Holding Intellectual Property using an ADGM SPV for Startups

  • 06-07-2019

The ADGM has been open for business only since October 2015, but it has already garnered much praise and respect over its efforts to differentiate itself through unique offerings.

The ADGM pioneered the FinTech Abu Dhabi summit, attended by over five hundred global Financial Technology (FinTech) personalities; and has launched a series of collaborations with different companies such as Temenos, Al Ansari, and Mastercard to help forward its FinTech initiative.
 
Another such initiative is the Special Purpose Vehicles, or SPV, regime. The SPV regime is open to a wide variety of uses, from investor-friendly holding structures, to asset separation and transfer.
Let’s have a closer look at the ADGM first.
 
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.Clients who wish to cater primarily to the Abu Dhabi market, sovereign wealth funds and Abu Dhabi family offices may consider setting up in the ADGM.
 
Some other specific advantages of setting up in the ADGM include 100% foreign ownership, zero tax for 50 years, a risk-based regulatory approach, and a world-class ecosystem of regional and international law and auditing firms, and other company service providers, such as 10 Leaves.

 

The importance of Intellectual Property:

During the 18th and 19th centuries, assets were mostly physical, and hence easy to identify, value and control. The 21st century however, and especially the decades of the information technology revolution, have seen a lot of emphasis on Intellectual Property (IP), or intangible assets.

Many companies, especially startups, do not recognise the critical importance that their IP has in their businesses. In some cases, the business model is in itself dependent on the protection of the related IP - failure to do so can result in competition copying the same and even worse, registering the IP in their names. You can also refer to our detailed article on how startups can use ADGM SPVs as a holding company for their businesses. 

Identification, protection and exploitation of IP:

Identifying valuable IP is a process in itself. Both management and staff have to perform this exercise on a consistent basis, especially in edutech enterprises. Multi-jurisdictional firms may face an additional challenge in coordinating their IP identification efforts.

IP, once identified, should be protected. This exercise is detailed, and involves a thorough analysis of the current jurisdictions where the organisation operates, the associated costs and the risks involved in not moving fast enough. Some jurisdictions, such as the European Union, allow for  a single application process; most others have to be done individually. IP protection costs in the GCC are high (approximate US$ 4,300 per country), and there is no unified system for IP protection, which means that startups often face the dilemma of deciding when to go ahead with registering the IP.

Once protected, the IP has to be exploited. Here again, multiple mechanisms  exist, from internal IP licensing, to third-party licensing for production in the name of the licensor. In case of some activities, such as services, extensive agreements covering IP licensing and payment of royalties have to be put in place.

We had a client operating in three jurisdictions with sales in fifteen others. Each  operational jurisdiction had one piece of IP that was cross-licensed to the others and sold in all 15, thus having a potentially 500 transactions to record in its accounts and contracts management database. Then there are tax and transfer-pricing considerations to add to the mix.

 

Using an ADGM SPV to hold IP:

Using an ADGM SPV to hold Intellectual Property has multiple benefits, including:

  • Streamlining of internal processes for inter-group licensing.
  • Simpler IP-licensing processes.
  • Consolidation of multi-jurisdictional IPs under one entity.
  • Separation of IP from the operational company, thus protecting the IP from operational liabilities.
  • Ability to claim tax relief under DTAAs signed with the UAE (provided that economic substance is maintained).
  • Mechanism to support standalone IP valuation.
The ADGM SPV can be structured in a manner where the Intellectual Property is assigned to it using IP Assignment Agreements, and the SPV can then sub-assign this Intellectual Property to subsidiaries/other entities in the UAE and worldwide. The royalties thus derived can be consolidated in the SPV, thus leading to operational and tax efficiencies. 

 

Features of an ADGM SPV:

An ADGM SPV offers multiple classes of shares, a first for the region. Coupled with an option to completely customise the Memorandum, the ADGM SPV provides a viable option for a range of holding and investment structures.

Other salient features include:

  • No attestations for corporate documents.
  • Shelf SPVs permitted.
  • No restrictions on nationality of ownership.
  • Minimum requirement of just 1 shareholder and 1 director. 
  • No minimum share capital.
  • No maximum number of shares.

Legal Structure:

Most ADGM SPVs are structured as “Private Company Limited by Shares”, which is a standard private company limited by shares, similar to UK Limited Companies. One shareholder & 1 Director companies are permitted. However, the SPV has to appoint at least one GCC-resident authorised signatory, as part of the Nexus requirements.
 
Tax Residency:

ADGM SPVs can be eligible to apply for a Tax Residency Certificate from the Ministry of Finance to avail the UAE’s Double Tax Treaty network. A recent development has been the implementation of The UAE Economic Substance Regulations, under which companies holding Intellectual Property would have to satisfy certain criteria in order to qualify for exemptions under DTAAs.

Office space requirement:

ADGM SPVs are not required to have dedicated physical office spaces; however, they would need to maintain a registered address in the centre. The ADGM allows for the use of our offices as company service providers, for this purpose.
 
Costs:

The fee payable to the Registrar in the first year is US$ 1,700. The recurring annual fee is US$ 1,200 in subsequent years. This doesn’t include other fees such as registered address and company service provider fees. 

Setting up an SPV in the ADGM involves the following broad steps:
 
Pre-approvals – Includes submission of a business plan, detailing the structure, shareholders and purpose of the SPV.In case of a holding structure, the downstream investments would have to be identified and details provided in the business plan.
 
Next comes the application – The full application is compiled and submitted to the ADGM, once the pre-approvals are received.
 
The customised Memorandum and Articles of Association of the SPV is reviewed and signed electronically by the client, and sent across along with standard KYC documents and undertakings.            
 
10 Leaves is a company service provider in the ADGM, and we can complete the full process online, without the presence of the client.
 
Update:
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 CSP will be the point of contact between the ADGM Registration Authority and the SPV. 10 Leaves is a Company 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.

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. We provide all our services through a proprietary digital frontend, with a secure digital backend, to ensure that you have a seamless experience, unmatched by competition.

As a client, you also have access to our industry-leading media solution that incorporates engaging videos, detailed podcasts and informative publications to keep you updated and informed of the latest developments that affect your company on an ongoing basis. *some SPVs are exempt, such as entities connected to regulated firms, and those that they are able to demonstrate adequate presence in the UAE.

Bottomline:

The SPV regime in the ADGM is well structured, flexible and very cost-effective. Offering an onshore holding structure, based in a well-regarded jurisdiction, will provide comfort to regional investors, as well as others who wish to conduct business or hold investments in the greater MENA area.

For More Information On Holding Intellectual Property Using an ADGM SPV for Startups, Contact us here

 
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