All You Want To Know About Foundations In The Adgm - 10 Leaves

By Author: Nitya
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ADGM Foundations:
The ADGM Foundations Regime provides a viable alternative to trusts for legacy planning and financial structuring. ADGM offers foundations incorporated under Common-Law for the first time in the region.

Update:

(i.)The ADGM Company Service Provider Regulations came into effect from 12th July 2021.

(ii.)All ADGM Foundations* are now required to appoint a Company Service Provider to carry out company secretarial and registered agent services. The ADGM CSP will be the point of contact between the ADGM Registration Authority and the Foundation.

10 Leaves is a Company Service Provider in the ADGM and offers the following services to ADGM Foundations:
Incorporation Agent – assistance in setting up the Foundation.
Registered address – providing the registered office.
Provision of Council Members.
Provision of company secretaries.
Provision of Authorised Signatories.
Provision of nominees.
Provision of accounting services.
Customisation of the Foundation Charter and By-Laws.
ESR Filings and notifications.
...
... Pledge Arrangements and registration.
Translations and attestations.
Strike-off and voluntary liquidation assistance

In addition to the above, we offer corporate and commercial services through 10 Leaves Legability. These include customisation of the Foundation Charter and By-Laws.
We provide all our services through a proprietary digital frontend, with a secure digital backend, to ensure that you have a seamless experience, unmatched by competition. As a client, you also have access to our industry-leading media solution that incorporates engaging videos, detailed podcasts and informative publications to keep you updated and informed of the latest developments that affect your company on an ongoing basis.
*some Foundations are exempt, such as entities connected to regulated firms, and those that they are able to demonstrate adequate presence in the UAE
What are ADGM Foundations?
A foundation is governed by its Charter, which is a publicly available document, and By-laws, which are private to the Foundation. The affairs of an ADGM Foundation are managed by the members of a Council and may be supervised by a Guardian.

Foundations provide a mechanism to consolidate holdings of various assets (shares, real property, intellectual property, royalties, etc.) into a single holding entity. This allows for clarity on the transfer of assets during a succession process, and also makes it oFoundations operate like common law trusts, with an important distinction – they are legally incorporated with a distinct legal personality. In effect, they have features common to a company. They can hold assets, but cannot issue shares or carry out commercial activities.

Foundations are operationally and tax-efficient. Much like a ‘Letter of Wishes” in a trust vehicle, a Foundation’s Charter and By-Laws help make the succession process much less challenging.

Are there any naming requirements?
The name of an ADGM Foundation must end with the word ‘Foundation’. It should also comply with the naming rules that are in force at the centre.
What is the Foundation Charter? What does it need to contain?
The Charter is the main document of an ADGM foundation. It contains the provisions governing the organisation, assets and purpose of the foundation.
The charter must state:
the name of the Foundation;
the name and address of the Founder or each of the Founders;
the objects of the Foundation;
if the Foundation has been established for a specific purpose, the purpose for which the Foundation has been established;
a description of the Initial Assets;
provisions for the establishment of a Council;
the name of a natural person or Legal Person who shall become a Beneficiary;
only in circumstances where a Foundation has no other Beneficiary (the “Designee”);
the name and address (in the Abu Dhabi Global Market) of the Foundation’s Registered Agent, if any;
the address of the Foundation’s registered office in the Abu Dhabi Global Market; and
the term for which the foundation is established, if any, or the details of any contingent event, which will trigger the dissolution of the Foundation.

What is an authorized signatory?
The ADGM Foundation will have to appoint an authorized signatory who will represent the Foundation. At least one signatory has to be resident in the United Arab Emirates.
What are the differences in the legal structures of an ADGM Foundation and a Trust?

Foundation:
1. A foundation is a distinct legal entity, much like a company.
2. A foundation can contract with external parties
3. It can hold assets, including real property, in its own name.
4. A foundation can sue and be sued in its own name.
5. The foundation holds the legal and beneficial title to the assets.

Trust:
1. A trust is not a distinct legal entity.
2. The legal rights and obligations are with the trustees (rather than the trust itself) and the trustee in effect contracts in its own name on the trust’s behalf.
3. Legal ownership of the trust fund is with the trustees
4. Beneficial ownership of the trust fund is with the beneficiaries.
5. The trustees would have to sue and be sued in their name.
What is a Founder, Council Member, Guardian, and Beneficiary, in relation to ADGM Foundations?
Founder – the individual or body corporate that brings in the assets to the ADGM Foundation.
Council Member – similar to the Director of a company under Common Law, the council members of a Foundation govern it’s operations and administration in accordance with the Foundation Charter and By-Laws.
Guardian – overseas the operations of the Foundation, and is mandatory after the death of the Founder.
Beneficiary – The beneficiaries are the individuals or corporate bodies who have been nominated to benefit from the assets held within the foundation.

Benefits Of ADGM Foundations
1. An ADGM Foundation can access the Double Taxation Avoidance Treaties that the UAE Ministry of Finance has signed with over 50 countries worldwide. There are additional requirements to be satisfied though.

2. Can be used by private bankers to provide locally a full suite of structuring solutions to local and GCC clients.

3. Distinct legal personality – Unlike trusts, ADGM Foundations have a separate legal personality, that allows for flexibility of operations.

4. Corporate Governance - ADGM Foundations Regulations follow international best practice and set a legislative standard for the Foundation Council, including statutory duties, similar to common law and equitable duties imposed on company directors. A Guardian supervises the Foundation Council and ensures that it acts in accordance with the Foundation’s Charter and By-Laws. Appointment of the Guardian is optional during Founder’s lifetime and compulsory upon Founder’s death.

5. Requirement of a Guardian – The ADGM Foundation has to appoint a Guardian on the death of a Founder. This adds to the oversight on the Foundation’s activities. A Guardian can be appointed when the Founder is alive as well.

6. Asset protection – The Founder can maintain control of the assets while separating liabilities due to the distinct legal personality of the Foundation. ADGM Foundations are designed to help in protecting the rights of the beneficiaries and preserve the assets from bankruptcy claims, claims in the event of divorce and from the effect of forced heirship rules.

7. Perpetuity – The Foundation is designed to exist to perpetuity, much like a company.

Highlights of ADGM Foundations Regime

1. Allows for re-domiciliation of Foundations into and out of ADGM
2. Flexibility to amend governance structure once established
3. Low set-up and ongoing costs
4. Commit initial assets of as little as USD $100 to the Foundation
5. No physical office requirement – foundations can use the address of a corporate service provider in the ADGM
6. No requirement for a Founder or Foundation’s officers to be based in the UAE or maintain residency in the UAE
7. All Foundation roles can be individuals or body corporates
8. Limited public disclosure with no individuals’ names on public register.
9. No requirement for filing of annual returns, accounts or audits

How can I use a Foundation for restructuring and legacy planning?

Foundations , like trusts, are primarily used for structuring and legacy planning. A typical structure is as below:

The Founder transfers assets to the Foundation, and the Council Members manage the structure, in accordance with the Foundation Charter and By-Laws. A Guardian may be appointed, but becomes mandatory upon the death of the Founder. Various assets can be brought under the ADGM Foundation. These may include shares in operating (or non-operating) companies, investments in listed stocks, bonds and commodities, real estate and alternative assets. The assets can be located within the UAE, or anywhere else in the world. Consolidation of all the assets of the Founder under one structure allows for easier management and transfer of these assets in any eventuality. The assets of the ADGM Foundation can be distributed to the named Beneficiaries of the Foundation, as per the instructions of the Founder. Since the Foundation takes a company structure, it can be carried on till perpetuity.

Can ADGM Foundations be used for charitable activities?
Yes, ADGM Foundations can be used for philanthopic activities, provided that they are structured to allow for such activities. They should also comply with all applicable UAE Laws.
Can the ownership of existing operational business be transferred into the ADGM Foundation, without any disruptions?
Yes, the transfer of the shareholding of existing companies within the UAE and the GCC is a simple process. In essence, it is a share transfer in the operational entity. There are some free zones in the UAE that curently do not recognise ADGM Foundations - in these cases, we have worked with SPVs to hold such assets and the shares of the SPV are in turn held by the ADGM Foundation.
Does the ADGM Foundations Regime require any kind of local representation at ADGM?
The ADGM Foundation can use the address of a registered agent – it does not have to lease an office separately. The ADGM also requires at least one of the signatories of an ADGM Foundation to be a resident of the UAE. This too can be arranged though our nominee signatory services. Contact us to get a quote!
Does the ADGM have special courts for ADGM Foundations?
The ADGM Courts have jurisdiction over ADGM Foundations, and the Regulations specify a pro-active role for ADGM Courts.
Can the ADGM Foundation be Sharia'-compliant?
The ADGM Foundation can apply Sharia' principles to it's governance and consolidation of underlying assets.
Do ADGM Foundations have to file ESR reports every year?
The UAE Economic Substance Regulations were introduced in April 2019 and implemented as part of the UAE’s commitment as a member of the OECD Inclusive Framework, and in response to an assessment of the UAE’s tax framework by the European Union Code of Conduct Group on Business Taxation.ADGM Foundations do not fall in the scope of these regulations.

Can an ADGM Foundation be used to hold charitable endowments?
Yes, it can. An endowment, in its common day-to-day usage and as used in this Guidance, is a gift or a donation made for a charitable purpose. This gift or donation can then earn investment returns that can in turn be used to finance projects or operations. Over the years, a number of legal structures have been utilised for philanthropic activities and causes including endowments, trusts, foundations and charitable organisations.

a charitable endowment refers to the mechanism by which a charitable or not-for-profit organisation collects and invests donations, and subsequently distributes the proceeds or income earned from the investment of such donations to finance charitable projects over the long term. The key aspect is that the donor of the donation loses all legal and beneficial title to, and has no expectation of, any return or repayment of the funds donated. Thus, once donated, the funds are used for the sole benefit of, and form the charitable endowment for, the proposed recipient (namely, a charitable or not-for-profit organisation).

A charitable endowment is established by a legal instrument, which may choose to apply the English common law, as applied in the ADGM, and be enforced by the ADGM Courts, recording the terms of the gift or donation and facilitating the transfer of ownership of the gift or donation from the donor to the intended recipient, being a charitable or a not-for-profit organisation. The type of legal instrument utilized will depend, among other things, on the type of structure that the charitable endowment takes. For instance, an ADGM Foundation will require a Foundation Charter; a Trust a Trust Deed and a Company a Constitution, Articles of Association or a resolution of the board of directors.
How much does it cost to setup an ADGM Foundation?
ADGM Foundations are pretty cost-effective, with ADGM fees as low as US$ 200 in the first year. We can structure your foundation, including drafting of all required documents (Foundation By-Laws, Foundation Charter, Council agreements etc.). Do contact us for a customised quote!


How long does it take to setup an ADGM Foundation?
It usually takes 5 working days to set it up, once all documents are submitted.
Here are some specific advantages of establishing in the Abu Dhabi Global Market:

FRAMEWORK:

1. The legal framework supports cross-border activities2. 100% foreign ownership permitted, no restrictions on capital repatriation3. No restriction on foreign employees

TAX EFFICIENCIES:
1. Zero tax for 50 years on profits, capital or assets
2. Zero tax on personal income
CONFIDENCE:
1. Well regarded, independent regulator
2. Independent, English-speaking, common law judicial system
3. Distinct from the UAE civil courts
4. Risk-based regulatory approach
ECOSYSTEM:
1. High prominence in deal making in the region
2. Concentration of international financial institutions
3. World-class regional and international professional services
4. A growing fund domicile in the region
GEOGRAPHIC EPICENTRE:
1. Management offices, holding companies and family offices are located closer to the assets they own or manage
2. The Middle East, Africa and South Asia (MEASA) is increasingly the center of gravity for the global economy
3. The UAE plays a central role in the growing South-South trade, principally between Asia and Africa
4. Well-positioned to harness the potential of emerging markets.
How can we help you?
10 Leaves is a Company Service Provider at the ADGM.

We offer the following services related to ADGM Foundations

1. Structuring and customization of the Foundation Charter and by-laws – in partnership with Legability, our legal platform, we are able to customize the Foundation to suit your requirements. We are able to factor in Common Law, UAE Law, European laws, Kuwaiti and Saudi Law, to deliver a highly personalized document for your asset protection requirements.
2. Foundation Setup.
3. Registered Address.
4. Nominee Services (Council members, authorized signatories).
5. Additional consultations on International Foundations in Luxembourg.

Get in touch with us today!