Using ADGM SPVs as Holding Structures for Startups

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/using-adgm-spvs-as-holding-structures-for-startups So how can we use these flexible structures as holding companies for startups? Well, Startups in the region face a daunting task. It is not easy to operate a fledgling company in the region, even with all the incentives that are currently in place for entrepreneurs. Access to capital is limited, given that banks in the UAE do not lend easily to entities that do not have a proven track record. Startups then end up having to turn to alternate sources of funding, namely angel investors and venture capitalists. This ecosystem has been steadily growing since 2016, and initiatives such as the DIFC VC Fund Regime are bringing in new VC Fund managers to the country. Most free zones do not yet have very flexible commercial companies regulations. Shareholders are all clubbed into one class of shares, with limited (if any) options to customize the Memorandum and Articles of the company, and options for share pledges and issuance of convertibles such as warrants being virtually non-existent. In this situation, even if startups manage to access capital, they require an adequate structure so as to onboard investors, while still keeping control of the operational direction of their company. Here is where ADGM SPVs provide a viable alternative: Startups can be setup in any free zone in the UAE, and can hold the shares in these free zone entities through an ADGM SPV. In effect, the operational entity becomes a wholly-owned subsidiary of the SPV in ADGM. The Memorandum of the SPV can be customized to allow for multiple classes of shares, with different voting, dividend and distribution rights. Investors can be onboarded in a separate class of shares and founders can maintain control of operational aspects of the startup through a distinct founder share class.