Managing Subsidiaries Through Holding Company Structures In The UAE: A Practical Legal Overview

The UAE has firmly established itself as a preferred regional base for international businesses. As many global enterprises operate through multiple subsidiaries, the ability of managing subsidiaries efficiently is fundamental to long-term commercial sustainability. Among the various structuring mechanisms available to businesses, holding company structures have gained significant prominence due to their effectiveness in centralising ownership, governance, and strategic oversight of subsidiary companies.

This article provides an overview of how subsidiaries may be structured, owned, and managed under a holding company framework, with particular emphasis on governance, control mechanisms, and regulatory compliance considerations.

Structuring Subsidiaries Under A Holding Company

Upon the incorporation of a holding company, one or more operational companies or investment entities may be structured under the holding company as its subsidiaries. These subsidiaries may be established either within the UAE or internationally and may be engaged in commercial, industrial, service, or investment activities, as permitted by applicable laws and regulatory authorities.

The holding company shall exercise ownership and control over such subsidiaries through equity participation, shareholding, or other legally permissible arrangements, enabling it to oversee management, influence strategic decisions, and consolidate assets and investments.

Definition of a Subsidiary Company

Pursuant to Article 271 of Federal Decree- Law No (32) of 2021 on Commercial Companies ,a company shall be considered a subsidiary if the holding company has a controlling interest in its capital and controls its board of directors, or if it is a subsidiary of another subsidiary within the group. The provision also restricts a subsidiary from holding shares in its own holding company, thereby making any issue or transfer of holding-company shares to a subsidiary invalid.

Entrepreneurs around the world are increasingly using holding companies to build and protect their corporate wealth, as these structures are often seen as an optimal choice for entailing efficient subsidiary control and management.

Managing Subsidiaries Efficiently Under a Holding Company Structure

As your business grows and more subsidiaries are established, individual oversight becomes a cumbersome process. A holding company structure addresses this challenge through the following advantages:

Centralised Management: The fundamental advantage of forming a holding company is the attainability of unified control and governance over all the subsidiaries. It offers a centralised decision-making mechanism, wherein it standardises policies and consolidates financial reporting of all its subsidiaries.

Operational Independence of Subsidiaries: Although the subsidiaries are owned by a single holding company, they may retain full legal and operational autonomy. However, they remain subject to reporting and oversight by the holding company.

Asset Protection and Risk Segregation: Once the assets are transferred from the operating company into a holding company, they shall be deemed separate from such operational company. Hence, they remain protected from any creditors, legal disputes or claims against the operational company. The liabilities of each subsidiary belong to and are limited to that subsidiary.

Tax benefits: The UAE offers significant tax benefits to holding companies. Most jurisdictions, especially in the free zones such as the ADGM and the DIFC, offer a favourable tax regime on most business activities.

Restrictions on holding parent shares: As stated earlier, a subsidiary shall not hold shares in its own holding company. Any such transfer is considered null and void. Moreover, in instances where a company already owns shares in a holding company that subsequently becomes its subsidiary, it shall dispose of those shares within 12 months of the acquisition.

Liability Safeguards: Inclusion of any clauses in the holding company’s MOA or AOA that in any way attempt to relieve a holding company or its subsidiaries from personal liability for their actions shall be void.

Group Restructuring and Mergers: Pursuant to Article 288 of the UAE Commercial Companies Law, a holding company is permitted to merge with one or more of its wholly owned subsidiaries into a single entity without the requirement to execute a formal merger agreement. Such a merger is effected through a Special Resolution of each company involved, adopted by the shareholder majority required for amendment of the Memorandum of Association of the respective companies.

Practical Considerations for Structuring Subsidiaries

Following the incorporation of a holding company, subsidiary or operational entities may be organised under the holding company through an appropriate legal and regulatory framework. The structuring process typically involves a series of strategic and compliance-driven considerations, including the following:

Establishment of the Holding Company

The Holding company is incorporated in a suitable jurisdiction with the capacity to own, manage, and control subsidiary entities, whether locally or internationally.

Identification of Group Entities

Existing companies or proposed operational entities are identified for inclusion under the holding company structure, based on commercial objectives and regulatory suitability.

Regulatory and Corporate Alignment

The corporate documents and governance framework of the holding company are aligned with the requirements of the jurisdiction in which the subsidiary operates, ensuring consistency and regulatory compliance.

Approval and Structuring Considerations

The relevant licensing or regulatory authorities may require approvals or filings to recognise the holding company as the parent entity, depending on the nature of the subsidiary and the applicable legal framework.

Implementation of the Group Structure

Upon satisfaction of regulatory requirements, the corporate structure is formally updated to reflect the holding–subsidiary relationship in the company records and registrations.

Ongoing Governance and Compliance

Post-structuring, appropriate governance, reporting, and compliance mechanisms are maintained to support the group structure and ensure alignment with applicable laws.

Conclusion

Establishing a holding company in the UAE is a relatively streamlined process under the applicable legal framework. The structure provides limited liability to shareholders, making it a flexible and commercially viable structure for asset ownership and group consolidation.

However, the successful operation of a holding company extends beyond incorporation. Effective management and control of subsidiary entities require robust governance structures, ongoing regulatory compliance, and strategic oversight aligned with the group’s objectives.