision should reflect the company's commercial prospects, the interests of its owners and the availability of suitably qualified successors.
For founders approaching retirement, the most important step is to begin the process early, while they still have the time and authority to implement the necessary arrangements. Corporate documents, shareholders' agreements, inheritance instruments, management appointments and asset ownership structures should be reviewed together. Professional advice should be obtained from specialists familiar with the relevant jurisdictions.
Ultimately, the success of the transition should be measured by how effectively the business operates without the founder's involvement. If it cannot make decisions, retain customers or meet its obligations without the founder, the succession process has not been completed successfully.
The strongest legacy a founder can leave is a business with the leadership, legal structure and institutional strength to continue growing long after they have stepped away.
Dr. Sunil Ambalavelil is the Global Executive Chairman of Kaden Boriss, an international law firm specialising in franchise and business agreements. A seasoned legal adviser, he has advised and supported the international growth of numerous global brands, helping them navigate the legal complexities of cross-border expansion.
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