A family office is an organisation that serves the interest of a family or a number of families. It may be a single family office (SFO), which is focused on managing the affairs of only one 'ultra wealthy' family, or a multi-family office (MFO), which focuses on the affairs of two or more families and managed by a management team that may not be linked to any of the families that it advises. While a SFO is usually driven by the preferences of its sole 'client', the MFO would typically be structured around the services provided by and the skill set of the professional management running such MFO, and the needs of more than one family.

Family offices tend to provide broadly two types of services or a combination thereof: (i) those centred on financial planning and investments; and (ii) those centred on the family and supporting its day to day needs. The first category would typically include investment and asset management, asset monitoring, trust services, tax and legal services, and under the latter category, concierge services, travel planning and administrative functions may be included.

There is no standard way in which to structure a SFO; it could range from an organisation that only focuses on family investments, to offering a very elaborate and broad platform and range of services.

Why consider establishing a SFO?

There are a number of reasons for setting up a family office, and these essentially will centre around the family's vision, plans and needs. The fundamental objective would be to protect and preserve family wealth through generations, and to ensure that this objective is given a structure that caters to that family, and evolves as the family grows or changes.

Options for establishing a SFO in DIFC and DMCC

Family offices in the Middle East may not be formally structured as family offices but perform, in essence, very similar functions. Certain offshore jurisdictions have been chosen by families based in the Middle East as the base for their family offices. Examples include Geneva or London. Reasons for this phenomenon included security issues and lack of expertise and legal frameworks in 'home' jurisdictions. However, as a need for family offices grows, and the number of families who are considered 'ultra wealthy' grows, so does the legal landscape and availability of professional services and expertise catering to this demand.

The regulations promulgated by each of the Dubai International Financial Centre (DIFC) Authority and the Dubai Multi Commodities Centre (DMCC) Authority support the creation of a SFO, to serve the interest of one wealthy family. Set out below is a comparative analysis of the options presented by each of these free zones.

DMCC

DIFC

1

Applicable Regulations
  • DMCC Company regulations 2003 (DMCC Regulations) apply together with DMCC SFO licence requirements.
  • Single Family Office regulations in force as of 27 December 2011(SFO Regulations)

2

Person licensed to undertake the activity
  • A free zone limited liability company which may be owned either by individuals or a corporate entity or a registered trust (in each case wholly owned by the same family and UBOs).
  • A body corporate incorporated in the DIFC.
  • Partnership registered in the DIFC.

3

Activity description
  • 'Single Family Office' which is described as 'offices founded by family members for the provision of services to the same single family; such services include wealth management, asset management, concierge work, day to day accounting and management of legal affairs, corporate governance issues and all the administrational and office affairs; such firms are not allowed to offer any of the above mentioned services to any third party other than the family's own members, entities, businesses, trusts or foundations'.
  • All professional advice (legal, financial, investment managers, etc.) must be provided by accredited qualified regulated professionals.
  • A SFO may provide services to a family member, family business, family entity or family trust or foundations.
  • Provision of services to 'Single Family', which means:
  • services to one or more 'Family Members';
  • services to 'Family Fiduciary Structure';
  • services to a 'Family Entity';
  • services to a 'Family Business'.

4

Minimum share capital/ investible funds
  • Minimum AED 50,000 per company or AED 10,000 per shareholder.
  • The family has a minimum of USD 1 Million investible/liquid assets.
  • Minimum USD 50,000 per company.
  • A Single Family office must have minimum investable / liquid assets of USD 10 million.

5

Restrictions
  • Only permitted to manage the assets of one family group.
  • Not permitted to act as trustee but might act solely as protector or as conduit with offshore regulated trustees operating the trusts or foundations. May supervise and coordinate activities amongst foreign fiduciary service providers.
  • May not sell shares of the company to any party. Exception is in the case of transfer within family members.
  • DIFC may, on case to case basis, while considering the application for grant of licence, impose restrictions and conditions.
  • Not allowed to offer any of the above mentioned services to any third party; may only manage assets of a single family.

6

Meaning of Single Family
  • A family constitutes a Single Family when it has one or more individuals all of whom are bloodline descendants of a common ancestor or their spouses; widows and widowers, whether or not remarried, are also included in the family. Individuals adopted as minors, step children, children of adopted children are also included in the single family.
  • One individual or group of individuals all of whom are the bloodline descendants of a common ancestor or their spouses and includes family's own members, entities, businesses, trusts or foundations provided 100% of the ultimate beneficial ownership of the DIFC entity vests with the members of a single family.

7

Board of Directors/ Authorised Representative
  • Only a family member may be a member of the board of directors; with the exception of a 'consultant' to the SFO who may be appointed as a director.
  • At least one family member must be appointed as a board member or legal representative.
  • Each Single Family Office must designate an Authorised Representative who must be ordinarily resident in the UAE, to act as the point of contact between Single Family Office and DIFC Registrar.
  • The composition of the board will depend upon the structure of the company; for instance, a limited liability company must have at least one director and a company limited by shares must have at least two directors.

8

Compliance and Reporting
  • A SFO needs to assure DMCC management that:
  • it continues to provide services solely to a Single Family;
  • there has been no material change in the legal and beneficial ownership of the SFO;
  • there has been no change in the total number of Family Members to be served by the SFO;
  • the services provided by the SFO have not changed; and
  • any changes to the above must be reported to DMCC.
  • Annual return to be filed by the Authorised Representative by end of March every year in which the Single Family Office is established confirming that there have been no material changes in the operation of the Single Family Office since its establishment or since the last SFO annual return.

Final thoughts

No two families are alike. It is therefore up to each family to consider whether the creation of a SFO would enable it to further achieve its goals and long term plans. For families based in the Middle East, there may be additional comfort in knowing that there are options closer to home, that support their objectives, whilst also offering a legal framework that makes it mandatory for a standard that is comparable to other parts of the world, to be maintained.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.