Foundations, a unique legal entity blending aspects of private companies and trusts, have gained significant traction in the United Arab Emirates (UAE). Established by a founder, these entities possess an independent legal personality, enabling them to own assets and enter into contracts in their own name. Drawing inspiration from principles outlined in cases like Salomon v A Salomon & Co Ltd and Foss v Harbottle, UAE Foundations offer a versatile tool for various purposes.
Currently, three free zones in the UAE have embraced Foundation regulations: ADGM, DIFC, and RAK ICC. Since their introduction, UAE Foundations have been widely adopted by local and international individuals and families for diverse applications, including wealth management, succession planning, asset protection, charitable endeavors, and corporate structuring.
While foundations cannot directly engage in commercial activities, they can be paired with underlying vehicles like companies to facilitate trading and investment activities aligned with the founder's objectives. Upon establishment, the founder transfers assets to the foundation, relinquishing legal ownership. This transfer can be made through a variety of mechanisms, such as gifts, sales, or other legal transactions. Once the assets are transferred, the foundation becomes the legal owner, holding and managing them in accordance with its charter and by-laws.
By establishing a foundation, founders can ensure that their assets are managed and distributed according to their wishes, even after their passing. This can provide peace of mind and security for both the founder and their beneficiaries.
The governance of a foundation is outlined in its charter and by-laws, which serve a similar purpose to a company's memorandum and articles of association. These documents can be tailored to the specific needs and goals of the founder, providing flexibility in the design of the foundation's structure and operations. To register a Foundation, the charter must mandate an initial capital endowment, which can be provided through gifts or valuable consideration. Subsequent endowments may be permitted as outlined in the charter.
Each free zone offers distinct characteristics for foundations:
| DIFC | ADGM | RAK ICC | |
|---|---|---|---|
| Minimum Council Members | Two | Two | Two |
| Registered Agent | Optional but Foundations are required to have a physical presence in DIFC | Optional but Foundations are required to have a physical presence in ADGM | Mandatory and Foundations are required to have a physical presence in the UAE |
| Ownership of Real Estate | Permitted for Dubai properties | Permitted for Dubai and Abu Dhabi properties | Under consideration |
| Reserved Powers for Founders and/or Guardians | Yes | Yes | Yes |
| Lifespan | Can continue in perpetuity | Can continue in perpetuity | Can continue in perpetuity |
| Arbitration Provisions | Yes | No | Yes |
| Minimum Capital Requirements | No | No | US$100 |
By comprehending the intricacies of foundation structures, individuals and businesses can harness their advantages to achieve long-term goals, whether it be preserving wealth, facilitating succession planning, supporting charitable causes, or optimizing corporate structures.
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.
