The Abu Dhabi Global Market is an international financial centre for local, regional and international institutions, established in Abu Dhabi, the capital of the United Arab Emirates, and operational from 2015. It has been voted the ‘Financial Centre of the Year (MENA)” and has continuously brought out innovative solutions for the growing financial services market in the region.
ADGM has three independent authorities – the Registration Authority, the Financial Services Regulatory Authority (FSRA) and ADGM Courts. ADGM entities are established under Common Law. Whereas other jurisdictions codify the English common law, the ADGM has adopted it completely in its original form. This is implemented to help facilitate ease of doing business for foreign investors – a first in the region.
What is an SPV?
Special Purpose Vehicles, or SPVs, are usually established to isolate financial and legal risk by ring-fencing assets and liabilities. SPVs can be established as subsidiaries, project or joint venture vehicles to ensure that only those assets related to a transaction are exposed to the liabilities associated with that transaction.
Features of an ADGM SPV:
An ADGM SPV offers multiple classes of shares, including fractional shareholding, a first for the region. Coupled with an option to completely customise the Memorandum / Articles, the ADGM SPV provides a viable option for a range of holding and investment structures.
Other salient features include:
- No attestations for corporate documents – certified copies suffice.
- No restrictions on nationality of ownership.
- Minimum requirement of just 1 shareholder and 1 director – can be non-resident.
- At lease one UAE-resident or GCC-national authorised signatory required.
- No minimum share capital.
- No maximum number of shares.
Click here to read a comprehensive guide on ADGM SPVs.
What is a holding company?
Wikipedia defines a holding company as “a company that owns other companies' outstanding stock.”
In short, a holding company consolidates investments, be it shares in other companies or property, under a common umbrella, for ease of management and reporting. Such companies do not usually carry out a trade or service – they merely manage existing investments. The management team of the holding company also seeks to make new investments, based on certain pre-determined criteria, to expand their existing portfolios.
The ADGM offers both passive and operational holding companies. ADGM SPVs can only act as passive holding companies, and so cannot avail visas or functional office space in the centre. The advantage is that where there is no operational requirement, an ADGM SPV can act as a holding structure for a relatively low cost, and offer flexibility at the same time.
Simply stated, this means owning an asset in personal capacity, i.e. in your individual name. The asset may be property, listed or unlisted shares, commodities, cash, or intangible assets such as Intellectual Property and Patents.
What are the advantages of holding assets in your personal name?
1. Ease of conducting transactions – When you are the owner, you can sign all documents yourself, without having to issue resolutions and undergo attestations for corporate documents. For instance, when forming a company, an individual shareholder undergoes personal KYC, which is relatively simple, and can complete the process considerably faster.
2. Costs – Adding a layer to the ownership structure involves costs. Not just formation costs, but ongoing maintenance costs as well. We have also seen the compliance requirements going up in the last two years, with Economic Substance Regulations and more stringent AML requirements being added to the standard KYC and monitoring obligations.
What are the disadvantages of holding assets in your personal name?
While the going is good, it seems fairly simple to own assets in individual names. However, in the long-term, personal ownership can have several disadvantages.
1. Continuity – A person dies, but a company never dies. Single shareholder companies can fall into limbo in the event that the shareholder passes away without a will or a clear line of succession. There are a lot of legal procedures to follow even where the successor is clearly identified.
When a shareholder passes away, their holdings are frozen while the probate procedures commence. Major decisions are also put on hold, due to this uncertainty. Some jurisdictions complete the transitional procedures faster than others, but generally speaking, this probate period is costly, time-consuming and uncertain.
2. Incapacitation or unavailability – Individual shareholders usually use Powers of Attorney, issued to trusted individuals, to manage their affairs in cases where they are unavailable, or unable to carry out their duties. These POA’s can be difficult to control, and the individual owner risks taking on liabilities that may have been entered into on his behalf, but without his knowledge.
What are the advantages of holding assets in a corporate structure?
1. The main advantage of corporate ownership is certainty and continuity. Corporate shareholding mitigates most of the disadvantages detailed above, and also allows for more robust governance of the underlying assets.
2. Transitions can be further simplified and made more certain by using ADGM Foundations in conjunction with ADGM SPVs, where the assets can be held at arm’s length from the principal, and yet be ring-fenced from possible creditors.
3. Holding assets in an ADGM SPV also allows for better consolidation of various assets. For instance, an investor who has multiple properties in his individual name can find it more advantageous to use an ADGM SPV to hold these assets, and in turn secure both the continuity of these assets (to his beneficiaries) and more effective management of these properties.
Why hold assets in an ADGM SPV? What are the benefits and uses?
1. Holding shares in operational companies in the name of an SPV, instead of in individual names, helps better manage business-related liabilities, and also provide for potential investments in the business. The UAE mainland, for instance, has a 51%/49% share structure for trading entities. These shares are usually held in individual names.
2. Holding these shares in the name of ADGM SPVs can provide many benefits, including more robust arrangements, under Common Law, for the relationship between the UAE National and the expatriate partners.
You can read the detailed article on this subject here.
Does the ADGM allow for nominee beneficiaries?
ADGM allows for nominee arrangements and trust agreements. This can be relevant for investors who wish to protect the rights of third parties, or where the stakeholders agree for one or more shareholders to hold the shares on behalf of others. For example, Person R can hold 100% of the shares of an SPV, but Person S can be the 100% beneficial owner of the shares.
What are the benefits of setting up a holding company in the ADGM?
1. The ADGM SPV is governed by Common Law, and it’s direct applicability in the ADGM provides legal certainty and comfort to foreign investors. SPVs also have access to the ADGM Courts, which provides a mechanism for registration and enforcement of contracts, again under Common Law.
2. There are no restrictions on foreign ownership in the ADGM, and so ADGM SPVs can issue 100% of it’s shares to foreign nationals.
3. The ADGM SPV is a low-cost and flexible vehicle. There are no office-space requirements (the services of an ADGM registered agent would suffice), and multiple classes of shares are allowed.
4. Also, an ADGM SPV has access to the extensive Double Taxation Avoidance Treaty Network that the UAE has in place with most major countries around the globe. In this case, there are additional requirements to fulfil from the Ministry of Finance.
5. The ADGM is a zero-tax jurisdiction and there are no corporate, withholding or income taxes in the centre. 100% of the profits of an ADGM SPV can be repatriated.
What legal forms are available for SPVs in the ADGM?
An ADGM SPV is usually set up as a Private Company Limited by Shares.
How can we at 10 Leaves help you?
The ADGM Company Service Provider Regulations come into effect in April 2021.
All ADGM Special Purpose Vehicles* are now required to appoint a Company Service Provider to carry out company secretarial and registered agent services. The ADGM Company Service Provider will be the point of contact between the ADGM Registration Authority and the SPV.
10 Leaves is a Service Provider in the ADGM and offers the following services to ADGM SPVs:
- Incorporation Agent – assistance in setting up the SPV.
- Registered address – providing the registered office.
- Provision of directors.
- Provision of company secretaries.
- Provision of Authorised Signatories.
- Provision of nominee shareholders.
- Provision of accounting services.
- Customisation of the Articles of Association.
- ESR Filings and notifications.
- Pledge Arrangements and registration.
- Translations and attestations.
- Assistance in bank account opening.
In addition to the above, we offer corporate and commercial services through 10 Leaves Legability. These include shareholding agreements, IP agreements, Share vesting plans and agreements and ESOPs.
For startups, we offer structuring solutions, including issuance of warrants, SAFE notes, convertibles and maintenance of cap tables.
For More Information On Advantages of ADGM SPVs as Corporate Holding Entities, Contact Us Here