Such practices, they say, ensure family ties remain intact and mitigates chances of any future legal disputes. This also enables heirs to make use of their inheritance immediately after the death of a close relative instead of waiting for years for the inheritance to be distributed. This, they say, allows for family-run businesses to operate smoothly.
An oft-cited example is that of prominent Saudi businessman Sheikh Suleiman Al-Rajhi who passed away recently. The sheikh distributed two thirds of his estate among his heirs prior to his death and bequeathed one third to an endowment project that he ran. The inheritance was distributed in accordance with Islamic law, something that allowed his family to remain intact on his death and avoid any possibility of a dispute in the future.
Osama Al-Zamil, director of business development at Al-Zamil Holding Co. and former chairman of the Committee for Family Firms Center at the Council of Saudi Chambers of Commerce and Industry, said the distribution of people’s estates should be carried out in line with Shariah law. “This is inevitable to ensure unity among family members. Gifts should also be distributed equitably,” he said, adding that businessmen can make proper arrangements during their lifetimes to ensure family businesses are able to run smoothly.
He added that heirs can be given their share in inheritance in different ways. “One is to suggest in advance the method of distribution after death. Another way is to bequeath a portion of estates during one’s life and allow for the remaining portions to be distributed after death in line with Shariah. The concerned person can also set up a family office to manage the estates in line with Shariah principles. Such mechanisms are more suited to family-run businesses,” he said.
He added that there are a number of family firms which — after the founder’s death — continue to flourish and see immense growth due to such mechanisms. He also cited the examples of certain companies that folded after ownership was shifted to the heirs.
Al-Zamil said family firms play a vital role in strengthening the Kingdom’s buoyant economy as well as boosting its business sector. “Family firms make up nearly 90 percent of companies operating in the private sector. Their contribution to the gross domestic product (GDP) has reached about 22 percent, which is almost equivalent to the global average,” he said, stressing the need for wise and professional management as well as the need to transfer ownership to heirs.
Muhammad bin Borman, a prominent businessman, said there are successful examples of family companies transforming into joint stock companies. “These companies work under a proper legal framework that enables them to achieve stability and growth. They have managed to take advantage of the regulations and privileges for joint stock companies, something that allows them to achieve higher standards of governance and transparency in financial matters,” said bin Borman.
“These firms have won the status of companies … they have also formulated regulations that make it impossible for any single partner to take possession of them in addition to facilitating the separation of ownership and management,” he said.
He added that there is a possibility for family firms to breakup with the passage of time. Nearly 80 percent of family firms in various countries show signs of breaking up when their ownership is transferred to the third generation, he said, citing global studies.
“In Saudi Arabia, about 70 percent of family firms remain intact when it is the first generation running them. Only 20 percent of family businesses are run by the second generation and the remaining 10 percent by the third generation,” he said, adding that families operate an overwhelming 95 percent of commercial activities in the Kingdom.
“About 67 percent of these businesses are run by limited liability companies while 23 percent are run by joint liability companies; only one percent of them are run by joint stock companies,” he added.
Hussein Jalal Al-Sinan, a legal consultant, said that the most important hurdles faced by any family company are legal disputes among family members after the death of a senior figurehead.
Ibrahim Al-Bahri, another legal consultant, is of the view that heirs are only entitled to inherit estates after the death of a father or a mother. This, he said, is the view of some Islamic jurisprudents. He said that if a person distributes his estates among his children during his lifetime, it only comes under the purview of gifts and has nothing to do with inheritance.
However, other legal consultants says that there is nothing wrong in a person distributing his estate among his children as a precautionary measure to avoid any future disunity or disputes provided it is done in accordance with Shariah.
Saleh Al-Yousuf, judge at the appellate court in Dammam, described the Islamic law of inheritance as the best inheritance system in the world, a system that ensures an equitable distribution system that strengthens family bonds and avoids room for disputes.
He noted that wealth becomes good for a Muslim if he spends it in a permissible way seeking the pleasure of God and that it becomes bad if one were to spend it unwisely. “Everybody will be questioned on the Day of Judgment about the source of the wealth that he earned and the ways in which he spent it. The proper spending of wealth will elevate the rank and position of Muslims in this world and the hereafter,” he added.
