Special purpose entity as holding company in UAE
Business owners always look for some ways to protect their business assets. One of the most-effective ways is to divide the SPV or special purpose entity as holding company! Divide a single business into several entities, all controlled and owned by single holding company.
What is SPV or Special purpose entity?
SPV is a separate business platform formed by a company as a limited partnership, corporation, trust, or limited liability corporation among other options. SPV may be specifically designed for easy management, independent ownership, and funding. SPV usually supports companies to securitize their assets, create joint ventures, isolate corporate assets, or involve in other financial transactions.
What is a holding company?
Holding company is a parent –business entity which doesn’t manufacture or sell any products or services. As the name implies, it simply hold the controlling stock or membership interests in other companies. The holding company may own 100% of the subsidiary or it can own just enough stock to control the subsidiary.
SPV vs Holding company
Holding company and SPVs are widely used for acquisition or holding of assets.
Holding companies are quick to form and promoters can buy the shares in open market. The financial resources can be pooled together and company can undertake large-scale projects to increase profitability. Secrecy can be maintained as authority and decision-making can be centralized.
SPV assure better management to protect the assets of parent company. It facilitates the access of private firms and assures financial savings. The ownership of stockholders and investors in the parent firm will be undiluted.
Why use SPV as holding company?
The difference between holding company and SPV ensure,
- Flexibility of asset ownership
SPV vs investment holding company that own their shares in UAE LLCs in their personal name corporaise their holding and instead use a SPV!
Individuals, or corporate investors who own property or plan to own a property, may utilize a SPV to hold the asset. SPV can be used for single property or property portfolio. Investment holding company SPV with large property portfolios consider the feasibility of allocating ownership to different properties.
Investors, companies or start-ups that create intellectual property use SPV to hold those IP rights
Companies entering joint venture consider SPV holding company specific to the joint venture with the partner.
- Segregating risk
SPV would be in the form of private company limited by shares and so, liability of shareholders should be limited to any investment made in the company.
Application of SPVs in business
- Quick transfer of non-transferable assets
- Risk isolation and reduction
- Securitization of receivables like loans
- Intellectual property protection
- Financial engineering
- Liquidity and funding
- Investment protection
Using SPV as a holding company allows business families, investors, entrepreneurs, existing companies, and property investors to cater their needs. SPV is flexible enough to hold property, shares, and IP rights. Make use of multiple share classes with different rights, as well as third-party beneficiary arrangements such as trust agreements, and nominee agreements.