Setting up a company in ADGM, and specifically a Special Purpose Vehicle (SPV), is attractive for startup founders and their investors. Founders benefit from the speed and simplicity that ADGM’s fully digitised incorporation process achieves, while investors are attracted by the investment flexibility and legal protections that ADGM’s strong regulatory environment provides. Before you get started with incorporating your company, learn more about the benefits of an ADGM SPV for founders and investors.
Contents
2. ADGM’s SPV
3. Why do founders like ADGM SPVs?
4. Why do investors like ADGM SPVs?
5. Eligibility for an ADGM SPV
6. Incorporating your ADGM SPV with Clara
Abu Dhabi Global Market
Abu Dhabi Global Market (ADGM) is an international financial centre and free zone established in Abu Dhabi in 2013. ADGM’s mission is to promote economic and financial sector growth through a world-class innovative financial centre. It has quickly become a jurisdiction of choice for regional and international businesses for its progressive, robust and start-up-friendly ecosystem.
ADGM caters to businesses setting up financial and non-financial operating companies, including the cost-effective tech startup licences for entrepreneurs wanting to grow and scale their technology-driven innovative businesses. However, one of the biggest success stories for ADGM has been SPVs which represent more than 50% of the companies that have been incorporated in ADGM.
ADGM’s SPV
An ADGM SPV is a passive holding company, and is a private company limited by shares (i.e. the most common type of company, similar to a limited company in the UK or a C-Corp in Delaware) that is set up by its shareholders for a specific purpose, most commonly for holding shares in other companies (this is what Clara refers to as a topco). In the context of startups, a topco is the company that sits at the very top of a startup’s corporate structure. In most cases, it acts purely as a company to hold shares in the company or companies of the startup that actually carry out your business (these are sometimes referred to as operating companies or subsidiaries). The ADGM SPV has become a preferred choice of topco for startups and their investors throughout the MENA region (see below for further details).
The flexibility of use of an ADGM SPV has contributed to its popularity. However, this flexibility is not without limits. Most importantly, an ADGM SPV can only be used for passive activities and cannot carry out commercial operations. For example, while an ADGM SPV can own the shares in a technology startup developing software (i.e. the operating company / subsidiary), it cannot itself engage in software development activities or the management of the software. It also cannot have employees, issue work visas, rent office space or enter into any commercial agreement with customers or suppliers. It can, however, open bank accounts and receive funds (such as investment funds or dividends from its subsidiaries).
Why do founders like ADGM SPVs?
The popularity of an ADGM SPV among founders is largely due to their flexibility and simplicity:
- Flexible ownership structure: there is no minimum share capital and no maximum number of shares or shareholders. There are no restrictions on the nationality of share ownership.
- Documentation: there is no requirement to have corporate documents attested and legalised. Model Articles of Association (Articles) can be used at the time of incorporation to save on upfront legal costs. The Articles can be customised post-incorporation, for example, when the terms of investment in the SPV are being negotiated.
- Multiple classes of shares: an ADGM entity can have multiple classes of shares – ordinary voting, ordinary non-voting and preferred share classes are common. This allows for shares with different voting, dividend, and distribution rights. Founders’ control and rights can be protected, while investors can be brought on with a separate class of shares, and employees can be incentivised by receiving non-voting shares through a share incentive plan (what Clara refers to as a SIP, but is also often called an ESOP).
- Ease of incorporation: the application process is entirely digital, and all documents can be signed digitally using DocuSign. There is no requirement for any parties involved in the application to be physically present or in the UAE for the incorporation process.
- Office space: An ADGM SPV does not need to rent a physical office space which represents a significant cost saving. It typically uses the registered office address of its company service provider who assists with the incorporation and ongoing administration of the SPV.
- Ease of administration: an ADGM SPV can be incorporated with a minimum of 1 director who can be a non-resident. Unless the requirement is requested by the shareholders, an ADGM SPV does not need to hold annual shareholder meetings.
- Tax: ADGM is generally a tax-free jurisdiction. There are currently no corporation, transfer, capital gains, inheritance, withholding taxes or restrictions on the repatriation of profits from ADGM.
- Attractiveness for Investment: ADGM SPVs can issue convertibles such as SAFEs and convertible notes and ADGM recognises and enforces important investor and governance rights. This means that an ADGM SPV is a strong launchpad for accessing capital from angel investors and venture capitalists who can invest with confidence that their investment is protected (see below for further details).
Why do investors like ADGM SPVs?
The popularity of an ADGM SPV among investors is largely due to their flexibility and enforceability of typical investment rights and obligations:
- Customisation of Articles: the ability to customise the Articles of an ADGM SPV means that investors can build in reserved matters for shareholder approval, share issue and transfer restrictions (e.g., rights of first refusal, pre-emption rights, drag-along and tag-along rights) and vesting or reserves vesting (for founders and share incentive plans)
- Additional Protections: ADGM as a jurisdiction recognises common investor protections (e.g. share transfer restrictions like tag alongs, drag alongs, rights of first refusal, pre-emption rights), governance rights (e.g. complex board appointment rights and board and shareholder reserved matters) and allows for vesting and reverse vesting of the shares of founders and team members.
- Regulatory familiarity and protections: English common law is directly applicable in ADGM. Given that English common law has a very long and well-established track record, including with respect to interpreting and enforcing investor rights and adjudicating commercial disputes, this gives a lot of comfort and certainty to investors when they are looking to invest in a startup’s topco.
Eligibility for an ADGM SPV
An ADGM SPV will not be suitable for all startups and the following requirements and restrictions should be considered:
- Nexus: an applicant must be able to show that they have an adequate connection (or nexus) to ADGM, the UAE or the GCC in order to set up an SPV in ADGM. There are two main ways for an applicant to establish the necessary connection – either through the asset that the ADGM SPV will hold or through its ownership:
- Asset: the SPV must be used to hold an asset in the GCC (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE), which in the context of a startup would be a subsidiary in any of those jurisdictions that will carry out commercial activities of the startup, or
- Ownership: the SPV will have shareholders resident in the GCC that hold (either individually or collectively) at least 25% of the shares of the SPV.
- ADGM authorised signatory: An SPV must have a GCC National or UAE Resident appointed as the Authorised Signatory for the SPV. Nominee services can be used to assist with this requirement.
Incorporating your ADGM SPV with Clara
Clara offers our clients the ability to use our highly automated and streamlined digital process to form an ADGM SPV for a fixed fee of USD 3,295 + VAT.
The incorporation fees include:
- the ADGM application, data protection and licence fees of USD 1,900;
- a registered office address for 12 months from the incorporation date;
- the appointment of Clara as the SPV’s Company Service Provider; and
- preparing the incorporation documents and submitting the application to ADGM.
Clara has been designed to give you the fastest and cheapest incorporation journey. To use the platform, you must:
- satisfy the eligibility requirements above;
- incorporate the SPV with individuals only and the ADGM model Articles; and
- pay the incorporation fee by credit card.
The addition of corporate shareholders and amendments to the Articles can take place after incorporation. This ensures that your incorporation (and therefore your ability to open your bank account and issue SAFE notes) is not delayed because of the complexities of adding corporate shareholders from the outset or negotiating amended Articles ahead of the incorporation.
To incorporate an ADGM SPV on Clara:
- You will create a Clara account and enter the details for your new ADGM entity on the platform, including the identification documents for the directors and shareholders. To prepare yourself for the information required, you can review our Article on ‘What information do I need to set up by ADGM SPV’
- The incorporation documents will be prepared by Clara and shared with you before being sent to the shareholders and directors for electronic signature
- Clara submits the incorporation application to ADGM for their review. ADGM’s initial review period is 10 business days, however, applications via the Clara Platform are regularly approved in advance of this timeframe.
- The Licence is issued and you can commence your bank account opening process if one is required
