The DIFC Venture Studio Regulations 2023: A New Regulatory Framework for Innovative Start-ups

In line with its vision to foster innovation and entrepreneurship in the financial sector, the DIFC has recently introduced a new regulatory framework to support the development of start-ups in the DIFC. The Venture Studio Regulations 2023 (“Regulations”) came into force on 26 April 2023 and provide a streamlined and flexible process for establishing and sponsoring new ventures in the DIFC.

What is the impact of the Regulations on the DIFC companies Law?

The Regulations do not replace or supersede the general provisions of the Companies Law; instead, they complement and augment them, offering a tailored and adaptable framework for venture development within the DIFC. The Regulations outline specific guidelines and limitations for Venture Studios and Venture Studio Companies, which include the types and number of ventures they can support, the duration and extension of their business permissions and licenses, fundraising and accounting requirements, and the consequences of altering their status. Nonetheless, the Regulations stipulate that unless otherwise stated, the standard laws and regulations governing registered entities in the DIFC, including the Companies Law, apply to Venture Studios and Venture Studio Companies.

What is a Venture Studio and what is the purpose?

• Venture Studio: A company incorporated or continued under the Regulations for the sole purposes of sponsoring Ventures and establishing Venture Studio Companies.
• Purpose: Venture Studios nurture startups from the inception of their ideas to their market launch, offering both financial backing and expert guidance. They further facilitate their expansion through a combination of in-house resources and external assistance.

Who Can Form It?

The Regulations indicate that a Venture Studio can only be formed by a Qualifying Applicant.

This begs the question as to who is a Qualifying Applicant?

• A Qualifying Applicant must be a Qualifying Person, i.e. any person(s) that can satisfy the DIFC Registrar of Companies that it has sufficient experience and resources to conduct venture building as a business.
• A Qualifying Applicant must also ensure that the Venture Studio will be Controlled by one or more Qualifying Applicants, meaning that they have the power to secure that the affairs of the Venture Studio are conducted in accordance with their wishes.
• It can be implied that a Qualifying Applicant is expected to have some expertise and capacity in sponsoring and establishing start-up businesses in the DIFC.
• Important to Note: A Qualifying Applicant must apply to the DIFC Registrar of Companies for permission to incorporate or continue a Venture Studio in the DIFC and pay the required fees. The DIFC Registrar of Companies may grant or refuse such permission and may impose any conditions and restrictions on the licence of the Venture Studio.

The Regulations offer several crucial advantages:

• They introduce the world’s inaugural legislative framework for the practice of venture building, consequently establishing a foundation of legal certainty for this innovative model. This legal framework will not only bring clarity to the interactions among Venture Studios, entrepreneurs, and spin-off entities but also regulate their engagements with the broader market.
• Additionally, these Regulations will streamline the conduct of business operations within the Venture Studio model. They will implement specific measures to facilitate the incubation of new business ideas, extend support to entrepreneurs, and reduce the costs associated with the expansion of nascent enterprises.
• Ultimately, these Regulations are poised to create a customized ecosystem for venture building, entrepreneurs, startups, and investors.

How Can We Help?

The Regulations offer an opportunity for entrepreneurs to develop their ideas or ventures in the DIFC with the support and guidance of a Venture Studio. It provides a flexible and supportive framework for venture building in the DIFC, with various benefits and obligations for the Venture Studio, the Venture and the Venture Studio Company. The Regulations also out the implications of terminating or changing the status of a Venture Studio or a Venture Studio Company, which may affect their rights and liabilities under the relevant laws.

If you are interested in establishing a Venture Studio, sponsoring a Venture, or incorporating a Venture Studio Company in the DIFC, or if you have any questions or concerns about the Regulations, please contact our offices for expert advice and assistance. We have extensive experience and expertise in advising clients on the DIFC legal and regulatory framework and can help you navigate the requirements and opportunities of the Regulations.