An Introduction to Non-Profit Incorporated Organisations in the DIFC

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DIFCWhile the Dubai International Financial Centre (the DIFC) remains primarily focused on the financial services industry, its stable and sophisticated legal and regulatory regimes have increasingly attracted organisations in the culture and arts, retail, leisure and — more recently — the non-profit sectors.

To date, only a handful of non-profit entities have been established in the DIFC.  Yet, the more recently introduced regulations allowing the creation of the Non-Profit Incorporated Organisations (NPIOs) may lead to increased interest. Nonetheless it remains unclear how the NPIO will fare as an alternative to pre-existing entities in the DIFC such as the company limited by shares (Ltd.) and limited liability company (LLC).

Sector Diversification in the DIFC

While the majority of entities based in the DIFC are commercial companies, a number of non-profit organisations maintain a presence in the centre. These are non-profit industry bodies rather than charities in the conventional sense. The DIFC’s focus on financial services most appropriately caters to this class of organisation, but the recently introduced NPIO model is not limited in sector and could fit any non-profit purpose permitted under DIFC and UAE laws.

Ltd./LLC vs. the NPIO

The DIFC NPIO entity — introduced in 2012 pursuant to the NPIO Law and the NPIO Regulations — is specifically designed for entities operating in the non-profit sector.

  • As with an Ltd. or a DIFC LLC, an NPIO is a legal entity with a personality separate from that of its members. However, unlike an Ltd. or an LLC, an NPIO does not have a share capital or membership interest, and therefore no individual or entity is required to serve as its shareholder or owner, and the minimum share capital requirements do not apply.
  • A degree of uncertainty remains as to how NPIOs will be used and regulated. Whereas the Ltd. and LLC are similar to their equivalents in more established jurisdictions, the NPIO is a more sui generis entity without significant international precedent.
  • NPIOs are subject to a number of drawbacks and restrictions which potential new entrants or existing non-profit entities currently established in the DIFC under alternative structures may find unattractive, including various restrictions in relation to the functions that an NPIO may conduct, such as a prohibition from conducting “financial services” subject to DFSA regulation and ancillary requirements specific to NPIOs as opposed an Ltd/LLC. As such, it remains to be seen whether the vehicle will take off and become the entity of choice for the non-profit sector in the Middle East.

Photo: Dreamstime

 

Topics:  Choice of Entity, DIFC, Middle East, Non-Profits

Published In: International Trade Updates, Nonprofits Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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