Using an SPV as a Holding Company

Using an SPV as a Holding Company

When it comes to the holding company, you have several options in the United Arab Emirates (UAE). But do you know what the most effective holding company is? In that case, you might be surprised to learn that the Special Purpose Vehicle (SPV) is an excellent holding company you can establish in the UAE. If you are interested in knowing why you should use SPV as your holding company in the UAE, you should spend some time with us. Here, we will discuss everything about the Special Purpose Vehicle as a  Holding Company. We will also explore the reasons for using SPV as a holding company in this article.

Holding company - Overview

Before diving into the deep information about SPV, we recommend you clear all your doubts about the holding company because you will also use SPV as a holding company. When anyone talks about a holding company, you should recall that a holding company is a parent-business entity that doesn’t manufacture or sell products of the parent company. As the name highlights, the holding company only holds the controlling stock or membership interest in other companies. Here, you should remember one thing: the holding company may own 100% of the subsidiary or this company can just hold enough stock to control the subsidiaries. We hope now all your doubts about the holding company have been cleared. So, let us move forward to understand the overview of the SPV in the next section.  

Special Purpose Vehicle (SPV) - Overview

A Special Purpose Vehicle (SPV) is a type of company that shareholders like you set up for a particular purpose. This company is usually established to isolate financial and legal risks through ring-fencing assets and liabilities. You can use an ADGM SPV to own assets like shares of private companies, such as the UAE mainland LLC, real property, intellectual property rights (IP rights), and more. You can develop SPV as a holding company, subsidiary, project, or joint venture vehicle to ensure that only those assets related to a transaction are exposed to the liabilities linked to that transaction. As we mentioned above, You may use SPV as a holding company. Therefore, if you start your SPV, you can just engage in “passive” operations and are not allowed to act operationally. For example, if you hold a share in construction or software development activities, you cannot engage in construction or software activities. On this basis, you don’t have employees. In addition, you would not be eligible for any work or residency visas in the United Arab Emirates (UAE). As the owner of the ADGM SPV, you are not allowed to rent an office space for registration purposes. However, you can use the registered office of the group company based in ADGM or a corporate service provider registered in the ADGM. Are you searching for the meaning of the ADGM that we are discussing here? In that case, you will be delighted to learn that the ADGM is an English common law jurisdiction. This jurisdiction only applies to certain or amended common law provisions and equity. In other words, ADGM identifies the use of equitable arrangements like trust and nominee agreement. If you are a foreign investor investing in the UAE mainland LLCs, you can consider mixing an SPV and an equitable agreement. This will help you protect your interest and comply with the UAE Mainland local requirements.  

Top reasons to utilize an SPV as a holding company

As we have discussed before, using an SPV as a holding company is an excellent decision. However, we have outlined the top reasons for using the SPV as a holding company below:

1. Flexibility of asset ownership

You might feel satisfied after reading that many parties have the advantage of using an SPV as a holding company. So let us take a look at the following parties who benefit from the use of SPV as a holding company:

• Suppose you hold a share in the UAE LLCs in your personal name. In that case, you can corporatize your holding and use the SPV.
• You can use SPV to hold your assets if you own a property or planning to purchase a property. You may also utilize the SPV for a single property or property portfolio. If you have significant property portfolios as an investor, it is important to evaluate the viability of assigning property ownership to different SPVs.
• If you are an investor, company, or startup owner creating intellectual property, you can use SPV as a holding company to hold those IP rights.
• Companies like yours entering into joint ventures should consider SPV holding company specific to the joint venture with the partner.

2. Asset protection

By establishing SPV as a holding company, you can develop a separate legal entity to retain your assets. This can give you a level of protection against risks and liabilities in the business activities of the subsidiaries.

3. Segregating risk

You should remember one thing: the SPV serves as the form of a “private company limited by shares.” Since this company is private, the shareholder's liability would be limited. However, the other assets of the shareholders would generally not be exposed to liability, except where a shareholder gives a personal or corporation guarantee regarding the liabilities.

4. Third-party beneficiary arrangement

As we discussed above, the ADGM identifies the utilization of third-party beneficiary arrangements like nominees and trust agreements. ADGM approves their use only if the agreement is compliant with the ADGM provision. This is relevant for SPV shareholders who want to protect the rights of third parties or when parties agree that one shareholder will hold the shares on behalf of another party. For example, while "Individual A" can be the 100 percent legal shareholder of an SPV, ADGM allows "Individual B" to be the 100 percent beneficial owner of the shares.  

How can Flyingcolour Business Setup help you?

From the flexibility of asset ownership to raising capital and third-party beneficiary arrangements, you can enjoy several benefits by starting your SPV as a Holding Company in the UAE. However, you must prepare yourself to follow several steps if you want to start your SPV. Flyingcolour Business Setup can help you begin SPV as a holding company in the UAE. Our experts can clear all your doubts about using SPV as a holding company. To learn more about SPV as a holding company, book a free consultation with one of the Flyingcolour team advisors. Please note that this article was published on  28/06/2024 by the federal policies and updates at the time of writing. For the latest info please talk to our consultant.