Corporate Governance For ADGM Special Purpose Vehicles:
What is the ADGM?
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.
Companies established in the Abu Dhabi Global Market are expected to implement and maintain a robust corporate governance framework. These include annual filings, event-driven filings, beneficial ownership controls, and conformance to the Economic Substance regulations that have been implemented all across the UAE.
Basic corporate governance:
At a minimum, corporate governance involves compliance with the rules that are applicable to an SPV, both externally from the ADGM, and internally (Memorandum and Articles of Association) as well. Well-documented corporate governance processes, coupled with adherence to recommended best-practices, allows for the SPVs management to maintain a good relationship with internal and external stakeholders.
This is even more relevant to startups, that seek funding at various stages of their business. Investors give high importance to detailed and customized Articles of Associations, backed by robust secretarial policies, both of which are important when it comes to special purpose vehicles that act as holding companies for these startup entities.
An ADGM SPV is meant to be a passive holding company, and hence the number of functionaries required is limited. Nevertheless, there are some minimum requirements that need to be fulfilled. These are also needed so that the SPV can adhere to the economic substance and nexus requirements.
Minimum number of Shareholders – 1
Resident Shareholders – not required
Minimum number of Directors – 1
Resident Directors – not required
Resident Authorised Signatory – Mandatory.
This has to be UAE-resident, except in cases where the shareholders are from the GCC. Also, for banking purposes.
Resident Secretary – while the secretary is not required to be resident, the newly-implemented ADGM Company Service Provider framework now makes it mandatory for all non-exempt SPVs to appoint a CSP that will carry out (among other things), company secretarial services.
The company secretarial service can be outsourced as well. Contact us for a quote.
Not required. We recommend a meeting of the Board at least once every quarter.
Required. We recommend holding an Annual General Meeting, as good corporate practice. The management/audited accounts can be tabled at the AGM.
ADGM registered SPVs are obliged to complete a specified number of filings on an annual basis, during the same period each year. These usually fall on the anniversary of incorporation or registration of the entity.
ADGM License Renewal:
The SPV Commercial license is renewable annually, and due on the anniversary of license issuance. The registered address will have to be renewed before the license renewal, so do get in touch for the issuance of a consent letter as a confirmation of the same.
Data Protection renewal:
The ADGM Company has to register with the Commissioner of Data Protection at the time of licensing and renew this registration on an annual basis. The renewal costs US $100 and late payment could result in a fine of US $15,000.
ADGM Confirmation Statement – previously known as the Annual Return
The confirmation statement confirms basic information about the ADGM SPV such as:
(i.)The details of the registered office, directors, secretary, and authorized signatories.
(ii.)The nature of the activities of the SPV
(iii.)The SPV’s statement of capital and shareholder information
It is mandatory to maintain records of corporate changes in the company, and submit the annual return to the ADGM RA, as part of the license renewal process.
Maintaining Books of Accounts:
Every SPV in the ADGM has to maintain accounts. The accounts have to be submitted to the ADGM Registration Authority (RA) within 9 months from the accounting reference date. For example, if the reference date is 31st of December, the annual accounts will have to be submitted by the end of September of the following year.
The ADGM RA has the following rules for submission of accounts (within 9 months from the accounting reference date)
- Small companies with turnover of not more than US$ 13.5 million - unaudited balance sheet, signed by the director of the company
- Medium-sized companies with turnover of more than US$ 13.5 million - audited accounts by ADGM-recognized Auditors, and directors report.
An Event-driven Filing refers to an ADGM SPV’s obligations to notify the Registrar of certain changes that occur in the company. Here are the events that trigger filing requirements (not an exhaustive list).
- Change of company name.
- Amendment of Articles of Association.
- Appointment of authorised signatory.
- Appointment, cessation or change in particulars of director.
- Appointment, cessation or change in particulars of secretary.
- Change of registered office address.
- Alternative location of company’s record.
- Maintain accounting reference date.
- Appointment or cessation of recognised auditor.
- Maintain business activities.
- Change in particulars of shareholder.
- Increase authorised share capital.
- Allotment or transfer of shares.
- Appointment, cessation or change in particulars of beneficial owner.
In case you have a bank account opened for the SPV, it is mandatory to submit the renewed license of the SPV to the bank on an annual basis.
All statutory corporate registers have to be maintained on a continual basis. These include but not limited to:
- Register of Shareholders.
- Register of Directors.
- Register of Charges.
- Register of Board Minutes.
- UBO Register.
The newly-implemented ADGM Company Service Provider framework now makes it mandatory for all non-exempt SPVs to appoint a CSP that will carry out company secretarial services, and maintain these registers on an ongoing basis.
The UAE Economic Substance Regulations were introduced in April 2019 and implemented as part of the UAE’s commitment as a member of the OECD Inclusive Framework, and in response to an assessment of the UAE’s tax framework by the European Union Code of Conduct Group on Business Taxation.
The ESR requires ADGM SPVs that carry on one or more “Relevant Activities” and earn income from such activities to have economic substance in the UAE in relation to these activities.
The requirements are as follows:
All ADGM SPVs that carry on one or more "Relevant Activities" are required to file a Notification annually, within 6 months of the end of the financial year of the SPV.
ADGM SPVs (except those that are exempted) that undertake a Relevant Activity from which they earn income during a relevant Financial Year, are required to:
(i.)Meet the Economic Substance Test; and
(ii.)File an Economic Substance Report.
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.