spv in uae

Benefits of SPV as a holding company in UAE

Dividing a business into multiple entities controlled by a single holding company is a popular strategy for protecting business assets. This is achieved through the use of a Special purpose entity/Special Purpose Vehicle-SPV  as a holding company.

An SPV- Special Purpose Entity, is a separate business entity formed by a company, such as a limited partnership, corporation, trust, or limited liability company. It is designed for independent ownership, easy management, and funding. SPVs are commonly used for securitizing assets, creating joint ventures, isolating corporate assets, or engaging in other financial transactions.

A holding company, on the other hand, is a parent business entity that does not manufacture or sell products or services. Its primary function is to hold controlling stock or membership interests in other companies. The holding company can own either 100% of the subsidiary or a sufficient amount of stock to maintain control.

While holding companies and SPVs are both used for asset acquisition and holding, they serve different purposes.

Holding companies offer quick formation, allowing promoters to purchase shares in the open market. They enable pooling of financial resources and undertaking large-scale projects for increased profitability. Holding companies also provide centralized authority and decision-making, allowing for better confidentiality.

SPVs, on the other hand, offer better asset protection and management for the parent company. They facilitate access to private firms and provide financial savings. SPVs ensure that the ownership of stockholders and investors in the parent firm remains undiluted.

There are several reasons to use an SPV as a holding company
  1. Flexibility of asset ownership: SPVs allow for the flexible ownership of assets, particularly in cases where individuals or corporate investors own or plan to own property. SPVs can be used for single properties or property portfolios, and investment holding companies can consider allocating ownership to different properties.
  2. Intellectual property ownership: Companies that create intellectual property often utilize SPVs to hold those IP rights.
  3. Joint ventures: Companies entering into joint ventures may opt for an SPV holding company specifically tailored to the joint venture with their partner.

SPVs have various applications in business, including quick transfer of non-transferable assets, risk isolation and reduction, securitization of receivables (such as loans), intellectual property protection, financial engineering, liquidity and funding, and investment protection.

In conclusion, utilizing an SPV as a holding company offers flexibility and asset protection for business families, investors, entrepreneurs, existing companies, and property investors. SPVs can effectively hold properties, shares, and IP rights, and provide options for different share classes with varying rights, as well as third-party beneficiary arrangements like trust agreements and nominee agreements.

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