The ADGM Foundations Regime provides a viable alternative to trusts for legacy planning and financial structuring. ADGM offers foundations incorporated under Common-Law for the first time in the region.
What are Foundations?
A foundation is governed by its Charter, which is a publicly available document, and By-laws, which are private to the Foundation. The affairs of an ADGM Foundation are managed by the members of a Council and may be supervised by a Guardian.
Foundations provide a mechanism to consolidate holdings of various assets (shares, real property, intellectual property, royalties, etc.) into a single holding entity. This allows for clarity on the transfer of assets during a succession process, and also makes it oFoundations operate like common law trusts, with an important distinction – they are legally incorporated with a distinct legal personality. In effect, they have features common to a company. They can hold assets, but cannot issue shares or carry out commercial activities.
Foundations are operationally and tax-efficient. Much like a ‘Letter of Wishes” in a trust vehicle, a Foundation’s Charter and By-Laws help make the succession process much less challenging.
What are the differences in the legal structures of an ADGM Foundation and a Trust?
A foundation is a distinct legal entity, much like a company.
A foundation can contract with external parties
It can hold assets, including real property, in its own name.
A foundation can sue and be sued in its own name.
The foundation holds the legal and beneficial title to the assets.
A trust is not a distinct legal entity.
The legal rights and obligations are with the trustees (rather than the trust itself) and the trustee in effect contracts in its own name on the trust’s behalf.
Legal ownership of the trust fund is with the trustees
Beneficial ownership of the trust fund is with the beneficiaries.
The trustees would have to sue and be sued in their name.
What is a Founder, Council Member, Guardian, and Beneficiary, in relation to ADGM Foundations?
Founder – the individual or body corporate that brings in the assets to the ADGM Foundation.
Council Member – similar to the Director of a company under Common Law, the council members of a Foundation govern it’s operations and administration in accordance with the Foundation Charter and By-Laws.
Guardian – overseas the operations of the Foundation, and is mandatory after the death of the Founder.
Beneficiary – The beneficiaries are the individuals or corporate bodies who have been nominated to benefit from the assets held within the foundation.
Benefits of Foundations
Distinct legal personality – Unlike trusts, ADGM Foundations have a separate legal personality, that allows for flexibility of operations.
Corporate Governance - ADGM Foundations Regulations follow international best practice and set a legislative standard for the Foundation Council, including statutory duties, similar to common law and equitable duties imposed on company directors. A Guardian supervises the Foundation Council and ensures that it acts in accordance with the Foundation’s Charter and By-Laws. Appointment of the Guardian is optional during Founder’s lifetime and compulsory upon Founder’s death.
Asset protection – The Founder can maintain control of the assets while separating liabilities due to the distinct legal personality of the Foundation. ADGM Foundations are designed to help in protecting the rights of the beneficiaries and preserve the assets from bankruptcy claims, claims in the event of divorce and from the effect of forced heirship rules.
Perpetuity – The Foundation is designed to exist to perpetuity, much like a company.
Highlights of ADGM Foundations Regime
- Allows for re-domiciliation of Foundations into and out of ADGM
- Flexibility to amend governance structure once established
- Low set-up and ongoing costs
- Commit initial assets of as little as USD $100 to the Foundation
- No physical office requirement – foundations can use the address of a corporate service provider in the ADGM
- No requirement for a Founder or Foundation’s officers to be based in the UAE or maintain residency in the UAE
- All Foundation roles can be individuals or body corporates
- Limited public disclosure with no individuals’ names on public register.
- No requirement for filing of annual returns, accounts or audits
What are the benefits of setting up in the ADGM?
Here are some specific advantages of establishing in the Abu Dhabi Global Market.
- The legal framework supports cross-border activities
- 100% foreign ownership permitted, no restrictions on capital repatriation
- No restriction on foreign employees
- Zero tax for 50 years on profits, capital or assets
- Zero tax on personal income
- Well regarded, independent regulator
- Independent, English-speaking, common law judicial system
- Distinct from the UAE civil courts
- Risk-based regulatory approach
- High prominence in deal making in the region
- Concentration of international financial institutions
- World-class regional and international professional services
- A growing fund domicile in the region
- Management offices, holding companies and family offices are located closer to the assets they own or manage
- The Middle East, Africa and South Asia (MEASA) is increasingly the center of gravity for the global economy
- The UAE plays a central role in the growing South-South trade, principally between Asia and Africa
- Well-positioned to harness the potential of emerging markets.