What is a Proprietary Investment Company?
Proprietary Investment Companies, often referred to as “prop trading/Investment firms,” are businesses that trade financial instruments, such as equities, bonds, derivatives, or other securities, in capital markets using their own funds rather than client money. This specific type of firm earns profits and bears losses directly from its own investments. No third-party client money is involved. If the company only trades its own funds and does not offer financial services to others, it is a non-regulated entity.
Primary Objective
Their primary goal is to generate profits directly from market activities such as actively traded securities, bonds, derivatives, or other financial instruments using their own funds instead of relying on commissions, fees, or client-related services. One of the core applications of proprietary Investment companies is the active management of personal and family investment portfolios.
Key Functions
Trade and investments in financial markets utilise company funds. The company holds cash, securities, and investment portfolios in its own name and may establish accounts with banks or brokers specifically for these proprietary activities. Through such trading operations, the firm seeks to capitalize on market opportunities and enhance shareholder value.
Permitted Activities
Proprietary (Prop) Trading/Investment Companies are authorised for:
- Ownership of shares
Proprietary Investment Companies are authorised to hold shares in entities both within the UAE and overseas. This provides flexibility to invest across jurisdictions and diversify exposure to different markets.
- Asset holdings
These companies may own real estate, intellectual property, or other assets. Such holdings allow for a broader investment strategy beyond traditional securities.
- Income Streams
Proprietary Investment companies may derive various sources of income, including dividends from equity holdings, rental income from real estate, and royalties from intellectual property rights. These contribute to a diversified revenue stream.
- Bank and Broker Accounts
They are permitted to open and manage accounts with banks and brokerage firms for investment purposes. This facilitates seamless access to trading platforms, financial markets, and the infrastructure required for efficient execution of transactions.
- Listed Securities
These Companies may buy and hold listed shares and bonds, enabling them to trade actively in capital markets, as part of their core activity.
- Derivatives and Structured Products
They are also authorised to engage in transactions involving derivatives and structured products.
- Portfolio Activity
Such Companies often exhibit elevated portfolio activity with significant turnover. Their positions are generally short-term in nature and subject to active management.
Types of Structures
- Structure A
Proprietary Investment Company owned directly by individual shareholders.
- This structure avoids the need to set up a Holding Company at the outset, reducing incorporation time, cost, and administrative complexity.
- Once the business grows or additional ventures are launched, a Holding Company may be established to transfer the shares of the Proprietary Investment Company into it. This future transition is straightforward within ADGM/DIFC and does not disrupt day-to-day operations.
Advantages:
- Speed & Simplicity - Fewer entities mean faster incorporation, quicker bank account opening, and lower initial compliance burden.
- Lower Initial Cost - No need to maintain multiple entities until the business justifies it.
- Ease of Banking - Banks are generally more comfortable onboarding an operating company with individual shareholders, as ownership is transparent.
- Operational Focus - Direct shareholder involvement keeps governance lean while the business establishes itself.
- Scalable for Growth - The structure can be expanded easily; a Holding Company can later be introduced to consolidate multiple businesses under one umbrella.
- Future Tax & Asset Planning - Once the Holding Company is in place, dividends from the Prop Trading/Investment Company can be routed tax-efficiently and other SPVs or subsidiaries can be added for asset protection and segregation.
- Structure B
Holding Company acts as the parent entity for Proprietary Investment Company, and additionally a Special Purpose Vehicle (SPV) if required.
Advantages:
- Independence - Each entity operates within its own defined purpose.
- Ring-fencing - Risks from trading activities are isolated from fixed asset holdings.
- Flexibility - Future expansion or restructuring can be done more efficiently.
- Asset Protection - Investments and assets are safeguarded from operational risks.
Application Process
The stages below outline the setup process in ADGM/DIFC, which typically takes 4-6 weeks.
- Decide the Structure of the company
- Choose a company name.
- Select share class and determine shareholder details.
- Provide UBO (Ultimate Beneficial Owner) details.
- Prepare a brief business plan.
- Select accounting reference date/end of fiscal year.
- Draft Articles of Association.
- Provide registered office address.
- Pass resolution for authorised signatories.
- Appoint directors (mandatory).
- Appoint company secretary (optional).
- Appoint Data Protection Contact Person and complete Data Protection registration.
- Complete Source of Wealth Declaration Form.
Why Setup in the DIFC / ADGM?
The Dubai International Financial Centre (DIFC) offers a world-class regulatory framework, strategic geographic location, and business-friendly environment, making it ideal for proprietary investment companies. With 100% foreign ownership, full profit repatriation, and access to top-tier banking and financial services, firms benefit from operational flexibility and global connectivity.
The Abu Dhabi Global Market (ADGM) provides a similarly attractive environment for proprietary investment companies, with a strong focus on innovation and fintech integration. ADGM’s independent legal system and FSRA-regulated framework ensure transparency and compliance, while offering beneficial capital requirements for certain investment activities. Its strategic location in the UAE capital, combined with tax efficiencies and access to regional markets, makes it a compelling choice for firms seeking growth, diversification, and streamlined regulatory processes.
How VelthRad Can Help
At VelthRad Consultants, we provide comprehensive support right from the initial planning stage, through to the complete incorporation of your company. We would be delighted to guide you through the setup process. Contact us now.
This blog is for informational purposes only and does not constitute legal or regulatory advice. The information provided has been compiled from publicly available sources, and while we have made every effort to ensure its accuracy and relevance at the time of publication, we do not guarantee its completeness or applicability to specific situations. Readers are encouraged to seek independent professional advice before making any decisions based on the content herein.
