Strategic Structuring: Choosing Between an SPV and a Holding Company

Abu Dhabi Global Market (ADGM), a leading international financial centre, offers a strong and dynamic business environment for global financial institutions and enterprises. It serves as an ideal platform for international growth, providing a variety of group structuring solutions, with Special Purpose Vehicles (SPVs) and Holding Companies being among the most prominent options. 

Special Purpose Vehicles in ADGM 

A Special Purpose Vehicle (SPV) is a highly flexible, efficient, and cost-effective legal entity designed to serve specific, well-defined objectives, most commonly for passive asset holding. Typically incorporated as a private company limited by shares in ADGM, an SPV is often used to isolate financial and legal risks by ring-fencing particular assets and liabilities from the broader group structure. This separation helps protect the parent company or group from exposure to risks associated with specific assets or transactions. 

SPVs are widely utilized in corporate structuring, investment holding, real estate ownership, intellectual property management, and securitization arrangements. They are generally not intended to carry out active trading or operational business activities but instead serve as strategic tools for asset protection, tax planning, and regulatory compliance. 

Holding Companies in ADGM 

Active Holding Companies, commonly referred to as Operational Holding Companies, are legal entities primarily set up to hold and manage assets or equity interests in subsidiary companies. In contrast to Passive Holding entities, active or operational holding companies may also engage in certain business or management activities, such as providing strategic direction, centralized services, or operational support to their subsidiaries.  

In the ADGM, such entities can be established as Active Holding Companies, allowing them to lawfully conduct these broader functions within a defined regulatory framework. This structure is particularly advantageous for business groups seeking a centralized vehicle for managing regional or international operations, consolidating ownership, and enhancing corporate governance, while maintaining the flexibility to carry out limited commercial functions. 

Choosing between SPVs and Holding Companies 

The decision to set up an SPV or a Holding Company depends on your business model, purpose, and the structure you intend to establish. While both are distinct legal entities with different characteristics, each serves specific functions. Choosing the right structure requires a clear understanding of your business objectives and how you plan to organize and manage your assets or operations. 

Key Characteristics of an SPV 

• Specific Purpose: Established for specific purposes, SPVs are limited to the purpose for which they were created. This may include holding shares in an existing or future company. However, such purposes must be fulfilled by the SPV within six months of its incorporation. 

• Asset Holding: SPVs are suitable vehicles for holding assets such as, but not limited to, shares, real estate, intellectual properties like trademarks and patents, and other financial assets such as bonds, stocks, and cash. 

• Cost-Efficiency: The incorporation fee for an ADGM SPV is typically US$1,900 and is cost effective when compared to other holding structures. 

• Risk Isolation: Ideal for isolating financial and legal risks through “ring-fencing” certain assets and liabilities, SPVs ensure that only assets directly linked to a specific transaction are exposed to liabilities arising from the same transaction. 

• Flexible Ownership Structures: ADGM SPVs do not impose minimum share capital requirements or a cap on the maximum number of shares. They also permit multiple classes of shares with no restrictions on the nationality of share owners. 

• An Investment Destination: Investors can establish governance frameworks through customized Articles of Association, allowing for provisions such as board appointments, decision-making rights, multiple share classes, and share pledges. These features help align the company’s structure with investor interests while ensuring legal enforceability under ADGM’s common law system. 

• Succession Planning and Family Structures: An SPV can be structured under an ADGM foundation, enabling families to transfer assets smoothly. These structures also support Nominee arrangements and trust agreements. 

An ADGM SPV is required to establish a clear nexus to the UAE, or the broader GCC region. This nexus can be demonstrated by appointing at least one UAE resident authorised signatory and by owning, or intending to acquire, an asset located within the GCC. SPVs are further categorized as exempt or non-exempt, with the classification determining the specific Corporate Service Provider appointment requirements. 

Key Characteristics of a Holding Company 

• Purpose: While SPVs are restricted to the purpose for which they were created, holding companies can engage in managing assets and providing services alongside their primary role as asset holders. 

• Physical Office Space: Holding companies must have a physical office as a prerequisite. They are also eligible to hire staff and obtain visas, with the maximum number of visas depending on the size of the leased premises. 

• Investments and Regional Expansion: Ideal for entities targeting cross-border investments and regional growth, holding companies facilitate active management and centralise control over subsidiaries. By consolidating diverse investments under one entity, they offer easier management and reporting. 

• No Specific Nexus Requirement: Unlike SPVs, holding companies do not need to demonstrate a nexus to ADGM, the UAE, or the GCC region. They also do not require the appointment of a corporate service provider. 

• Higher Costs: Compared to SPV structures, holding companies may incur higher costs, including increased incorporation expenses and annual fees for a commercial licence. 

Benefits of Establishing an SPV or a Holding Company in the ADGM 

Whether you choose an SPV or a holding company, ADGM provides the following key advantages: 

• Robust Legal Framework – Operating under an independent legal regime based on English common law, ADGM ensures legal certainty and clarity. 

• 100% Foreign Ownership – Both SPV and holding companies permit full foreign ownership, with no restrictions on capital repatriation. 

• Efficient Set-Up and Regulatory Processes – ADGM offers streamlined registration procedures and responsive regulatory support. 

• Access to a Reputable Financial Centre – Being part of ADGM enhances credibility and provides proximity to a global network of investors, institutions, and service providers. 

Hence, choosing the right business structure fundamentally depends on your business objectives and scope. For those primarily aiming to passively hold assets and segregate risks efficiently, without requiring a physical office or employing staff, establishing an SPV may be ideal. Conversely, if active management of investments and commercial activities is desired, a holding company could be more suitable.  

These are not the only considerations when deciding between an SPV and a holding company. there are additional factors that may influence choice, and we can guide you effectively based on the specific circumstances and your business objectives.