Paralegal, Elnaggar & Partners
The guidelines provide an overview of the foundation regime in ADGM governed mainly by the ADGM Foundations Regulations 2017 (Foundations Regulations) which outlines the provisions for the establishment and registration of foundations.
A foundation is a distinct legal entity which allows for separation of liability between the founder and the foundation ADGM foundations tend to bring significant amount of flexibility to traditional asset management/wealth structuring for high net worth individuals and families through trusts or other corporate structures – be it for succession planning, estate planning and/or any other specific purpose as outlined by its founder(s) and as per the applicable laws and regulations.
Unlike other succession planning models, a foundation is a perpetual concept, which allows arrangements to continue after the founder’s death. This gives certainty for the foundation’s existence to the founder’s heirs after his lifetime.
The main points that will be discussed in this Practice Note will be current and most recent legislations in force that govern ADGM foundations, guidelines on setting up of foundations and details of the constitutional documentations that governs the foundation along with its advantages at the ADGM.
A foundation as per article 3(5) of the Foundations Regulations is an incorporated body that has its own legal personality, which is able to transact under its name, sue and be sued under its legal capacity. The foundation acts through its council members - who as per article 19(3) of the Foundations Regulations are in charge of administering the assets held under a foundation and carry out the purpose for which it is formed.
A foundation shares similar characteristics, functions, and mechanisms of both a company and a trust, while strictly it cannot be considered as a hybrid of the two. The similarity of a foundation with that of a company is that it has a separate legal personality apart from that of the founder and is an independent legal entity. However, it does not consist of shareholders and members of the foundation cannot legally issue or transfer legal titles of ownership and is generally referred to as an Orphan Structure.
This structure is governed by its charter which outlines the existence of its bylaws that further outline the roles and functionality of the foundation. Such charter may be publicly available; however, the bylaws remain to be strictly private as per articles 9(1) and 11(1) of the Foundations Regulations, which state that “For the avoidance of doubt, any provisions, duties, powers, functions and rights set forth in a charter/bylaws are for internal governance purposes only and shall in no way replace or limit the processes, restrictions, oversight or other terms set forth in the Law”. The founders must appoint at least two council members within the charter who partake the responsibility of managing and administering the purpose of the foundation. Also, a Guardian has to be appointed to undertake the supervision of the above council members, and in case of the death of the founder(s), guardians assume the responsibility of the same.
As outlined in article 1 of the Foundations Regulations, a foundation is registered when the registrar receives the below information along with an application form stipulating the purpose of registration:
Once all the above documentation(s)/information are received by the Registrar, it issues the certificate of incorporation any time thereafter. Any matters pertaining to the incorporation, whether to grant the license or once granted the time frame during which the license is valid are governed by the ADGM Companies Regulations 2020.
Objects of foundations
The following are the objects that an ADGM foundation is allowed as per article 2 of the Foundations Regulations:
It is important to note, that unlike DIFC foundations or foundations of any other jurisdictions, ADGM foundation is not allowed for charitable purposes.
Certificate of incorporation
As per article 4 of the Foundation Regulations, once the certification is duly issued by the registrar it should state the following:
Registered address
A foundation as part of its requirement must have a registered address in the jurisdiction it is incorporated in. In this instance an ADGM foundation is required to have a registered address within ADGM to which all communications and notices may be addressed, as per article 5(1) of the Foundations Regulations. However, founders may be permitted to appoint registered agents to fulfil this legal requirement whereby a registered address is similar to that of the agent. A registered agent must be a qualified person licensed under ADGM to legally carry out such activity.
According to article 5(2), the change of address may be made with a prior 14-day written notice to the registrar.
Name of the foundation
Article 6 of the Foundations Regulations states that the name of the foundation must be in compliance with the ADGM Business and Company Name Rules 2021 as amended from time to time and the name of the foundation must end with the word Foundation.
According to the ADGM Business and Company Names Rules 2021, the foundation must apply for a trade name in order to have it approved by the Registrar, once it is approved, the legal name must be disclosed on business letters, official publications, all types of forms, orders for money, goods or services, invoices or other demands for payment, receipts and letters of credit, and all other forms of its business correspondence and documentation.
Foundation charter
The charter of ADGM foundations must be in compliance and compatibility with the regulations. As stipulated within article 9 of the Foundations Regulations, the charter must contain the following:
The Charter is not limited to the above clauses, article 9(3) of the Foundations Regulations further elaborate on the clauses that the charter may contain along with the existence of the bylaws.
Foundation bylaws
Article 11(2) of the Foundations Regulations states the provisions which are not included in the charter that must be set out in the bylaws, such as the functions of the Council and the procedure of appointment, registration or removal of its council members and Guardians. Article 11(3) of the Foundations Regulations mentions clauses that may be included in the By-laws, such as, the details of circumstances in which assets of a foundation may be distributed, accumulated or applied, or describe how supplementary assets may be endowed upon the foundation.
The following represents a non-exhaustive list of some advantages of ADGM foundation:
Foundations have been introduced domestically with Muslim successions in mind. Within designated parameters, foundations can be considered by Muslim families who wish to respect Islamic law principles on inheritance.
Used adequately, foundations provide robust asset protection, safeguarding the foundation's assets from forced heirship or creditor claims.
It must be noted that an applicant for the foundation structure must show Nexus to UAE must appoint a Corporate Service Provider. However, it is not required for the founder or foundation’s officers to be based in the UAE or maintain a residency in the UAE. The only requirement is for applicants whom wish to establish a foundation without a corporate service provider must show a link between the UAE and foundation.
And finally, all foundation roles, such as founder, council members, or guardians, may be individuals or body corporates.
[1] http://adgm.complinet.com/net_file_store/new_rulebooks/f/o/Foundations_Regulations_Updated_1_2017.pdf
[2] https://en.adgm.thomsonreuters.com/sites/default/files/net_file_store/ADGM1547_20963_VER072020.pdf
[3] https://en.adgm.thomsonreuters.com/sites/default/files/net_file_store/ADGM1547_23207_VER17032021.pdf
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