All about the DIFC Venture Studio Framework
Last year, the DIFC announced the launch of the first global “Venture Studio Launchpad” to assist with the growth of the UAE’s financial ecosystem, and to be a growth partner and business enabler to venture studios, allowing them to set up and scale from the DIFC. The Proposed Venture Studio Regulations provide the legal and regulatory framework under which venture studios, and similar arrangements, and any “spin-off” entities formed by venture studios, can establish and operate in the DIFC. This initiative complements the existing DIFC Venture Fund Manager Framework, and the DIFC Innovation license initiatives, which together will serve to make the DIFC the leading destination for both innovators and their funding partners.
The proposed venture studio model enables venture studios to establish a company in the DIFC that acts as both a holding and operating vehicle (“Venture Studio”), licensed to incubate new business ideas (each a “Venture”) and, if they reach a minimum viable product (“MVP”) stage, to convert the Ventures to newly incorporated Venture Studio entities (each a “Venture Studio Company”).
Venture Studios and Venture Studio Companies will be set up as Prescribed Companies, under the existing framework. Venture Studio’s must include the words “Venture Studio”, “Venture Builder” or “Venture Builder Studio” in their registered or trade name.
Who can set up a Venture Studio?
The DIFC proposes that any Qualified Applicant can establish a Venture Studio in the DIFC. A Qualifying Applicant is defined as: “any person that can satisfy the DIFC that it has sufficient experience and resources to conduct venture building as a business.” In other words, the Venture Studio will have to demonstrate the level of experience required to effectively carry out the legal, governance and compliance functions on behalf of itself, the Ventures that it sponsors and the Venture Studio Companies that it incorporates.
What is a Venture?
A Venture is a business or business idea that is being developed to see if it can reach MVP stage, but that may also be unsuccessful and not go ahead. Currently, one would have to incorporate a company, and then wind-down or liquidate in case the business idea is unsuccessful. The DIFC provides more flexibility by making a Venture not an incorporated entity but instead sponsored pursuant to commercial permissions issued to the Venture Studio for the development of the Venture’s business idea.
The life cycle of a Venture is anticipated to be relatively short, typically six to twelve months, and hence the DIFC proposes to issue commercial permissions for one year only, further extendable to one more year at the discretion of the DIFC.
Since the Venture does not have a separate legal personality from the sponsoring Venture Studio, and during the term of sponsorship the Venture Studio is responsible for ensuring the Venture adheres to the requirements of all applicable Laws and permissions, performing the terms and conditions of any Capital Raising for the Venture and any other contracts or arrangements that the Venture may enter into with third parties.
What activities can be carried out by the Venture Studio?
A Venture Studio can act as both an operating vehicle to incubate and develop business ideas in the form of Ventures, and a holding vehicle for holding shares or other interests in successful Ventures that it has converted into Venture Studio Companies.
A Venture Studio will only be permitted to sponsor twenty Ventures and have responsibility for ten Venture Studio Companies at any given time. This limit is to ensure that a Venture Studio can maintain, and provide adequate legal, compliance and governance support to the relevant Ventures and Venture Studio Companies.
A Venture must be sponsored by a Venture Studio through the filing of an application and Venture Sponsorship Agreement with the Registrar. The Venture Studio may then apply to the DIFC for a commercial permission in respect of the Venture and sponsor Entrepreneurs for UAE residency purposes to develop the Venture.
A Venture Studio must also undertake to, or satisfy, the Registrar that during the Start-up Period of any Venture Studio Company it has established that such entity:
- adheres to all AML and UBO Requirements and other requirements;
- carries out all compliance, governance and regulatory obligations, filings or other requirements pursuant to any requirements of the DIFC; and
- complies with the requirements of Regulations setting out certain restrictions on Venture Studio Companies.
Can the Venture Studio and the Ventures employ staff?
Venture Studios will have their own permanent employees engaged in the running of the Venture Studio and who may also be involved with the development of Ventures. Such employees will be subject to the usual employment requirements under the DIFC Employment Law.
Additionally, Venture Studios will also be able to obtain residency visas for Entrepreneurs engaged in developing the underlying Ventures. Entrepreneurs may be hired as employees of the Venture Studio, or on a short time basis and solely for the purpose of developing a particular Venture.
And so, Entrepreneurs may be:
(a) sponsored for UAE residency purposes by the Venture Studio pursuant to a Venture Sponsorship Agreement that must be filed with the Registrar; or
(b) hired as consultants or contractors for services by the Venture Studio.
Venture Studios will also be restricted from hiring more than five Entrepreneurs per Venture.
If the Venture is successful and converted to a Venture Studio Company, the visas would be transferrable to the Venture Studio Company, and so these Entrepreneurs will become sponsored by that entity. Alternatively, if the Venture is not successful, then the relevant Entrepreneurs’ visas must be cancelled.
What is a Venture Studio Company?
Where a Venture has been successfully developed to the point where the product or service is ready for market, the Venture Studio may “convert” or incorporate the Venture into a Venture Studio Company.
The Venture Studio Company can share office space with the Venture Studio, will have reduced fees and disclosure requirements when compared to normal Private Companies in the DIFC.
Owing to the start-up nature of Venture Studio Companies, Venture Studios have an ongoing role in helping to develop the business of Venture Studio Companies and also to provide the benefit of its experience in terms of growing the business, meeting compliance and regulatory standards and implementing proper governance.
The following restrictions will normally apply to Venture Studio Companies:
(a) cannot have a term exceeding the Start-up Period of 24 months;
(b) cannot have more than ten shareholders;
(c) cannot have more than twenty Employees; and
(d) cannot undertake any Capital Raisings that are in aggregate in excess of US$ 10 million.
What happens once the Startup Period of the Venture Studio company expires?
Upon the expiry of a Venture Studio Company’s Start-up Period, the Venture Studio will automatically convert to a Private Company, and it will lose its Venture Studio Company status and be required to adhere to all the requirements under the Companies Law and other DIFC legislation.
A Venture Studio will have to take up a registered office in the DIFC. During the Start-up Period, a Venture Studio Company can share the registered office space of the Venture Studio that established it. Upon expiration of the Start-up Period, the Venture Studio Company is required to take its own premises in the DIFC.
What kind of compliances will the Venture Studio have to undertake?
The Venture Studio will have to maintain and prepare Accounting Records in accordance with the DIFC Companies Law, and Venture Studio Companies must maintain Accounting Records in accordance with the DIFC Companies Law but are exempt from the requirement to file its accounts with the Registrar or have them audited.
Venture Studios will also be required to comply with the usual confirmation requirements as they apply to a Company under DIFC laws, in respect of themselves and any Venture Studio Company that it establishes during that entity’s Start-up Period.
Is a Venture Studio regulated? Will it have to seek permissions from the DFSA?
No, a Venture Studio will not be regulated. A Venture Studio or a Venture Studio Company may not provide Financial Services unless it is appropriately regulated by the DFSA.
How much does this all cost?
Reduced registration and incorporation fees apply to Venture Studio Companies.
(i.) Application for incorporation of a Venture Studio: US$ 100.
(ii.) Licence fees for a Venture Studio: US$ 12,000.
(iii.) Registration of Venture Sponsorship Agreement : US$ 0.
(iv.) Application for incorporation of a Venture Studio Company: US$ 100.
(v.) Licence fees for a Venture Studio Company: US$ 1300.
(vii.) Lodgement of a Confirmation Statement: US$ 300.
We are the leaders in DIFC VC Fund Manager and VC Fund authorisations and are authorised by the DIFC to assist in the setup of Innovation Licenses in the centre. Venture Studios complete this ecosystem and we would be able to offer a wide-range of services both to Venture Studios and Venture Studio Companies.
Our services include compliance, finance and risk outsourcing, company secretarial services and accounting/bookkeeping services. We also engage in VAT and corporate tax reporting as part of the finance function.
Our training arm – 10 Academy, assists members of the Board and the senior management of firms to familiarize themselves with the DIFC regulatory framework and with their Continuing Professional Development requirements as set out by the DIFC.
Our services include:
1. Authorisation of the Venture Studio;
2. Reviewing the business model and advice on the applicable Venture Studio framework;
3. Preparation of the Business Plan and financial projections;
4. Preparation of all policies, processes and manuals required;
5. Provision of Compliance, Anti-Money Laundering and Finance services;
6. Provision of accounting and bookkeeping services;
7. Provision of VAT and corporate tax reporting services;
8. Provision of visa application and employee services, including DEWS applications;
9. Provision of Company Secretary and advice on sound Corporate Governance;
10. Assistance in Corporate Actions, including customisation of Memorandums; and
11. Assistance in drafting legal documents related to Venture Studios and Venture Studio companies.
Get in touch today! For more details about DIFC Venture Studio Framework