What most Entrepreneurs don't know!

Entrepreneurs MUST structure their business through UAE foundations

What is a foundation?

Let me start with the technical definition and then I will go to the simple words. A foundation can be defined in many words as is a holding entity, an independent juridical?person, or a corporate body, with a legal personality separate from that of its Founder and any other person.?

The Foundation in this sense?holds assets separately from the person. Separating the individual’s wealth from himself and placing it into this juridical person called Foundation.?

• The Founder decides at the time of establishment who are the Council Members, what powers and duties they must run the operations of the foundation and what are their limitations, and whether to appoint a Guardian to supervise the operations of the Foundation or not. The Founder defines the protocols of the replacement and succession of the Council Members as well.?
• The Founder decides as well at the time of establishment who are the beneficiaries who benefit from the foundation proceeds, in what percentages, and how to regulate their succession in case one of the beneficiaries no longer exist.?

It shares similarities of functions and mechanisms with both a Company and a Trust. In my opinion and how I always like to explain it, a foundation has the character of a Company with the attitude and behavior of a Trust. It is not a mix of, but it shares a lot of similarities.?

Unlike the Trusts, the Foundation does not hold its assets on behalf of any other person. The foundation owns its assets, thanks to its independent legal personality. This is one of the major advantages of the foundation guaranteeing full control on the assets to the Founder and the Council members of the foundation unlike the Trusts while keeping the firewall separation between the person and his assets. The Foundation as a corporate entity is compatible with all UAE laws and regulations and recognized by all its authorities to own assets in all asset classes like real estate, corporate shares, bank accounts, and portfolios.?

Why is it important for Entrepreneurs to structure their business?

Entrepreneurs, like any other business owners, are vulnerable to business risks and the volatility of circumstances in their life and the societies where they live and do business. Successful businesses and businessmen always focus on risk assessment as they focus on the commercial side of their business and how to grow it. How to protect any successful business or any wealth they might have generated through their hard work is a very big topic. And Vice-Versa, those same Entrepreneurs who succeed in their business jump from one idea to the other and from one enterprise to the next, which carries new challenges, new opportunities, and new risks. They would be mistaken if they do not take the relevant measures to secure and protect their accumulated wealth as well as the other successful businesses when getting into a new phase or a new idea.?

On the other hand, none of us is immortal – as far as I know – and putting a plan to leave our legacy to our heirs can be a very sensitive, complex, and difficult subject to face. There is no easy way to say it – anticipating one’s death is an uncomfortable topic still it is a fact. Just like taxes, you will pay whether you like it or not!?

To leave a business or a financial legacy for the next generation, it is essential to first ensure financial security to save up such a legacy. Maintaining such financial security on a long-term basis can be a real challenge especially for globalized families as the risks are numerous and often not easy to predict.

That is why looking closely into structuring businesses and succession planning should always go hand in hand. With a proper corporate structure, and a relevant succession planning strategy, a lot of risks can be mitigated.?

What kind of risks the Foundation can protect the assets from?

The Foundation as a corporate body when placed right and used in the correct structure that fits your business model and operations while it goes in line with the strategy of your succession planning can avoid so many risks like of example, political instability, exchange controls, domestic and foreign taxation, changes in the corporate governance regulations, the unforeseen occasion of the death of the principal, third party creditors attacks, lack of eligibility of the next generation, divorce, family disputes, freezing of assets, and a lot more of possible risks that Entrepreneurs can face through the regular course of life and daily business operations.??

Foundation enables entrepreneurs and their families to consolidate and keep control over income-generating assets and investments and it works perfectly despite the nationality, country of residence, or religious faith.?

What assets can be consolidated through UAE Foundations?

Foundations – as they have a separate juridical personality – can have their bank account, subsequently, it can cover bankable assets like Cash, Stocks, Bonds, Securities, and any other form of investment, saving, or current bank accounts or facilities that a natural person can have. With the rise of digital assets and specifically digital currencies like Bitcoins or Ethereum and digital assets like Tokens and NFTs as more and more getting recognition as an asset class, most online exchanges for cryptocurrencies as well as the marketplace portals to trade NFTs will soon be recognizing and accepting Foundations to own its digital wallet and be able to trade such assets. If banks recognize foundations while banks are much more regulated and stringent than the online exchanges and the decentralized marketplaces, then Foundations will be easily accepted very shortly!?

Foundations can own shares in other corporate structures like holding companies, and licensed operating businesses as well as the ability to own real estate whether residential or commercial that can be used by the Entrepreneurs themselves or for their investment purposes by renting them and generating passive income or just to buy and sell real estate properties whether inside or outside the country! Foundations can as well own Cars, planes, boats, jewelry, and art.

Foundations can as well own intangible assets like IP Rights, Goodwill, Licensing rights, Brand Equity, and Database, based on my experience we have established Foundations with the Sole Purpose of IP rights and it was acceptable to the authorities in the UAE and I believe in the future this will be more interesting and popular to be used internationally.?

How easy it is to open a bank account for a Foundation?

Foundations are just like any other corporate structure presented to any bank to open a bank account for it. Most holding structures face a reasonably higher due diligence process before the bank’s compliance department grants them the approval to open such a bank account. All banks request a set of documents to satisfy their KYC “Know Your Client” internal regulations as well as the minimum requirements imposed by the central bank.?

Understanding the notion behind such requests makes it very easy to handle such a process and to successfully achieve opening a bank account. In short, considering a lot of risks that any financial institution carries when opening bank accounts, they must be provided with enough information and documents that allow them to perform their work about their due diligence and to assess the risks they would be exposed to as per the Anti Money Laundering rules and regulations as well as combating terrorism financing.?

The basic documents that any bank will request to see for a Foundation will be the documents issued by the authority that register the Foundation. Mainly the Bylaws, and the Charter of the Foundation as well as identification documents of the main persons of the Foundation as well as the authorized signatory who will control the bank account and clear understanding of the main objectives of the bank account operations. All such info should be easy and simple to provide to the bank! In brief, if there are no red flags on any of the persons in the Foundation Council, Beneficiaries, or the Authorised signatory the bank account opening is going to be a very smooth transaction!?

Ahmed Elnaggar

Managing Partner?

Elnaggar & Partners