The United Arab Emirates (UAE) has become a global finance and investment destination over the past years, with individuals and families coming in to diversify their assets as well as establish strong wealth management structures. One of the most preferred financial tools is the Family Investment Company (FIC) largely due to its flexibility for multi-generational wealth management, tax efficiency among others. This article takes a deep dive into the FIC concept in UAE by looking at its advantages, structure and regulatory framework.
Understanding Family Investment Company (FIC)
A Family Investment Company (FIC) is an entity established by affluent families to oversee and preserve their wealth across several generations. Unlike traditional trusts or foundations, an FIC functions as a corporate body, thus offering greater control, confidentiality and asset protection. It acts as a conduit for aggregating and managing diverse assets like real estate properties, shares in companies, bonds and other debt instruments as well as business interests.
In UAE however, it is often called Family Office/ Private Investment Company; these entities are designed to cater for family’s wealth management needs that include succession planning or pooling of financial resources including making strategic investments while offering a way of transferring wealth to future generations.
Are family investment companies only for high net worth families?
Family offices are specialized organizations that deal with the complex financial needs of high net worth and ultra-high net worth families. Their main goal is to grow and pass on family wealth. These private outfits go beyond investment management, providing services such as bookkeeping and payroll as well as managing the legal and financial aspects of the family enterprise. They play a key role in tax planning and succession strategies aimed at preserving the financial legacy of rich families. Family offices are thus custodians of wealth preservation and expansion for the few privileged people who need utmost confidentiality in their financial matters.
Benefits of Establishing an FIC
Asset Protection: Separating personal assets from business assets is one of the main advantages of an FIC, protecting family’s wealth from individual debts or lawsuits.
Tax Optimization: The UAE has a favorable tax regime characterized by low corporate rates or even no personal income taxes. Through formation of an FIC in UAE, families can improve on their tax planning arrangements thus, reducing their taxation liabilities towards income, capital gains, and inheritance taxes among others.
Succession Planning: Family Investment Companies are the solutions for wealth transfer from one generation to another. They offer a structured framework that enables families to preserve their legacy and effectively transfer their wealth to future generations. Though well defined directorate staffing mechanisms, appointments of board members as well as shareholders, family investment companies facilitate effective succession planning.
Protect your interests: Unlike trusts, which often require public disclosure of beneficiaries, an FIC provides greater privacy and confidentiality. Family financial affairs remain confidential since the company’s ownership and operations details are not made public.
Investment Flexibility: FICs offer a range of investment options by providing freedom for families to diversify their portfolios in order to adapt to different market conditions. For example, through its corporate structure an FIC has the capacity to engage in a wide array of investments such as traditional assets and alternative investments including; private equity or venture capital among others.
Structure of an FIC
The following are the elements that make up the structure of an FIC:
Shareholders: Family members become shareholders of the company with majority shares being held by individuals from the same Family.
Board of Directors: The governing board members are named in the Articles of Association (AoA) and they are responsible for strategic decision-making, asset allocation, and risk management. Family members or trusted advisors can sit on the board to act as representatives for shareholders’ interests.
Management Team: FICs may engage external advisers or appoint a professional management team to oversee daily operations, investment activities and compliance with regulatory requirements. Normally, this would be guided by the Board of Directors who will instruct them on how to execute the investment strategies of the company and manage its assets.
Regulatory Compliance: UAE’s business-friendly environment notwithstanding; FICs must adhere to regulatory frameworks stipulated by such relevant authorities as Abu Dhabi Global Market (ADGM) or Dubai International Financial Centre (DIFC) where they operate from.
Governance of Family Investment Companies in the UAE
In the UAE, family offices or FIC are governed by specific regulations that are distinct from the general company law. Family Businesses Law Federal Decree No 37 of 2022 provides a comprehensive legal framework for ownership and governance of family businesses.
A Family Company can be formed as any type of company allowed by the Commercial Companies Law for the UAE except public joint stock companies and general partnerships. Moreover, it can also be operated within Free Zones’ rules. It is necessary that most shares should be owned by members of one family.
Innovative strategies have been employed by family businesses including introducing different classes of shares with different rights and share buy-backs implemented. These measures enable exit routes for members of the owning families inside the business.
Family constitutions can be created by families as a way of setting up their own regulatory structures to guide them on how they manage their family affairs and oversee the family-owned businesses. These charters set up several governing bodies such as the family assembly, family council, family office among others which are specialized committees. It also allows for flexible management approaches and dispute handling mechanisms that can be customized to the preferences of a particular family.
Family offices must follow government laws and regulations as well as those contained in free trade areas including ADGM (Abu Dhabi Global Market), DIFC (Dubai International Financial Centre) and DMCC (Dubai Multi Commodities Centre). This involves the minimum paid-up capital requirements, regulatory compliance, reporting obligations and eligibility criteria for those who are part of the business entity offering such services in relation to its members who are family.
Expert Legal Assistance for Your UAE Family Investment Company
At
HHS Lawyers in Dubai we are offering specialized legal assistance in setting up and running Family Investment Companies (FIC) within the UAE. Here is how we can help you:
Family business governance: Our experienced attorneys will develop a workable FIC governance framework that ensures there is clear division of roles, responsibilities and systems for succession planning.
Legal Risk Management: We try to anticipate and reduce legal risks linked to your FIC’s investments to ensure compliance with the law of UAE.
Structuring And Restructuring: Our advice when starting a new FIC or revamping an existing one will focus on the right structuring that complies with legislation.
Trust Services In Dubai: We offer all-inclusive services as regards trust incorporation into your FIC such as establishment and administration.
For us, your family heritage is important as well as your investment corporation's prosperity. You can always contact us for expert guidance tailored for you.
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