What is an SPV?
A Special Purpose Vehicle (SPV) is a type of company set up for a specific purpose. It allows shareholders of the controlling company to own assets (or liabilities) at arm’s length, whilst limiting the controlling entity’s exposure. They can be deployed for a variety of purposes, including efficient corporate and financial restructuring, raising capital, risk management, and ring-fencing assets (e.g. shares in mainland or foreign companies, real estate, or Intellectual Property (IP) rights).
ADGM SPVs are only permitted to take part in passive activities and are not allowed to act operationally. This means that although an ADGM SPV can hold the shares or the IP rights of a revenue-generating company, it cannot in itself engage in said revenue-generating activities. This also means that visas cannot be issued under an SPV, nor are they allowed to rent premises. Instead, they are required to be registered with an ADGM Company Service Provider (CSP).
Why ADGM
Many SPVs around the world are established in offshore jurisdictions, but ADGM SPVs are governed by the ADGM SPV Regime (the “Regime”) and ADGM Companies Regulations (the “Regulations”), underpinned by the English common law legal system, which introduces some specific common law and equity notions, such as trust arrangements and nominee agreements. This can be of particular interest to international companies with a UAE presence, or foreign investors with exposure in UAE mainland companies, allowing them to invest in mainland companies through a combination of SPV ownership and equitable agreements such as trusts. This renders benefits such as procedural certainty, reduced administrative costs, and long-term security, given that under the Regime, SPVs can be “morphed” into new legal entities (such as a holding companies).
Another important factor is that the Regulations allow for the “continuance” of companies from other jurisdictions into ADGM. Under Section 102 of the Regulations, companies and SPVs incorporated outside ADGM may apply to continue their activities as a company registered pursuant to the ADGM Companies Regulations, with minimal bureaucracy and costs (continuance into ADGM being subject to the laws of their respective jurisdictions as well as the ADGM Registration Authority’s approval). Notably, amongst other common law-based jurisdictions which permit outbound continuance, we can find the Cayman Islands, BVI, Guernsey and Jersey. Under this framework, regional players can obtain increased comfort by seamlessly bringing their assets closer to home, taking advantage of the interplay between a flexible, business-friendly environment coupled with legal and regulatory predictability.
ADGM SPVs to Protect Intellectual Property
One important usage of ADGM SPVs is the holding of IP. Intellectual Property can be assigned/licensed to the SPV, with the SPV sub-licensing the IP to subsidiary and partner entities, or other entities with which the company does business, both worldwide and in the UAE. The income from these arrangements, typically in the form of royalties, can then be consolidated in ADGM under the SPV, rendering many efficiencies, both fiscal and operational. The main benefits that companies can enjoy from consolidating their IP under an ADGM SPV are:
- Simplified IP registration and licensing processes;
- More efficient inter-group licensing processes;
- Consolidation of multi-jurisdictional IP rights under one entity;
- Separation of the “passive” IP income from the operational company by protecting the IP from operational liabilities
Other notable benefits general to all ADGM SPVs include:
- 100% foreign ownership allowed;
- No minimum share capital.
- Minimum requirement of only 1 director and 1 shareholder;
- No cap on number of shares;
- No attestation needed for corporate documents (certified copies suffice).
These mechanisms are therefore ideal for start-ups and high-growth companies ahead of financing rounds and regional expansion, as well as for established corporations and business families looking to isolate their assets and liabilities or re-shape their corporate structures to meet their long-term objectives. They also pose an attractive alternative for inventors, artists, and other creatives looking for a straightforward brand management system and a way to secure and profit from their IP rights.
Conclusion
ADGM SPVs can be primarily used for start-ups and high growth companies, family offices and succession planning, holding companies, regional headquarters, IP planning and brand management, and capital raising. They increase shareholder and investor protection by allowing control over their most valued assets under a predictable common law framework and a more efficient and sophisticated legal and regulatory system, whilst being at par with the highest international standards to ensure the reputations of companies established with, or seeking to establish, an international footprint.
