Adherence to local authorities in the UAE is extremely important in the provision of financial services. This should be specifically done with entities falling under Category 5 that are mandated to carry out arrangement and advisory services by the SCA. Knowledge that has been considered most important to companies or individuals seeking to buy a going structure under such a framework is that of transferring control.
The article presents a comprehensive guideline on the legal framework, procedural requirements, and practical steps in the transfer of control for a Category 5 entity in the UAE.
Overview of the Securities and Commodities Authority (SCA)
The Securities and Commodities Authority (SCA) is the body charged to oversee financial activities in the UAE, aiming at securing fairness, transparency of business operations, and compliance with federal arrangements. This is done for the purpose of communal protection and so as to preserve trust in such organically structured financial activities.
What is SCA Category 5?
Under Category 5, companies can provide the service of an arrangement and advisory nature, like corporate structuring, mergers, and acquisitions. High standards of organizational integrity are supposed to be maintained by those operating under the license while suitability associated with a person linked with the business is exhibited.
Why Transfer of Control Matters
By avoiding the drawn-out process of a new application, acquiring an existing Category 5 entity can expedite market entry. However, control cannot be transferred automatically. Prior approval from the SCA is required to ensure that any new participants meet the necessary legal and operational standards.
Legal Character of a Category 5 Entity
The Category 5 authorization is attached to the company rather than its individual stakeholders. Consequently, while a direct transfer of the approval is not allowed, control of the entity can be changed through a structured reorganization with the SCA’s consent.
Key aspects include:
- Legal Basis: Governed under UAE federal financial law.
- Permitted Activities: Arrangement and advisory roles in corporate and financial structuring.
- Corporate Forms: Mainland UAE entities such as LLCs or PJSCs are eligible.
- Relationship Between Individuals and Compliance: Changes to controlling parties must be approved before being finalized.
Is Transfer of Control Possible?
Although control of the entity can be obtained, the authorisation itself cannot be sold. Every proposed modification is examined by the SCA to ensure that any new participants adhere to its integrity and suitability requirements.
- Transferring directly is not permitted.
- Reallocation of interests for control is permitted, but only with prior consent.
- Consent must be given in order for the transaction to proceed.
Oversight for Change of Control
Change in control assumes several key responsibilities:
- The transaction shall be finalized only with prior approval from the competent authority;
- A fit and proper assessment is performed on new controlling individuals for the type of experience, reputation, and financial soundness;
- Clean transparency is established with respect to the structure of the company and sources of contributions;
- It is necessary to make sure that all contributions comply with the legal standards;
- Authorities may review the financial base of the entity for adequacy.
Corporate Procedures (UAE Commercial Companies Law)
Transferring control necessitates adhering to UAE corporate regulations:
- LLC Procedure: Any modifications need to be updated in the company’s agreements and notarised;
- Authorities Update: The UAE authority in charge of commercial entities must receive any amendments;
- Update of Public Records: The new controlling interest must be reflected in official records.
Step-by-Step Process
- The Pre-Transaction Stage. Perform due diligence in the areas of finance, operations, and compliance. Examine any outstanding obligations or liabilities.
- Deference to the Authorities. Report the proposed change of control to the SCA. Provide organisational charts, identification documents, and assurances that the demands for continued compliance will be fulfilled.
- Evaluation and Acceptance. The new controlling individuals are evaluated by the authorities to make sure they possess the requisite skills and moral character. With certain conditions, conditional approval might be given. The intricacy of the transaction determines the timeline.
- Finalization. Put the parties’ formal agreements into action. It is necessary to notarise the transfer of control. Revise business contracts and notify the appropriate authorities of the outcome.
Potential Risks
- If participants are judged inappropriate, authorities have the right to reject the transfer.
- Errors or incomplete filings may cause delays.
- During review, operational non-compliance issues might be discovered.
- It is possible to reevaluate the entity’s financial situation.
- Relationships with banks or other transactional partnerships may be affected.
Practical Timeline
| Stage | Indicative Duration |
| Pre-transaction due diligence | 2–3 weeks |
| Submission to SCA | 2–4 weeks |
| Review & conditional approval | 4–6 weeks |
| Corporate completion & final updates | 1–2 weeks |
| Total transaction time | 2–4 months |
Acquisition vs. New Application
Obtaining an operating Category 5 entity offers several advantages:
- Efficiency: Faster operational setup compared to applying for a new authorization.
- Cost: Often more economical than the full application process.
- Scrutiny: An established compliance record can simplify approval.
- Credibility: An operational entity carries trust with counterparties and fiscal institutions.
Our Assistance
Eternity Law International specializes in advising clients through the difficult process of establishment and management of entities in line with SCA Category 5. This is done through an end-to-end approach involving:
- Advice on procedural demands and structuring the transaction;
- Comprehensive due diligence for compliance;
- Compilation with submission of all details demanded by authorities, etc.
Be it advice on the changes to be effected in case of a transfer of control, or in need of advice to keep pace with changes in laws, our well-informed legal team can offer a solution that will suit your particular need. Please contact us for more information or assistance according to your requirements.
Conclusion
The transfer of control of a Category 5 entity should be effected by an organized process and with prior sanction of the SCA. Proper planning, due diligence, compliance preparation, and other such steps would help reduce risks and smoothen the process of transition. On the other hand, an acquisition of a going structure would provide strategic advantages and a faster inroad into advisory and arrangement services in the UAE. Should you need more detail on the process or professional help with acquiring or managing a Category 5 entity, Eternity Law International will help you through each step.