This, in turn, preserves the control over a company, and also helps to protect the first-priority payout to investors. There are several classes of shares, which are transferred to a particular investor in order to differentiate fields of rights for specific share class. Therefore, a professional investor is not likely to accept such terms and conditions.ĬLA, on the other hand, is a more sophisticated version of the Investment Agreement, which considers additional terms, such as conversion of liabilities into the equivalent assets, such as company shares of, for instance, a holding company. For instance, basic Investment Agreement will consider only the key outlines, such as the amount of investments, the period, and percentage rate, which the sponsored company is obliged to retrieve, however, from the legal point of view, it is challenging to enforce such agreement. The purpose of such an agreement lies within the snag, which is concealed within the basic Investment Agreement. The SPV can be structured on a clear-cut basis, consisting of 20-30 potential investors during the first round of fundraising, who will sign the convertible loan agreement ( CLA ). The process of formation of the VC is relatively straightforward from a legal perspective. The formation of venture capital funds in the UAE offer tax incentive schemes, including a tax-free venture capital fund. In addition, UAE free zones provide entrepreneurs with financing, training and strategic advice. Financing from these government authorities most often is facilitated in a form of business incubation and hosting investment events. The Freezones provide start-up financing, training and/or strategic advice to entrepreneurs in the TMT sector. When it comes to offshore venture capital funds, due to a fast process backed by regulations, several UAE free zones offer a wide range of fund structures. Sovereign wealth funds, which are state agencies, select to invest in various local and regional start-ups in GCC countries. Individuals, companies, and investment banks can all be VC investors. Thus, the RAKICC SPV gives a number of advantages in terms of tax optimization, compared to the onshore jurisdictions. RAKICC SPV s have an offshore company status, while ADGM and DIFC are onshore. Most often, ADGM SPV s are used by foreign investors to hold their interests in mainland companies to take advantage of a regulatory framework that facilitates the efficient formation of trusts. DIFC and ADGM SPV s have traditionally been used to hold significant investments, such as real estate, and to raise investment funds. The SPV, for instance, is present in such jurisdictions, as ADGM in Abu Dhabi, and DIFC and RAKICC in Dubai with their own status. Each SPV, which may have the same managing and sponsoring organization (" SPV Arranger"), has its own operating structure, ownership structure, balance sheet and is financially independent of any other SPV with the same SPV Arranger.Īlthough an SPV can be any form of ownership, it is usually either a Limited Liability Company (LLC) or a Limited Partnership (LP). SPV s are often created to protect the assets and share the liabilities of a parent or subsidiary company. In the venture capital business, SPV s are used to pool money from a group of investors to make a single investment in a startup. SPV is a business entity with a special limited purpose, as a rule it is an operating vehicle or funding vehicle. Special Purpose VehicleĪs a tool of structuring, Special Purpose Vehicle ( SPV ) is a classic approach to form a VC. In this article, we would like to outline the key principles in the formation of a VC structure, which type of agreement is prevalent in the UAE. Being a developing segment, the term "venture capital" implies traditional VC funding, angel investments, private equity, crowdfunding, funding from strategic investors, personal finance, and financing from banks. There is an acknowledgement in the country that small and medium-sized businesses (SMEs) are eager to expand their operations to other Middle Eastern nations by leveraging VC funding. It can be implemented in both onshore, and offshore jurisdictions. Mechanisms of VC structuring are not as complex, as it might be deemed from the first glance. Thus, the national efforts throughout the Gulf Cooperation Council (GCC) region, particularly in the United Arab Emirates (UAE), use VC as one more tool to maximize foreign investments.
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