Delaware flips – ADGM SPVs to Delaware corporations
Mahmood Abdellatif
Associate
The 'Delaware flip' has started to emerge in the MENA venture capital landscape, particularly for companies initially structured through Abu Dhabi Global Market (ADGM) special purpose vehicles (SPVs) securing capital from US-based lead investors. This corporate reorganisation involves transferring ownership from an ADGM SPV to a newly formed Delaware corporation, fundamentally reshaping the company's legal and operational framework to facilitate US venture capital investment.
For MENA-based startups and their investors, the Delaware flip represents both a gateway to global capital markets and a sophisticated legal undertaking that requires meticulous planning and execution. Investors worldwide are comfortable with its corporate law, predictable courts, and well-established governance norms.
At the same time, ADGM offers founders in the UAE a flexible, internationally recognised common law jurisdiction in which to establish their initial structure. The challenge arises when a MENA startup, originally structured with an ADGM SPV for local operations and early investment, reaches the point of raising US institutional capital or planning an eventual US IPO. At this stage, US investors will typically insist on a Delaware parent company.
The challenges facing founders and investors in this space are multifaceted. While ADGM SPVs offer significant advantages for regional operations and asset holding, they can create barriers to US investment due to unfamiliar legal structures, complex tax implications, and regulatory compliance requirements that US investors prefer to avoid.
Conversely, the Delaware flip promises access to deeper pools of capital, streamlined governance, and compatibility with global M&A and IPO markets. For investors, it mitigates legal uncertainty and aligns the company with market-standard deal documentation. Importantly, this process involves significant corporate, tax, and regulatory considerations.
This article provides a primer of the legal mechanics governing Delaware flips from ADGM SPVs, the strategic considerations that drive these transactions, and the practical steps necessary to execute them successfully. It covers the complex interplay between ADGM regulations, US corporate law, and international tax considerations, while explaining how to structure these transactions to maximise value and minimise risk for all stakeholders.
The core legal framework and market practice
Governing principles in ADGM
ADGM operates as a common law jurisdiction based on English law, with its own companies' regulations and courts. SPVs are widely used to hold shares in regional operating subsidiaries, consolidate investor stakes, or act as the initial parent company for MENA startups.
They are favoured because:
- they offer limited liability and straightforward incorporation
- share capital and ownership structures can be customised flexibly
- governance can be aligned with international investment standards.
When contemplating a Delaware flip, the central legal principle is that the ADGM SPV will either:
- redomicile or migrate into Delaware (where possible), or more commonly
- insert a new Delaware corporation above the ADGM SPV through a share exchange or contribution of shares.
The latter is the market-standard approach, as it provides a less administratively burdensome way of reorganising the corporate structure. As such, existing ADGM shareholders exchange their SPV shares for shares in a newly formed Delaware corporation. The Delaware entity becomes the new global parent, while the ADGM SPV becomes a wholly owned subsidiary.
Mechanics of the Delaware flip
The core step of the Delaware flip typically involves a contractual share-for-share exchange; all existing shareholders of the ADGM SPV transfer their shares to the Delaware corporation in exchange for the issue to them of stock by the Delaware corporation. As a result, the ADGM entity becomes a wholly owned subsidiary of the Delaware corporation.
The transaction typically involves several key steps.
Potential risks and pitfalls
Common founder mistakes
In practice, Delaware flips typically occur in conjunction with a US financing round. However, in our experience, most companies who intend to flip will wait until immediately before the closing of their financing – this is especially true if the reason is because of US investor requirements. This timing minimises the period during which the company operates under an unfamiliar US structure without the benefit of US capital. However, it is important to note that failing to provide ample time to prepare for the transaction can create delays.
Common mistakes for companies include the following.
Inadequate tax planning
The most significant risk for founders is proceeding with a Delaware flip without comprehensive tax analysis. Unlike domestic reorganisations, cross-border flips can trigger immediate tax consequences in multiple jurisdictions. The complexity of co-ordinating ADGM, UAE federal, and US tax requirements often leads to unexpected tax liabilities that can severely impact the transaction's economics.
Incomplete shareholder co-ordination
It is critical that 100% of the shareholders of a company participate in the Delaware flip, as even one reluctant shareholder can derail the entire transaction. Not obtaining unanimous approval from minority holders in the ADGM SPV can invalidate the share transfer. Founders frequently fail to secure unanimous shareholder consent before initiating the process, creating deal-breaking complications when holdout shareholders emerge.
Timing and sequencing errors
Many founders attempt to execute Delaware flips without co-ordinating the timing with their financing rounds. Delaware flips can be complex, difficult to unwind, and involve significant expense. Moreover, share transfers in the ADGM can take approximately three to five business days to process while filing charters in Delaware frequently requires higher fees to process in a timely or expedited fashion. Failing to ensure all items are sorted prior to the effectuation of the share transfer will inevitably lead to delays and deal frustration.
Red flags for investors
Inadequate corporate records
Corporate records and capital structure that are not up to date and/or need correction can represent a significant red flag. Investors conducting due diligence should verify that the ADGM SPV maintains complete and accurate records, including shareholder registers, board resolutions, and compliance filings with ADGM authorities.
Unresolved tax positions
Investors should undertake appropriate tax due diligence in all relevant jurisdictions prior to requiring a Delaware flip. A Delaware flip is typically expected to be treated as a tax-free transaction for US tax purposes. However, complexity of cross-border tax implications means that unresolved tax positions can create significant contingent liabilities.
Regulatory compliance
Investors should carefully evaluate whether the ADGM SPV's nexus to the UAE or Gulf Cooperation Council (GCC) region remains valid throughout the process. An SPV wholly owned by a foreign non-resident person that solely holds assets located outside the UAE or the GCC could implicate the proper status of the ADGM SPV. Changes in ownership or asset location during the transaction could jeopardise the SPV's ADGM status and create regulatory complications.
Together, companies and investors need to ensure that the Delaware flip remains the most efficient and effective method of carrying out the proposed investment. Failure to align on and consider all relevant considerations can disrupt the trajectory and success of the transaction, and ultimately, the company.
The continuing importance of the ADGM SPV
It is important to emphasise that executing a Delaware flip does not render the ADGM SPV obsolete or diminish its strategic value. Instead, the Delaware flip highlights a powerful dual-jurisdiction structure that leverages the unique advantages of both Delaware and ADGM frameworks. The ADGM entity continues to serve a critical role in the overall corporate architecture.
Regional market access and regulatory advantages
The ADGM SPV retains its position as the primary vehicle for regional operations and market access. ADGM's SPV regime is designed to cater to a broad range of business types, uses, and industry sectors. These include corporates, financial institutions, sovereign wealth funds, family offices, and individual investors. This broad applicability ensures that the SPV remains well positioned to facilitate business relationships with regional partners, government entities, and institutional investors who prefer dealing with UAE or GCC domiciled entities.
Asset holding and management benefits
The ADGM SPV's asset-holding capabilities become even more valuable within the post-flip structure. The ADGM SPV can be used to hold assets such as shares of private companies (eg UAE mainland limited liability companies, shares in publicly listed companies, real property, and intellectual property rights). This functionality allows the Delaware parent company to maintain regional assets through a familiar and well-regulated UAE entity, providing operational continuity and regulatory comfort for regional stakeholders.
Tax efficiency and structuring flexibility
The ADGM SPV's position as a subsidiary can provide significant tax planning opportunities within the overall group structure. The UAE's favourable tax environment, combined with ADGM's sophisticated regulatory framework, creates opportunities for efficient profit repatriation, intellectual property holding, and regional expansion strategies that complement the Delaware parent's US tax position.
Regulatory arbitrage and compliance optimisation
Maintaining the ADGM SPV allows companies to benefit from regulatory arbitrage between jurisdictions. While the Delaware parent provides access to US capital markets and familiar corporate governance structures, the ADGM subsidiary can navigate regional regulatory requirements more effectively, particularly in sectors with specific UAE or GCC regulatory frameworks.
Future strategic optionality
The preserved ADGM SPV structure provides valuable strategic optionality for future transactions. Whether pursuing regional acquisitions, establishing joint ventures with GCC partners, or accessing regional capital markets, the ADGM entity serves as a ready platform for expansion without requiring additional corporate restructuring.
Strategic recommendations for MENA stakeholders
For founders
- Conduct an early feasibility analysis: Engage qualified legal and tax advisers at least six to 12 months before anticipated financing to assess flip viability and identify potential obstacles.
- Secure unanimous shareholder support: Obtain written commitments from all shareholders before initiating formal flip procedures to avoid deal-breaking holdouts that could derail the entire transaction.
- Maintain impeccable corporate records: Ensure all corporate documentation is current, complete, and readily accessible for due diligence purposes, including compliance with ongoing ADGM regulatory requirements.
- Co-ordinate timing with financing: Structure the flip to close simultaneously with or immediately before the US financing round to minimise operational complexity and avoid unnecessary exposure to dual-jurisdiction compliance requirements.
- Obtain advance tax clearances: Seek pre-transaction rulings from relevant tax authorities to confirm favourable treatment and avoid unexpected liabilities across multiple jurisdictions.
For investors
- Verify ADGM compliance status: Confirm that the target SPV maintains good standing with ADGM authorities and satisfies all ongoing regulatory requirements, including annual filings and licence renewals.
- Assess nexus requirement stability: Evaluate whether changes in ownership structure or business operations could jeopardise the SPV's ADGM nexus requirements and develop contingency plans for maintaining compliance.
- Review tax compliance history: Require comprehensive tax compliance certificates from all relevant jurisdictions covering the past three years, with particular attention to cross-border tax obligations.
- Mandate comprehensive insurance coverage: Require Directors' and Officers' Insurance that covers cross-border transactions and potential regulatory violations in both the ADGM and Delaware jurisdictions.
- Evaluate long-term scalability: Assess whether the Delaware structure supports the company's growth trajectory and exit strategy options, considering the irreversible nature of the flip transaction.
Conclusion
The Delaware flip from ADGM SPVs to Delaware corporations represents a sophisticated corporate transaction that can unlock significant value for MENA-based startups seeking to access global venture capital markets. Success requires meticulous planning, comprehensive legal and tax analysis, and careful co-ordination among all stakeholders. The regulatory frameworks governing both ADGM SPVs and Delaware corporations provide sufficient flexibility to accommodate these transactions, but the complexity demands expert guidance and thorough preparation.
The Delaware flip will continue to serve as a vital bridge between the dynamic MENA startup ecosystem and global capital markets. As regulatory frameworks evolve and market practices mature, these transactions will become increasingly streamlined, but the fundamental requirement for sophisticated legal and commercial expertise will remain constant.
The firms and investors who master these complex cross-border transactions will be best positioned to capitalise on the tremendous growth opportunities emerging from the MENA region's entrepreneurial renaissance, while navigating the unique regulatory landscape that ADGM's SPV regime provides.
© Taylor Wessing LLP 2025
© Taylor Wessing LLP 2025