UAE foundation and the importance of non-family council members

At the heart of a foundation lies its council, the entity tasked with daily management and the vital responsibility of upholding its charter and bylaws, as well as protecting and growing its assets. While comparable to a corporate board of directors, a notable feature of UAE foundation regimes within the DIFC, ADGM and RAKICC is the lack of a legal obligation to appoint independent, non-family professionals to these councils. This raises potential implications for governance and oversight within these structures.

In this article, Leevyn Isabel, Commercial Director – UAE, and Nina Auchoybur, Managing Director – UAE, highlight the benefits and effective strategies for appointing non-family council members. 

What are the benefits of including non-family council members in a UAE foundation?

1. Objective decision-making: Non-family members can provide an objective perspective in the foundation's decision-making processes. They are less likely to be influenced by family dynamics, personal relationships, or emotional factors, which can be helpful in ensuring decisions are made in the best interests of the foundation and of the family.
2. Specialised skills and expertise: Non-family members can bring specific skills that family members may lack. This includes expertise in areas such as law, accounting, finance, investment management, or specific industries relevant to the foundation's activities. Their professional insights and connections in the UAE can lead to more informed and effective management of the foundation.
3. Tax residency: It is vital from a substance point of view that most of the council members are UAE residents. This helps to demonstrate that the foundation is controlled and managed from the UAE, avoiding potential tax claims from other jurisdictions. Adding a UAE resident non-family council member is required when not enough of the family council members are UAE residents.
4. Diverse perspectives: Non-family members can enhance the diversity of the council, bringing a variety of backgrounds, experiences, and viewpoints. This can lead to fresh ideas and more robust discussions. This diversity can include professional, personal, cultural and ethnic backgrounds.
5. Privacy/ultimate beneficial ownership (UBOs) disclosure: A foundation does not have shareholders and individual UBOs are identified and declared based on control and influence over the foundation. Thus, in some specific cases, where the family members have not kept any reserved powers over the foundation and are not part of the council, it is possible for the non-family council members to be identified and declared as UBOs.  This reinforces the privacy element of the foundation and similarity of the council to the functions of the trustee in a trust arrangement.
6. Improved family dynamics: The presence of non-family members can encourage more professional interactions among family members on the council. They are not usually influenced by family hierarchy, loyalty, or other emotional distractions, which can help the foundation focus on its objectives rather than personalities.
7. Enhanced credibility: Including non-family members can build credibility, especially vis-à-vis financial intuitions and regulators, and ensure the foundation adheres to standards of professionalism and fairness. It signals that the foundation is open to external scrutiny and committed to good governance.
8. Long-Term administration: Having a nominated employee of the foundation’s registered agent on the council can add valuable expertise in the foundation’s long-term administration, ensuring continuity and stability, and seamless interaction with the administration team of the registered agent.
9. International expertise: Appointing a nominated employee of an international corporate service provider as a council member can be beneficial, as they have experience and resources across multiple jurisdictions and regulatory frameworks. This can be especially helpful for foundations with international assets or beneficiaries.

What are effective strategies for involving non-family members on a UAE foundation council?

• Clearly defined roles: It is essential to clearly define why non-family members are being added to the council and what roles they are expected to play.
• Reserved matters: It is possible to reserve voting rights on certain matters, like distributions, appointment of beneficiaries, etc, to family council members only.
• Implement term limits: Set term limits for non-family members to encourage the rotation of talent and prevents undue influence.
• Removal process: Set clear mechanism and conditions for the removal of non-family council members e.g. if their contributions diminish over time.
• Review process: Implement a review process to evaluate the contributions of non-family members. Actively seek and consider the different perspectives that non-family members bring.
• Selection criteria: Develop specific selection criteria to identify desired skills and attributes in non-family members, which family members may lack.  These could include:
  Specific expertise in the foundation's areas of interest.
  Specialised knowledge in law, accounting, investment management, or other relevant areas.
  Local networks and connections.
  Experience on boards and family councils.
   

How can Ocorian help?

The inclusion of non-family members on a foundation council can bring significant benefits, including privacy, objectivity, specialised expertise, diverse perspectives and improved governance. All nominated Ocorian employees acting as Council members are all both STEP Member and CGI Member with extensive international and local experience on private clients’ structures.

Contact our team today.