In June 2023, A fraudulent phishing email that came from an employee of an ADGM company’s email address was reported to the Data Protection Office by ADGM Information Security. Even though the company filed a breach notice form, it lacked information in both the first notification and the follow-up assessment. Due to the company’s failure to non-cooperation with the Commissioner, insufficient organizational and technical measures, and inability to guarantee the proper security of personal data, the Commissioner of Data Protection in ADGM has issued a Direction under ADGM Data Protection Regulation 2021.

This case study is a clear indication of how stringent the Data Protection measures are in the Abu Dhabi Global Market. ADGM, the International Financial Centre (IFC) located in the capital city of the United Arab Emirates (UAE) has always kept data privacy as its top priority. ADGM Data Protection Regulation is the key factor that guards the data privacy in ADGM. By adding obligations for personal data processing, the ADGM Data Protection Regulation (DPR) was revamped in Feb 2021, replacing the 2015 Regulation.

Let’s explore a bit more about the ADGM Data Protection Regulation 2021;

As per Article 63, the ADGM DPR 2021 ensures the protection of Personal Data used by businesses and organizations in ADGM. In the cases of non-compliance, the Commissioner of Data Protection has enforcement powers to impose new regulations and obligations. To streamline the actions, the DPR has set up an Office of Data Protection and certain tools under it which makes the whole process easier.

ADGM follows the European Commission’s approach for Data Privacy and Protection for the security of data that is transferred out of ADGM by designating jurisdictions that are deemed adequate from a data protection perspective out of ADGM. Only if the recipient’s local laws guarantee a sufficient degree of protection for the Personal Data, then the data be transferred to a recipient situated in a jurisdiction outside ADGM.

Then, what is the Office of Data Protection?

The Office of Data Protection oversees data protection within ADGM, keeping track of Data Controllers, enforcing Data Controller requirements, and defending individual rights. It is necessary for all ADGM-registered entities handling personal data to register as Data Controllers. The Office of Data Protection maintains a register of Data Controllers in ADGM as a part of its regulatory functions and publishes the register publicly to promote transparency and openness. Also, there are Data Processors who must process the personal data.

The Data Controllers and Processors in ADGM Data Protection Regulation

Any individual or organization that chooses, alone or in concert with others, the goals, and methods for processing personal data in ADGM. Data Controllers decide how and why the data is processed. They should make sure that any processing of Personal Data that they handle conforms with the regulations. Data Controllers are required to promptly inform the Office of Data Protection about personal data breaches. This notification should occur without unnecessary delay and, if possible, within 72 hours of the controller becoming aware of the breach. Additionally, Data Processors are appointed on behalf of the

Data Controllers who have access to personal data. External service providers that have been designated by an ADGM Data Controller are examples of Data Processors.

You can make use of the tips given below to comply with ADGM Data Protection Regulations:

Register as Data Controller:
Register and renew annually with the ADGM Office of Data Protection.

Permits for Sensitive Data:
Apply for permits to process, transfer, and register data processors.

Compliance Principles:
Adhere to ADGM DP Law principles, including lawfulness, fairness, transparency, and accountability.

Data Protection Officer (DPO):
Appoint a DPO for systematic high-risk data processing.

Breach Reporting:
Report breaches to the Office of Data Protection within 72 hours.

Data Protection Impact Assessments (DPIAs):
Complete DPIAs for high-risk processing, reporting to the ADGM Office.

Sensitive Data Policy:
Implement policies for processing sensitive personal data.

Response Time:
Respond to individual data protection filings within 2 months.

MS’s Commitment to Data Protection Regulations in ADGM

The ADGM Data Protection Regulation 2021 is designed to offer comprehensive and robust measures to ensure the safety and security of personal data. MS, in line with its commitment to the highest standards, guarantees complete compliance with the ADGM Data Protection Regulations. This commitment not only serves as a safeguard against evolving threats but also acts as a catalyst, propelling your business to new heights in the ever-changing landscape of data protection.

Disclaimer :

Registered in Abu Dhabi Global Market (Registered No. 000007218),
We are not an ADGM Registered Corporate Service Provider.

Further to Abu Dhabi Global Market’s (ADGM) consultation paper on the creation of specialised foundations for decentralised autonomous organisations (DAOs) in April,2023, on 2 November 2023, the ADGM has officially released the groundbreaking Distributed Ledger Technology Foundations Regulations 2023 (DLT Regulations), marking a significant milestone in the evolution of digital assets regulatory frameworks across the region and at an international level.

The Regulations, the first in the world,  will provide a legal framework for the establishment and operation of distributed ledger technology (DLT) foundations.

A DLT foundation is a legal entity that can hold and manage digital assets for a specified purpose, such as supporting a DLT network or protocol.

How to Register a DLT Foundation?

To register a DLT foundation, the founder is required to submit a charter and accompanying documents to the DLT foundation registrar. Additionally, a specified fee must be paid as part of the registration process. The charter should outline the foundation’s objectives, proposed activities, governance structure, identified beneficiaries, and delineate the rights and responsibilities of tokenholders. Tokenholders, defined as individuals holding or managing tokens issued by the DLT foundation, possess specific voting and information-related privileges.

A DLT foundation is required to maintain a minimum initial asset value of US$ 50,000, with the option to receive further endowments from the founder or other external sources. It’s important to note that the assets of the DLT foundation remain separate from those belonging to the founder, councillors, guardian, and beneficiaries. Importantly, these assets are not governed by foreign laws that could impact their ownership or transfer.

What are the Governance requirements of a DLT Foundation?

The governance of a DLT foundation consists of a foundation council, a guardian, and the tokenholders

The foundation council holds the responsibility of overseeing the management of assets and operations of the DLT foundation, aligning with both the charter and the DLT Regulations. Comprising a minimum of two and a maximum of 16 councillors, each subject to specific qualifications and duties, the council has extended authority in managing the foundation’s assets. It plays a main role in executing the foundation’s objectives and ensuring compliance with its charter and relevant obligations by various organizational bodies.

The foundation council possesses veto rights over decisions made by other governance bodies within the foundation. The guardian is appointed by the founder or the council, and has the role of ensuring that the council acts in accordance with the objects of the DLT foundation. The guardian also has certain powers and duties and may be removed or replaced by the council or the tokenholders.

The tokenholders can either approve or reject certain matters that would have an impact on the DLT foundation, including but not limited to, changes to the charter, migration, by passing qualified or ordinary resolutions.

What are the Reporting obligations of a DLT Foundation?

A DLT foundation is mandated to maintain accounting records and prepare annual accounts, which are subject to independent audit by a Registered Auditor. The accounts must be published on the DLT foundation’s website and filed with the Registrar within six months of the end of the financial year. The Registrar holds the authority to review, amend, or mandate corrections to the accounts and can impose fines for non-compliance. Under specific conditions and approvals, a DLT foundation has the option to migrate to or from the ADGM. Additionally, the dissolution of a DLT foundation can occur through court proceedings, Registrar intervention, or by the decision of tokenholders under certain circumstances. If a DLT foundation is removed from the register, it loses its legal entity status, and its assets may be forfeited to the ADGM. Nevertheless, within six years after removal, a DLT foundation can be reinstated on the register if the court or the Registrar deems it just and equitable to do so

As commented by His Excellency Ahmed Jasim Al Zaabi, Chairman of ADGM on the launch and the enactment of the framework as “Abu Dhabi is rapidly emerging as the destination of choice for global players at the forefront of digital asset development. The introduction of the DLT Foundations Regime marks a revolutionary step forward, reinforcing ADGM’s commitment to a proactive approach rooted in extensive cross-industry dialogue and collaboration with various stakeholders. The new regime serves as a driving force for positive change in the digital assets sector. By transforming the blockchain and Web3 landscape, we are moving towards a future characterized by setting global benchmarks with enhanced transparency and efficiency.”, the rapid evolution of Digital Ledger Technology (DLT) in recent years has positioned it as a central component of the global digital assets sector. As a prominent International Financial Center (IFC), the ADGM continues its dedication to advocating technological innovation and providing support for initiatives within the cryptocurrency realm.

ADGM’s commitment to technological innovation and its proactive approach in crafting the DLT Foundations Regime solidifies its position as a leading International Financial Center. The launch of this framework propels ADGM into a future defined by global benchmarks and enhanced transparency, marking a revolutionary step forward in the digital assets sector.

For further inquiries or discussions on DLT foundations, feel free to reach out to us – MS

Disclaimer:

Registered in Abu Dhabi Global Market (Registered No. 000007218),
We are not an ADGM Registered Corporate Service Provider.

Special Purpose Vehicles (SPVs) are passive holding companies established for the purpose of isolating financial and legal risk by ring-fencing certain assets and liabilities. It is a private company limited by shares, similar to a UK limited company or a C-Corp in Delaware, established by shareholders for specific purposes, typically to hold shares in other companies. Often, it merely holds shares in the operating companies or subsidiaries responsible for conducting the startup’s business activities. ADGM SPVs have gained popularity as the preferred choice for holding companies among startups and investors in the MENA region.

WHY ADGM SPV?
The choice of ADGM SPV is essential due to the rising regulatory scrutiny, increased risk exposure, and complex cross-border transactions. It’s crucial to segregate financial and legal risks by isolating assets and liabilities associated with specific transactions. This segregation is necessary to safeguard the integrity of these transactions and the assets intended for corporate or private use. SPVs serve a variety of narrow, specific, or temporary corporate and private family objectives, including acting as subsidiaries, project or joint venture entities, facilitating financing, sharing risks, raising capital, structuring intellectual property rights, functioning as holding companies, and providing real estate protection structures.

A non-substantiated vehicle (SPV, special purpose vehicle), which is a free zone company, to conduct “Exempt activities” pursuant to the ADGM Special Company Regulations such as:

• Acquisition, holding or disposal of any asset;
• Securitizing assets, Investing in UAE real estate property;
• Issuing investments;
• Redeeming or terminating or repurchasing, whether with a view to re-issue or to cancel, an issue in whole or in part, of investments;
• Entering into transactions or terminating transactions involving investments in connection with the issue, redemption, termination or re-purchase of investment.

Why the adgm as international financial center for spvs?

• Top tier financial center with numerous international memorandums of understanding in place facilitating international recognition
• Part of oecd & eu white lists of tax cooperative jurisdictions
• Common law jurisdiction: common law of england and wales on civil and commercial matters directly applicable which provides high level of legal certainty and reliability. Adgm spvs are subject to the adgm companies regulations 2015
• Independent adgm courts
• Best-in-class risk based independent regulatory framework
• Adgm’s three independent authorities (registration authority, financial services regulatory authority and adgm courts) provide a consistent, reliable and stable legal environment enabling registered companies to conduct business in confidence
• Access to broad uae double tax treaty network (subject to meeting requirements as set out by ministry of finance to obtain tax domicile certificate)
• No attestation required for corporate documents
• Spvs are granted a commercial licence mentioning that the company is conducting special purpose vehicle activities
• Use of standard form of transactional documentation for increased efficiency
• Tax benefits:
  • 0% direct tax
  • 0% withholding tax
  • No restriction on repatriation of capital
  • No foreign exchange controls
  • Access to uae network of double tax treaties

 ADVANTAGES OF AN ADGM SPV

• SPVs are corporate vehicles, typically private companies limited by shares, incorporated to segregate financial and legal risk by ring-fencing assets and liabilities to avoid systemic risk within a Group of Companies – claims made by the SPV’s creditors cannot be attached to the assets of the SPV’s shareholders or any of its sister companies – and ensure that only assets attached to a related transaction are exposed to the associated liabilities.
• SPV serves to fulfill narrow, specific,, or temporary corporate objectives such as subsidiaries, project or joint venture vehicles, and holding companies.
• SPV’s cost-effective, straightforward setup process, due diligence procedure & reporting requirements. However, a more limited public disclosure requirement can be met by the use of a ‘Restricted Scope Company’ SPV.
• SPV can use the registered address of an ADGM registered agent, its ADGM parent company’s address.
• A Foreign company can re-domicile/ migrate to ADGM pursuant to section 102 (application to Registrar for continuance within ADGM for the issuance of a certificate confirming that it continues as a company registered pursuant to ADGM Companies Regulations) in appliance with main jurisdictions ‘legislations such as BVI, Cayman Islands, Jersey and Guernsey.

 
USES OF ADGM SPVS

1. Securitisation:

ADGM SPVs can be utilized for securitisation purposes, where the originating party can create an SPV to purchase loans or receivables. The SPV issues debt, secured by these assets, ensuring priority payment rights for asset-backed securities holders. This setup limits recourse to the asset originator.

2. Real Estate Investment:

ADGM SPVs can acquire real property titles, limiting recourse for mortgage lenders based on the asset’s location. Selling SPV shares in some jurisdictions can result in lower taxes and transaction fees compared to transferring the property directly.

3. Financing:

SPVs help ring-fence investments, enabling financing without increasing parent company debt levels or exposing parent or SPV assets to cross-liabilities.

4. Asset Transfer:

SPVs facilitate asset transfers along with material agreements. This allows the transfer of ownership while preserving essential agreements crucial to maintaining the asset’s value.

5. Risk Sharing:

SPVs can form project companies for joint ventures, defining management responsibilities while legally isolating joint venture partners from associated risks.

6. Raising Capital:

SPVs can raise capital at favorable rates, with creditworthiness determined by the SPV’s collateral, not the parent company’s credit rating.

7. Intellectual Property (IP):

SPVs can separate valuable IP into standalone entities with minimal liabilities. These SPVs can raise funds and engage in license agreements with third parties. They are particularly useful for managing products with diverse IP components.

Eg 1: Passive Holding Structuring using ADGM SPV (ADGM Special Purpose Vehicle)

Eg 2: Financing – Asset Ring Fencing Structuring: Using ADGM SPV (ADGM Special Purpose Vehicle) 

 Eg 3: Securitisation Structuring: Using ADGM SPV (ADGM Special Purpose Vehicle)

RESTRICTION OF SPVs:

1. Passive Activities Only:

An ADGM SPV is limited to passive activities and cannot conduct commercial operations. It cannot engage in operational activities. The restriction is specific to the holding company’s operational aspect, such as offering consultancy-related services, manufacturing, real estate-related advisories etc and invoicing. These restrictions do not affect its capability to receive funds as dividends.

2. Ownership without Operation:

While it can own shares in operating companies or subsidiaries, an ADGM SPV cannot actively operate or manage the businesses it owns.

3. No Employee Engagement:

ADGM SPVs are prohibited from having employees. This means they cannot hire staff or issue work visas.

4. Limited Commercial Engagements:

They are not allowed to enter into any commercial agreements with customers or suppliers. This includes restrictions on renting office spaces or engaging in direct customer transactions.

5. Financial Transactions Permitted:

Despite limitations, ADGM SPVs can open bank accounts and receive funds. They can handle financial matters, including receiving investment funds or dividends from their subsidiaries.

In the ever-evolving landscape of international business, the strategic significance of ADGM SPVs becomes apparent as a vital foundation. These vehicles offer startups and investors in the MENA region a sophisticated framework that goes beyond the conventional. From facilitating securitization to enabling real estate investments, ADGM SPVs showcase their versatility, providing not just financial structuring but also adept risk mitigation.

What sets ADGM SPVs apart is the commitment of the ADGM to provide legal clarity, coupled with the allure of tax benefits. Positioned as a top-tier financial center, the ADGM underscores the importance of SPVs as the preferred choice for those navigating the intricacies of cross-border transactions amidst heightened regulatory scrutiny.

In essence, ADGM SPVs emerge not just as financial instruments but as strategic allies, seamlessly navigating complexities and providing a robust foundation for startups and investors in the MENA region.

ADGM’s Company Service Provider framework (“CSP Framework”) came into force on 12 April 2021.

The purpose of the introduction of this CSP Framework was to ensure a robust regulatory regime for the provision of company services in ADGM that is aligned with international best practices and to support the ongoing growth of ADGM’s Special Purpose Vehicles (SPVs) and Foundation structures.

The CSP Framework included the following two key elements.

1. Persons providing or intending to provide company services in or from ADGM must meet the strengthened regulatory requirements set out in the amended ADGM commercial legislation and Rules; and

2. Setting up and maintaining a “non-exempt” SPV or foundation in ADGM requires the appointment of an ADGM-licensed Company Service Provider.

On 23rd February 2023, the CSP Framework was amended, introducing additional requirements for CSP Licensees including but not limited to,

• mandatory annual certification of CSP staff;
• filing of audited accounts annually (regardless of company size);
• minimum regulatory capital;
• staff physical presence in the ADGM registered office;
• minimum professional indemnity insurance cover; and
• provision of an annual compliance return.

What are company services?

“Providing company services” under the Commercial Licensing Regulations 2015 (Controlled Activities) Rules 2023 means providing any one or more of the following services:

• acting as an incorporation agent in connection with the incorporation or registration of ADGM body corporates;
• providing company services to any body corporate incorporated or registered under the Companies Regulations 2020 or the Foundations Regulations 2017;
  acting as a Registered Office Provider;
• providing directors, secretaries, councillors, registered agent, or other officers to any body corporate in ADGM; or
• providing nominee shareholders of companies to any body corporate in ADGM
• “Registered Office Provider” means the business activity of providing registered office services to any body corporate in ADGM.

Being granted an ADGM Company Service Provider (CSP) Licence enables CSPs to be appointed to provide company services (e.g. company formation, registered office address, and company filing services) to non-exempt SPVs and foundations, under ADGM’s CSP Framework.

As we delve into the intricate landscape of ADGM’s Company Service Provider (CSP) Framework, MS Group helps you with setting up advice. We understand the nuances, and we’ve not just embraced the complexity but mastered it. With a commitment to precision, we position ourselves as your trusted partner, ensuring seamless compliance with the CSP Framework. At MS Group, we’re here to meet and exceed your unique business needs in ADGM. Let us be the key to unlocking regulatory excellence tailored just for you.

Under ADGM’s CSP Framework, setting up and maintaining a non-exempt SPV or foundation requires the appointment of an ADGM-licensed Company Service Provider.

Note: existing non-exempt SPVs and foundations must notify the Registrar of the appointment or cessation of a CSP within fourteen (14) days of the appointment or cessation.

Disclaimer:

Registered in Abu Dhabi Global Market (Registered No. 000007218),
We are not an ADGM Registered Corporate Service Provider.

Global Possibilities: Harnessing ADGM’s Holding Entity Advantage

A holding entity is a company that is set up by the shareholders set up to hold assets such as shares of private companies, shares in publicly listed companies, real property, intellectual property rights (‘IP rights’), Land, Ship/vessel, Aircraft, Machinery, Art, Crypto Currency, other fixed assets, etc.
Holding entities can be used on a stand-alone basis or form complex structures whereby, for example, there exists a master holding entity and sub-holdings for specific geographies or sectors that specific assets fall under. Holding vehicles offers streamlined investment arrangements with a degree of flexibility.
If the legal framework in the specific jurisdiction permits, individuals have the option to utilize a holding entity based in the UAE for managing their assets in the UK. For instance, an ADGM LTD entity can be employed to oversee the intellectual property rights of well-known brands in diverse consumer markets. RAK ICC and DIFC are other options as well.
Investors looking to bring in their different projects and entities under one single umbrella prefer ADGM as the ideal jurisdiction considering the option of holding structures available.

There are two types of holding structures in ADGM: Operational Holding Companies and Special Purpose Vehicles.

Activities

Operational Holding Companies are those companies whose Principal activity is owning a group, and facilitating an umbrella environment, and can be combined with other operational activities while SPVs are passive holding companies. As the word passive indicates, they are merely set up for holding ownership of equity and non-equity assets, with a specific purpose like issuing investments or investing in real property, and cannot conduct operational activities.

Nexus

One another element is the Nexus Requirements: which means that to incorporate an SPV in ADGM, a connection to the UAE or GCC must be demonstrated, either by way of ownership or by way of facilitating transactions benefitting UAE. Whereas there is no such nexus requirement for Operational holding companies.

Employees and visa eligibility

While operational holding companies can hire employees and issue visas in proportionate to the office space they have taken, SPVs are not eligible for visas and cannot engage employees.

Office Space:

Operational Holding Companies must have a physical address in Al Maryah or Reem Island and this must be evidenced through a Lease Agreement, whereas SPVs, though they require an address, must use the registered address of their CSPs or their parent companies in ADGM.

Appointment of Corporate Service Provider:

As per the CSP framework in ADGM, it is Mandatory for non-exempt SPVs to appoint and maintain a registered Company Service Provider (CSP) throughout the life span of the company. However operational holding companies are not required to appoint a CSP.

ADGM Fees:

Set-up costs are another attractive feature of SPVs when compared to Operational Holding Companies as the incorporation fee for SPVs is USD 1900 while operational company set-up is USD 10,000.

Corporate Governance

ADGM corporate governance requirements like the appointment of shareholders, directors, authorized signatories, and other annual compliances almost remain the same for both companies.

Given the multiple options of establishing a holding entity and the flexibility this corporate provides, investors and businesses have been attracted to ADGM.

To know more about the Holding structures in ADGM and the compliance requirements, connect with MS!

Disclaimer

Registered in Abu Dhabi Global Market (Registered No. 000007218),
We are not an ADGM Registered Corporate Service Provider.

Abu Dhabi Global Market (ADGM) is a beacon of economic dynamism and innovation in the United Arab Emirates (UAE). Among its numerous distinctions, one feature that makes ADGM stand out as an international prominence is its embrace of English common law as the foundational element of its legal framework. Unlike jurisdictions that have sought to codify common law, ADGM has boldly integrated the entirety of original English common law into its legal system, thus bringing in a sophisticated legal regime. This read embarks on an exploration of the implications, significance, and contributions of this distinct approach, unraveling how it ensures ADGM’s stature as a leading global financial center.

The English Common Law Framework in ADGM

The cornerstone of ADGM’s legal structure lies in the English Law Regulations 2015. This comprehensive framework encompasses a diverse array of legal principles, including the equitable realm, which permeates numerous domains such as contracts, torts, equitable remedies, unjust enrichment, damages, conflicts of laws, security, and personal property. Notably, certain English statutes that modify or replace fragments of common law are adapted into the ADGM context, while real property matters are addressed distinctly in the Real Property Regulations 2015. ADGM English common law framework and several English statutes (implemented locally and consistently with the English form) and ADGM enactments which have been primarily drafted from English statutory precedents and, partly, from those of other commercially respected common law jurisdictions provide many advantages to legal practitioners and business operating in the ADGM.

The Common Law in ADGM Courts

Article 1 of the Application Regulations establishes that English common law, along with equity principles, holds direct precedents in ADGM courts. The Application Regulations enable ADGM courts to continually refer to English common law as an “evergreen” basis, reflecting the evolving English case law. ADGM courts are granted authority to make necessary adjustments to suit ADGM’s specific circumstances. This approach ensures that the dynamic and updated body of English common law case law serves as a valuable precedent for ADGM, providing legal predictability.

Adaptation and Flexibility

Although it is unlikely that any two cases will be identical, this body of precedent contributes to the stability of the law. ADGM’s courts will consult relevant precedents and utilize them to deduce the application of the law to the given circumstances. In cases where ADGM’s unique context demands it, the courts have the power to depart from common law precedents. However, such departures are expected to be infrequent due to the commercial nature of most disputes and the sparse application of similar provisions in other jurisdictions that adopted similar carve-outs.

Contrary Provisions and Applicable Abu Dhabi Law

Nonetheless, the common law, as adopted through the Application Regulations, remains subject to any contrary provisions of ADGM enactments or Applicable Abu Dhabi Law. The concept of “Applicable Abu Dhabi Law” encompasses various legal sources such as the UAE Constitution, federal laws applicable to ADGM, and other relevant regulations.

ADGM’s Distinct Approach

The ADGM has intentionally chosen to adopt an all-encompassing and evergreen approach to English common law precedents within its legal system. This approach, shared with other jurisdictions that historically or currently receive English law, offers distinct advantages to ADGM and its business and legal community.

The benefits of ADGM English Law include:

1. Familiarity and Flexibility.

English common law’s reputation as a sophisticated framework for commercial arrangements makes it a preferred choice for commerce globally. Its adaptable nature is particularly suited to business transactions, especially in a financial context. This aligns with ADGM’s purpose of establishing a financial center in Abu Dhabi. Notably, major financial centers like London, New York, Singapore, and Hong Kong all follow the common law system.

2. Certainty and Cost Reduction.

ADGM’s approach reduces upfront legal costs and the likelihood of litigation. English common law already covers a wide spectrum of scenarios, guiding commercial transactions where detailed case law is crucial. The Application Regulations ensure that all of this case law holds automatic precedential value in ADGM.

3. Dynamic Common Law Developments.

ADGM’s attribution of direct precedential status to English common law circumvents the need for a unique locally codified version. This approach is based on an exhaustive examination of diverse situations, organized into rules and principles while remaining adaptable to changing circumstances. ADGM maintains continuous access to English common law scholarship, ensuring guidance on applying existing principles to current scenarios.

4. Case Law Volumes.

ADGM’s alignment with common law developments in established jurisdictions benefits a comparatively smaller center like ADGM. It directly benefits from cases that test and apply common law principles in English courts, as well as persuasive judgments from other significant common law jurisdictions.

5. Evergreen Approach and Adaptation.

The evergreen application of English common law ensures that common law developments automatically apply in ADGM. However, the Application Regulations grant ADGM courts the flexibility to adjust the common law to better suit ADGM’s context if necessary. This ensures that ADGM maintains a legal system that is both robust and responsive to its evolving needs.

MS – Your Guide to ADGM’s Common Law Jurisdiction.

The ADGM has intentionally chosen to directly incorporate English common law precedents on an ongoing basis in its legal framework, similar to other jurisdictions that receive or historically received English law. This approach is advantageous for several reasons.

At MS, we are committed to helping our clients understand the Abu Dhabi Global Market’s (ADGM) common law jurisdiction. With our expert knowledge and tailored services, we ensure that you can make the most of the benefits offered by ADGM’s robust legal framework.

In the ever-evolving landscape of wealth management, ADGM foundations are a compelling alternative to traditional trusts, offering a unique combination of legal structure, tax advantages, and high flexibility.

What makes ADGM Foundations stand out?

ADGM foundations are different from traditional trusts as they assume the form of independent legal entities, each endowed with a separate legal personality. This distinctive feature provides them with a remarkable degree of autonomy and independence, setting them apart as more than just financial arrangements. Founded with the intention to safeguard assets on behalf of beneficiaries while adhering to legal objectives, ADGM foundations become a robust instrument for a wide range of financial and succession planning and structuring needs.

Streamlined Succession Planning

One attribute of ADGM foundations lies in their effectiveness in enabling seamless succession planning. In contrast to conventional models, which often include complex and uncertain asset distribution, the transfer of asset ownership to an ADGM foundation provides a streamlined process governed by common law. Be it the transfer of business interests, property holdings, financial investments, or alternative assets, ADGM foundations offer a strong and legally binding structure for clear and efficient instructions on asset distribution.Legacy Planning
Moreover, the hallmark of ADGM foundations is their perpetual existence. Even in the absence of the founder, these foundations continue to operate, preserving the founder’s intentions across generations. This longevity empowers families and individuals to establish comprehensive, long-term succession plans that transcend their lifetimes, ensuring their legacy lives on.
Diverse Asset Portfolio ADGM foundations open doors to a broad spectrum of asset types, accommodating business assets, real estate, financial investments, alternative assets, art, and high-value possessions. This adaptability allows families and businesses to consolidate their diverse holdings under a single, unified structure. The result is a simplified approach to asset management and an organized strategy for wealth preservation.

Seamless Business Integration

Another exceptional benefit of ADGM foundations is their capacity to seamlessly integrate existing operational businesses. The process, involving the transfer of ownership from the founder to the foundation, is relatively straightforward, provided all legal prerequisites are met. This paves the way for businesses to expand beyond geographical boundaries while maintaining operational continuity.

Sharia’ Compliance and Flexibility

ADGM foundations are designed to cater to a wide array of needs, including those governed by Sharia’ principles. The foundations offer the flexibility necessary to align with Sharia’ compliant operations, upholding the requirements of ADGM Foundations Regulations as well as the Sharia’ principles.

Overcoming Sharia’ Law Challenges

In the UAE, where Islamic law governs inheritance, ADGM foundations offer a viable solution for businesses with Muslim shareholders. The transfer of shares to non-Muslims under the rules of Sharia’ law can be complex. The foundation acts as a secure holding entity for these shares, ensuring that beneficiaries receive their rightful inheritance without infringing upon Sharia’ law. In situations where ADGM laws conflict with Sharia’ law, ADGM foundations operate under ADGM laws and fall within the jurisdiction of the ADGM Courts. Properly structured Sharia’ compliant foundations, endorsed by Sharia’ scholars, can effectively mitigate the chances of conflicts between laws.

Distributed Ledger Technology Integration

As the financial world advances, ADGM is at the forefront of change. The proposed legislative framework for foundations employing Distributed Ledger Technology (DLT) showcases ADGM’s readiness for the digital age. This framework accommodates DLT projects looking to use tokens for issuance and trading

Wealth Preservation

ADGM foundations offer not just legal autonomy, tax efficiency, and Sharia’ compliance but also a robust platform for individuals, families, and businesses to preserve their financial legacies. By establishing an ADGM foundation, you can segregate your personal assets from your business assets. This separation helps shield your personal wealth from any financial risks associated with your business activities.

As the reputation of ADGM continues to soar and its ecosystem thrives, the future holds great promise for ADGM foundations in shaping the landscape of wealth preservation and succession planning, both within the Middle East and beyond.

Why SPVs and Foundations in ADGM?

An SPV (Special Purpose Vehicle) and a Foundation are two different legal structures that serve different purposes.

An SPV is a separate legal entity created to serve a specific purpose or project. It is often used to isolate risk and limit the potential liability of the parent company. SPVs are commonly used in structured finance transactions, mergers and acquisitions, real estate investments, and other business transactions. The assets and liabilities of the SPV are separate from those of the parent company, and the SPV can be dissolved once its purpose has been achieved.

On the other hand, an ADGM Foundation-like trust is used for many purposes such as wealth management and preservation, tax planning, family succession planning, corporate structuring, and asset protection. As compared to trust, the founder of the foundation can retain more control over the foundation. It is similar to a trust in common law jurisdictions, but unlike a trust, it has a legal personality and can enter into contracts and hold assets in its own name. Foundations are commonly used in civil law jurisdictions, such as in Liechtenstein and Panama, and can also be established in certain common law jurisdictions, such as in the UAE.

In summary, an SPV is a legal entity created for a specific business purpose, while a Foundation is a legal entity created to manage and protect assets for a specific purpose, such as charitable or philanthropic activities.

In ADGM, an SPV is commonly used in structured finance transactions, mergers and acquisitions, real estate investments, and other business transactions. The ADGM Companies Regulations 2015 provide for the incorporation of SPVs, which are typically used for ring-fencing assets and liabilities and limiting potential liabilities of the parent company. ADGM allows for the incorporation of different types of SPVs, including those for securitization transactions, project finance, and real estate investments.SPVs are commonly used for ring-fencing assets and liabilities and limiting the potential liabilities of the parent company.

ADGM also offers a legal structure for Foundations. The ADGM Foundations Regulations 2017 provide for the establishment of private and public Foundations in ADGM. A Foundation established in ADGM can be used for charitable or non-charitable purposes and can hold assets for the benefit of beneficiaries or for a specific purpose. A Foundation in ADGM has legal personality and can own assets, enter into contracts, and sue and be sued in its own name.

Uses of SPV

• Risk sharing: A parent company can create an SPV to share the risks associated with high-risk projects. If the parent company faces bankruptcy during such projects, the SPV remains unaffected. Similarly, if the SPV faces bankruptcy, it does not impact the parent company since the SPV is created for a specific business purpose.
• Asset transfer: SPVs facilitate the transfer of assets, making them unidentifiable. They can even enable the transfer of non-transferable assets like mines, power plants, and gas plants.
• Financing: SPVs can ring-fence investments, increase debt owed to the parent company, or finance parental or SPV assets without subjecting them to cross-liabilities.

• Real estate investment: SPVs can acquire title to real property, limiting the recourse of mortgage lenders based on the location of the asset.
• Securitization: Companies can use SPVs to securitize loans, reducing funding costs. The SPV purchases assets by issuing debts, providing priority rights to asset-backed security holders for receiving payments.
• Raising capital: SPVs can be used to raise capital at favorable rates, with creditworthiness determined by the SPV’s collateral rather than the parent company’s credit rating.
• Intellectual property: SPVs protect a company’s intellectual property rights from pre-existing licensing deals. They can separate valuable intellectual property into a separate structure with minimal liabilities. SPVs can also raise funds and enter into license agreements with third parties independently of the parent company.

Advantages of Foundations

• Asset management
• Strong administrative features on which the Foundation Council operates on a par with a Board of Directors. The duties of council members are set out in the ADGM Foundation Regulation. The government follows international best practices and sets a regulatory standard for the Foundation Council. These criteria include legal obligations similar to those of directors in the company law.
• Guaranteed by Guardian supervision. The Foundation Council is administered by the Guardian and makes sure that it complies with the charters and by-laws of the Foundation. The appointment of a Guardian after the death of the Founder is mandatory and optional during the Founder’s lifetime.
• Legal personality as opposed to trust. Having a legal personality, as a company can, gives foundations the flexibility to enter directly into contracts and arrangements.
• Separation of responsibilities while upholding control of properties. The Foundation is a separate legal establishment that permits the separation of responsibilities between the Foundation and the Founder.
• Eternal existence after the life of the founder. A foundation is a permanent concept that consents to adjustments to continue and thus offers certainty after the death of the founder.
• Wealth Protection Mechanisms

Personal Law vs ADGM Foundation Regime

In the UAE, Islamic law (Shariah law) governs inheritance, which can pose challenges for businesses that have Muslim shareholders who pass away, as the transfer of their shares to non-Muslims can be complicated. However, the use of an ADGM Foundation can provide a solution to this issue.

When a Muslim shareholder passes away, their shares in the company are subject to the rules of Shariah law regarding inheritance. In many cases, the shares will be passed down to the deceased shareholder’s heirs in accordance with Shariah law. However, if the heirs are non-Muslims, they may not be able to inherit the shares under Shariah law.

To avoid this issue, the ADGM Foundation can be used as a holding entity for the shares. The deceased shareholder’s shares in the company can be transferred to the Foundation, which can then hold the shares for the benefit of the deceased shareholder’s beneficiaries. The Foundation can be established in such a way that it is not subject to Shariah law and can provide a mechanism for the transfer of the shares to non-Muslim beneficiaries.

The Foundation can be established in accordance with the ADGM Foundations Regulations 2017, which provide for the creation of private and public Foundations. The Foundation can be set up to hold assets for the benefit of the deceased shareholder’s beneficiaries, who can be designated as beneficiaries of the Foundation. The Foundation can then distribute the shares to the designated beneficiaries according to the wishes of the deceased shareholder, which can be outlined in the Foundation’s charter or trust deed.

The use of an ADGM Foundation for the transmission of shares from a Muslim to a non-Muslim shareholder partner provides a flexible and customizable solution for businesses that may face inheritance issues due to Shariah law. The Foundation can be established to meet the specific needs and requirements of the business and can provide a clear mechanism for the transfer of shares to non-Muslim beneficiaries.

In the UAE, the transfer of shares between Muslim and non-Muslim partners can be complicated by the rules of Shariah law regarding inheritance. However, the use of an ADGM Foundation can provide a solution to this issue.

In summary, setting up an ADGM Foundation can provide a flexible and customizable solution for the transmission of shares of a Muslim partner to a non-Muslim partner in the event of death. The Foundation can be established to meet the specific needs and requirements of the partners and can provide a mechanism for the transfer of shares in a way that is not subject to the rules of Shariah law.

Consultation on Distributed ledger technology foundations:

The ADGM has recently released a Consultation Paper outlining a proposed legislative framework for foundations utilizing distributed ledger technology (DLT). This framework is designed to accommodate DLT projects that intend to utilize tokens for issuance and trading through various structures such as unincorporated decentralized autonomous organizations (DAOs), foundations, and companies limited by guarantee.

The primary objective of the paper is to develop a new regulatory regime tailored to the unique requirements and characteristics of foundations, aiming to attract DLT projects and developers. The goal is to introduce the Proposed Regulations for Distributed Ledger Technology Foundations in 2023.

Company Name Rules in the Abu Dhabi Global Market (ADGM)

Introduction

When establishing or changing the name of a company in the Abu Dhabi Global Market (ADGM), it is important to adhere to certain regulations and requirements. These guidelines are in place to ensure that company names are unique, do not imply connections with government entities, and comply with the Business and Company Name Rules of 2016. We will provide an overview of the restrictions, controls, and requirements for the approval of company names in the ADGM.

• Ensuring Name Uniqueness by name search and validation

To prevent confusion and avoid conflicts, the Registrar’s Company name search should be utilized to verify that the proposed company name is not already in use by another entity registered in the ADGM or any relevant jurisdiction. Additionally, it is advisable to check existing trademarks by contacting the Ministry of Economy or similar offices in other jurisdictions.

• Restrictions on Name Similarity and Misleading Names

A company’s name should not be identical or too similar to an already registered company or partnership in the ADGM or any other relevant jurisdiction. This measure helps to prevent confusion among businesses and consumers. Furthermore, the name should not be misleading, implying relationships with the ADGM, ADGM Financial Services Regulations Authority, or any governmental authority in the ADGM, Abu Dhabi, or the United Arab Emirates (UAE) unless written consent has been obtained.

• Sensitive Words and Expressions

Certain words or expressions are considered sensitive and require special permission or justification for their inclusion in a company name. Examples of such sensitive words include “Government” or “UAE.” If a company wishes to use these words, they must obtain written approval from the relevant authority and submit it to the Registrar during the name reservation or company registration process.

• Prohibited Words and Phrases

The ADGM maintains a list of prohibited words and expressions that cannot be used in company names. This list includes protected and restricted names or phrases, which may change over time due to new legislation. Examples of prohibited words include the names of public authorities, such as the Financial Regulator, Central Bank of the UAE, and ADGM itself, as well as words like “bank,” “insurance,” or “trust” that suggest financial services without proper consent from the ADGM Financial Services Regulatory Authority.

• Name Endings

Different types of companies in the ADGM must use specific endings for their names. Public companies limited by shares should end with phrases such as “public limited company,” “plc,” or variations thereof. Private companies limited by shares must use endings like “limited,” “ltd,” or their variations. Restricted Scope Companies should include the word “restricted” or ‘’RSC’’ and Special Purpose Vehicles should use the word ‘’Holdings’’ in the name and use the same endings as private companies limited by shares.

• Naming Considerations for Branches of Foreign Companies
  

If a foreign company wishes to register as a branch in the ADGM, it must use the name of its parent company.

• Proposed Name in Arabic

Applicants are required to provide the proposed name of the company in Arabic during the name reservation or incorporation process. If left blank, the Registrar will exercise discretion in determining the Arabic spelling of the name.

Conclusion

Choosing a company name in the ADGM involves several restrictions, controls, and requirements to ensure uniqueness, avoid misleading information, and comply with the Business and Company Name Rules of 2016. By following these guidelines and seeking proper approvals, when necessary, businesses can select appropriate names that reflect their identity while adhering to the regulatory framework of the ADGM. It is important for entrepreneurs and companies to familiarize themselves with the rules and consult the relevant authorities to ensure compliance and a smooth registration process.