Optimal business protection in the UAE

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Many entrepreneurs chose to register a company in the UAE. However, after that they also start to think about how to organize the scheme of transferring business in the future more efficiently. They need creating optimal business protection, not only in the UAE, but also at the international level.

In the Persian Gulf region, where most private businesses are family-owned, the regulatory framework for succession planning, which includes civil law and the principles of Islamic law, is particularly important.

However, the International Financial Center of Dubai (DIFC), which has its own jurisdiction within the UAE, is authorized to create its own legal and regulatory framework for all civil and commercial matters. As for succession planning and capital management, DIFC provides flexible structures in the form of companies, trusts and funds.

The legal framework of DIFC has recently been improved through the implementation of two new laws – the new DIFC Law on Trusts No. 4 of 2018 and the DIFC Law on Funds No. 3 of 2018. The purpose of these new laws is the creation of reliable family governance structures, charitable and non-profit structures, and the creation of an effective legal framework for local or international families and family offices so that they can structure their business and can ensure effective succession planning.

The new trust law improved the trust legislation that already existed in DIFC, providing better management of the trust, and improving the certainty and flexibility for the trustee, beneficiaries and founders of the trust.

Noteworthy changes include increasing the effectiveness of charitable trusts, the provision of appointment of advisory trustees and trustees of trust property (which store but do not manage property), and an aspect if the party controlling limited or reserved authority becomes incompetent .

There are also specific provisions on the resolution of trust disputes through arbitration, which, for example, allow courts to protect the interests of unborn or incompetent beneficiaries, the courts also have the power to authorize transactions with the property of the trust.

These amendments are aimed at improving the protection of creditors, private capital and succession planning.

The new law on funds created an entirely new legal framework for funds in DIFC. Funds can be used for many purposes, including for servicing family capital and succession planning, long-term business ownership, and for creating charitable institutions.

Funds are legal entities that are created when an individual or company contributes property for the realization of a specific purpose, subject to certain formalities. Unlike the company, the fund does not have shareholders, therefore it does not belong to shareholders or participants, but instead it belongs to itself.

The governing body of the foundation is its council. Interestingly, unlike trustees, the members of the fund council do not have any personal obligations, and the fund’s liability is limited by its tasks and the value of its assets.

However, funds can not carry out commercial activities, except necessary, auxiliary or incidental in relation to their tasks. Different types of funds are based on their tasks, which can be exclusively charitable purposes, not charitable goals or goals that benefit persons identified by name, by category or class. This new legal framework does not require founders to have a physical presence in DIFC, as their business must be conducted through a registered agent located in DIFC.

New regimes for trusts and funds should be of interest to family businesses seeking succession planning solutions for family offices, charities, legal advisors and those engaged in commercial activities or activities related to capital management in DIFC or DIFC .