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What Are SPVs and Why Should You Use It?

In this article, we'll uncover the potential of Special Purpose Vehicles (SPVs) as essential tools for holding companies. Whether you're an investor, entrepreneur, property enthusias or established corporation, understanding how to utilise SPVs registered in Abu Dhabi Global Market (ADGM) can be a game-changer in Dubai's dynamic business scene.

Let's unravel the benefits and opportunities that await those who tap into the flexibility and strategic advantages of ADGM SPVs.

What is an SPV?

A Special Purpose Vehicle (SPV) is a distinct legal entity created for a specific and often limited purpose. Think of it as a financial vehicle with a singular mission, such as holding assets, managing risks or executing a particular transaction.

SPVs are commonly used in various industries, including finance, real estate and investment, to isolate risk, facilitate complex transactions and optimise tax efficiency.

One of the key features of an SPV is its legal separation from its parent company, shielding the parent's assets from the risks associated with the SPV's activities. This characteristic makes SPVs an attractive option for businesses looking to undertake ventures with significant risk exposure or regulatory complexities while safeguarding their core operations.

In the context of the Abu Dhabi Global Market (ADGM), SPVs offer additional advantages and regulatory clarity, making them a preferred choice for businesses operating in Dubai's vibrant economic landscape.

What is the Abu Dhabi Global Market?

The Abu Dhabi Global Market (ADGM) is an international financial center and free zone located in Abu Dhabi, the capital of the United Arab Emirates (UAE).

Established in 2013, ADGM operates as an independent jurisdiction with its own legal and regulatory framework tailored to international standards and where the English Common Law applies.

ADGM operates under the oversight of three distinct governing bodies:

  1. Registration Authority (RA)

  2. Financial Services Regulatory Authority (FSRA)

  3. ADGM Courts

It serves as a hub for finance, business and commerce, offering a conducive environment for companies to establish and conduct their operations.

ADGM SPV for Business Setup Dubai

Why Should I Use an SPV?

Segregating Your Risks

One compelling reason to utilise SPVs is their ability to isolate risk and protect the assets of the parent company. By establishing a separate legal entity for a specific purpose, businesses can shield their core operations from potential liabilities and financial uncertainties associated with the activities of the SPV.

This risk mitigation strategy is particularly valuable when undertaking ventures with heightened risk exposure or regulatory complexities. In essence, SPVs serve as a protective barrier, allowing businesses to pursue opportunities while safeguarding their foundational assets.

Flexibility with Shareholding

Another significant benefit of utilising SPVs within the ADGM framework is the flexibility in shareholding arrangements. Unlike many jurisdictions, ADGM imposes no residency requirements on shareholders and sets no minimum capital threshold, providing businesses with unparalleled freedom in structuring their ownership.

Moreover, ADGM allows for the creation of multiple classes of shares, such as ordinary voting shares, multiple voting shares or preferential dividend shares, all of which can be tailored to suit the specific needs of the SPV's stakeholders and detailed in its Articles of Association.

Additionally, shareholders have the liberty to incorporate pre-emption rights, such as rights of first offer, drag-along rights and tag-along rights, either within the Articles of Association or through separate shareholder agreements, offering an extra layer of flexibility and protection to all involved parties.

This adaptable shareholding regime in ADGM enhances the attractiveness of SPVs as a strategic choice for businesses operating in Dubai's diverse and dynamic market landscape.

Enhanced Structured Finance Opportunities

Within ADGM, businesses gain access to a structured finance system that offers unparalleled versatility. Through this system, companies can utilise sophisticated financial instruments to restructure debt, raise capital, facilitate asset transfers and effectively manage risk—all important aspects often overlooked in traditional financing avenues.

This distinctive feature empowers business owners with innovative solutions tailored to their specific needs, providing a competitive edge in the dynamic landscape of corporate finance.

Efficient Asset Holding and Transfer

ADGM's SPV company formation streamlines the process of holding and transferring assets, minimising bureaucratic hurdles. With the ease of moving assets from one account to another, business owners experience a smoother operational workflow, characterised by increased efficiency and accelerated transaction times.

Establishing an ADGM SPV Company: Streamlined Incorporation Procedure with Open Hub

Setting up a Special Purpose Vehicle (SPV) company within the UAE, particularly in the Abu Dhabi Global Market (ADGM), follows a straightforward incorporation process. Here's a step-by-step guide to the process when working with Open Hub:

  1. Initial Approval: Begin by submitting the necessary Know Your Customer (KYC) documents.

  2. Company Incorporation: Prepare and submit the required company incorporation documents.

  3. Consent Letter: Obtain a Consent Letter from a Registered Office Provider.

  4. Application Submission: Our team at Open Hub will handle the submission of the completed application through the official portal.

  5. Review and Clearance: ADGM will review the application and ensure compliance, including clearance from Abu Dhabi Immigration for Authorized Signatories.

  6. License Issuance: Upon successful completion of the process, ADGM will issue the SPV license, allowing you to commence operations swiftly and efficiently.

Key Takeaways

In conclusion, embracing the utilisation of Special Purpose Vehicles (SPVs) within the Abu Dhabi Global Market (ADGM) emerges as a strategic imperative for businesses navigating the dynamic landscape of Dubai's economic sphere.

Through the various benefits explored in this article, including risk mitigation, flexible shareholding structures, access to structured finance solutions and streamlined asset management processes, it becomes evident that SPVs offer a potent combination of versatility, efficiency and regulatory clarity. By leveraging the advantages afforded by ADGM's business-friendly environment and robust legal framework, companies can unlock new avenues for growth, optimise operational agility and capitalise on emerging opportunities with confidence.

Ready to start your business in the UAE? Open Hub's mission is to easily transform the business setup experience for entrepreneurs entering the UAE market. We then continue to partner with our clients throughout their continued growth, utilising our extensive corporate service product offerings. Open Hub is the 13th subsidiary under the reputable BetterHomes group, established in 1986. Now, with a vast amount of commercial resources and 450 employees across the region. We partner with government jurisdictions to offer you direct pricing, in depth comparisons and full cost transparency. Company formation is just the start, we provide the corporate services all in one place to keep you moving.

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