What is an exempt offer in ADGM and when can you use it? Can you raise capital without issuing a full prospectus? Explore private placements and exempt offers under ADGM regulations, including eligibility criteria, investor thresholds, structuring options, and legal nuances for foreign and local fund managers.
In recent years, the Abu Dhabi Global Market (ADGM) has emerged as a premier jurisdiction for fund managers and promoters looking to tap into sophisticated pools of capital while maintaining regulatory efficiency. One of the key attractions is the availability of “exempt offers”, which enable fundraising without the extensive compliance obligations associated with full prospectus regimes.
Whether you’re a foreign fund manager seeking Middle East investors or a local player structuring your first private fund, understanding ADGM’s exempt offer framework is essential. This article unpacks the legal and regulatory essentials — from the definition of exempt offers and eligible investor categories to structuring choices and practical considerations.
As a small or medium-sized company, you may be considering how to raise funds from investors to grow your business. One of the most significant barriers you face is the regulatory complexity and cost associated with traditional capital raising methods. The idea of preparing a full prospectus—the comprehensive disclosure document required for public offerings—might seem intimidating and financially unfeasible, especially if you’re not a large multinational corporation.
Abu Dhabi Global Market (ADGM) recognizes this challenge and has created a practical alternative: exempt offers. This regulatory pathway allows your company to raise capital from investors without needing to produce the extensive documentation required for a full prospectus. In essence, exempt offers are structured exemptions that make capital raising simpler, less expensive, and more proportionate to your company’s size.
This Article is a Part of our Investment Funds in the UAE: A Complete Guide to Structuring, Regulation, and Opportunities Blogpost.
Why Small Companies Struggle with Traditional IPO Routes
When a company decides to offer its shares or other securities to the general public, ADGM’s financial regulations require comprehensive disclosure. The company must prepare and obtain approval for a full prospectus, which demands extensive financial information, business details, risks, management structure, and much more. The process involves regulatory review, multiple revisions, legal costs, and significant time investment.
For a large corporation, these requirements are manageable. However, for a smaller or younger company operating with a lean team, these demands create a disproportionate burden. The costs of preparing a compliant prospectus, hiring specialized advisers, and managing approval can easily consume 15-20% of the capital being raised. Additionally, the lengthy approval timeline means your company remains in a holding pattern, unable to deploy capital for growth. This is where exempt offers become invaluable.
What Is an Exempt Offer?
An exempt offer is an offer of securities—such as shares, bonds, or other investment instruments—that does not require approval of a full prospectus. Your company can raise capital by meeting specific conditions laid out in ADGM’s Market Rules. Think of an exempt offer as a “lighter-touch” regulatory pathway: you still raise funds, but the compliance burden is significantly reduced because the regulatory risk is lower.
The regulatory requirement for a full prospectus exists to protect investors. However, when your company meets certain conditions—such as offering only to sophisticated investors, limiting the number of investors, or setting a high minimum investment threshold—the regulatory risk is reduced, allowing reduced disclosure intensity.
Under ADGM’s Financial Services and Markets Regulations (FSMR), Section 61(3) provides the legal foundation for exempt offers. It states that an Approved Prospectus is not required if an offer falls within a category prescribed in the Market Rules. This allows ADGM to define exactly when and how companies can make exempt offers.
The Comparative Advantage: Lighter Compliance Burden
The core appeal of exempt offers lies in their simplicity when compared to traditional public offerings. Unlike a public issuance, an exempt offer does not require regulatory approval of a comprehensive prospectus, eliminating the long review cycles and regulatory back-and-forth that can stretch over weeks or months. Documentation requirements are also significantly lighter: instead of preparing a full prospectus, the company produces an exempt offer document that, while still providing investors with relevant information, is far less prescriptive and burdensome.
This streamlined process reduces both time and cost. Companies typically require fewer specialised advisers, keeping regulatory and professional expenses far below those of a full IPO. Execution can be much faster, allowing businesses to move from planning to fundraising in a short period. Importantly, exempt offers do not demand the sophisticated financial infrastructure expected of large corporations, making them well suited for early-stage companies and those targeting more modest capital-raising goals.
Who Can Use Exempt Offers? The Eligible Categories
Not every company can use every exempt offer category. ADGM’s Market Rules define thirteen distinct categories of exempt offers, each with specific conditions. Your company must fall squarely within one (or, in some cases, more than one) of these categories.
The general principle is simple: before using an exempt offer, your company must meet all the eligibility criteria for the specific category you’re relying upon. This is a mandatory requirement, and claiming an exemption without meeting the conditions would violate ADGM regulations.
The thirteen categories of exempt offers include offerings to:
- Professional clients only: Your company offers securities exclusively to sophisticated, professional investors (such as banks, insurance companies, investment firms, and large corporate investors).
- Limited numbers of investors (up to 50 people): Your company offers to no more than 50 natural persons within any 12-month period. This is particularly useful for smaller rounds of seed or growth capital.
- High-value investors: Each individual investor commits to purchasing securities worth at least AED 365,000 (approximately USD 100,000), making the offering attractive only to wealthy individuals or institutions.
- High-denomination securities: The securities themselves are issued in denominations of at least AED 365,000. This is common for bonds and larger investment instruments.
- Small aggregate offering (less than AED 365,000 over 12 months): Your company’s total fundraising does not exceed the threshold in any 12-month period.
- Share substitutions: You issue new shares in exchange for existing shares of the same class without increasing total share capital.
- Convertible securities to existing members: You offer convertibles (securities that can be converted into shares) exclusively to existing members or creditors of your company.
- Offers in connection with a takeover: Securities are offered as part of a takeover transaction, supported by takeover-related documentation.
- Offers in connection with a merger: Securities are issued as part of a merger, supported by merger documentation.
- Rights issues: You offer new shares to existing shareholders at a discounted price or with pre-emptive rights.
- Bonus shares or dividend shares: You issue new shares free of charge to existing shareholders or distribute shares as dividends.
- Employee and director offers: You offer securities to employees, former employees, directors, or their close family members, provided your company’s securities are already traded on a regulated exchange.
- Private financing platform offers (up to 200 non-professional investors): You offer securities through a Private Financing Platform to up to 200 non-professional investors.
For most smaller companies raising capital from a general investor base (rather than friends, family, or employees), categories 2 and 13 are typically the most relevant.
Practical Requirements: What You Must Do
In addition to meeting the eligibility requirements for a specific exempt offer category, your company must also comply with several mandatory obligations under ADGM rules. First, the offer document must clearly state that the offer is an exempt offer and has not been reviewed or approved by the regulatory authority. This disclaimer ensures that investors understand the regulatory status of the offering. Second, companies are required to maintain comprehensive records demonstrating compliance with the chosen exemption. This includes documentation on the number and type of investors, proof of investor eligibility where required, and copies of all offer materials. Finally, securities issued through exempt offers are subject to resale restrictions. Investors cannot freely resell such securities unless the resale itself qualifies under another exemption category or is supported by a fully approved prospectus. These restrictions are designed to prevent unintentional public dissemination of securities and to make investors aware of the limited liquidity associated with exempt offerings.
The 50-Person Category: A Practical Option
For growing companies, the “50-person” exempt offer category is particularly beneficial. This exemption permits a company to offer securities to up to 50 natural persons within any 12-month period, making it well suited for early-stage and growth-stage fundraising. Importantly, professional clients are excluded from this numerical limit, meaning that a company could approach, for example, 30 individual investors and 10 professional firms, yet only the 30 individuals would count toward the cap. The 12-month window operates on a rolling basis, allowing the count to reset every year. Additionally, companies relying on this exemption must provide each offeree with a document that outlines the nature of the securities, the reasons for the offer, and the key terms and conditions. Although this document does not need to meet full prospectus requirements, it must still be sufficiently detailed to enable investors to make an informed decision.
The Private Financing Platform Alternative
ADGM also recognises a modern method of raising capital through Private Financing Platforms (PFPs). Under this model, a company lists its offering on a dedicated platform that facilitates exempt offers, allowing potential investors to access the information online, review the details, and decide whether to participate. This exemption significantly expands access to capital by permitting offers to up to 200 non-professional investors, far exceeding the traditional 50-person limit available under other categories. Instead of preparing a full prospectus, companies are required to provide a Product Summary Note—a concise, plain-language document ideally limited to fewer than 12 pages. This approach offers practical advantages, enabling companies to reach a much broader investor base efficiently and cost-effectively, without the need for extensive marketing or roadshow activities.
General Process to Raise Funds Under an Exempt Offer Category
Raising capital through an exempt offer involves a structured but streamlined process:
Step 1: Category Selection and Eligibility Verification - Determine which exempt offer category best suits your company’s needs and investor profile. Confirm that you meet all eligibility criteria for that category, as this is mandatory before proceeding.
Step 2: Preparation of Offer Documentation - Prepare a clear offer document or, for PFP offerings, a Product Summary Note. This document should outline the business opportunity, financial details, investment terms, risks, and use of proceeds. Unlike full prospectuses, these documents are less prescriptive but must still be comprehensive and accurate.
Step 3: Investor Identification and Outreach - Identify potential investors who fit your chosen category. For the 50-person category, maintain a list ensuring you do not exceed the numerical limit. For high-value categories, verify that investors meet minimum subscription requirements.
Step 4: Due Diligence and Investor Qualification - Conduct appropriate due diligence on prospective investors to confirm their eligibility and accreditation status. Maintain documentation of this verification process.
Step 5: Offer Distribution and Investor Response - Distribute offer materials and allow investors time to review and respond. Unlike IPOs, this process typically involves direct communications rather than public marketing.
Step 6: Record Maintenance and Regulatory Compliance - Maintain detailed records of all offers made, investors approached, acceptances received, and any investor communications. Prepare to demonstrate compliance if the ADGM Regulator requests verification.
Tentative Costs of Raising Capital Through Exempt Offers
Exempt offers provide a significantly more cost-efficient alternative to full IPOs, making them an attractive option for companies seeking capital without extensive regulatory burdens. Legal and advisory costs typically range from US $30,000 to US $50,000 (AED 110,000–185,000), covering offer documentation, regulatory guidance, and preparation of the Private Placement Memorandum. Less complex companies generally fall at the lower end, while multi-jurisdiction or structurally complex issuers may incur higher fees.
Accounting and financial preparation adds approximately US $7,000 to US $15,000 annually (AED 25,000–55,000), depending on audit history and operational complexity. Documentation and administrative expenses range from AED 5,000 to AED 20,000, reflecting costs for secure document distribution and investor management systems. Investor communication and marketing typically cost AED 10,000 to AED 40,000, as exempt offers rely on targeted outreach rather than costly public roadshows.
Regulatory application and filing fees range from US $5,000 to US $10,000 (AED 18,000–37,000), representing FSRA licensing and application requirements. Overall, total first-year expenses fall between US $55,000 and US $125,000 (AED 200,000–460,000), with ongoing annual compliance costs of roughly US $12,000 to US $25,000 (AED 44,000–92,000).
A straightforward exempt offer to a limited investor pool may cost around US $55,000–70,000, while complex, cross-border offerings may approach US $100,000–125,000. Compared to full IPOs—which cost AED 400,000 to AED 1,500,000 and require 6–12 months of processing—exempt offers deliver substantial savings and can be completed within 10–12 business days, making them a faster and more economical fundraising route.
Compliance Requirements for Exempt Offers
To ensure regulatory compliance when conducting an exempt offer, companies must meet several core obligations designed to protect investors and maintain market integrity. First, all information provided in the offer document must be accurate, complete, and not misleading. Under FSMR Section 66, issuers may be held liable for false statements or material omissions, making careful verification essential. Comprehensive record-keeping is also required, including details of offerees, evidence of eligibility, copies of offer documents, investor acknowledgments, and records of fund receipts. These documents must be securely maintained for at least six years.
Offer documents must contain the mandatory disclaimer stating that the exempt offer has not been reviewed or approved by the ADGM Regulator and encouraging investors to seek independent professional advice. Issuers are also required to verify investor eligibility. For the 50-person category, companies must confirm that offerees are natural persons and not professional clients, while high-value categories require proof of minimum subscription amounts.
Although less rigorous than full IPO requirements, financial disclosures should still follow recognized accounting standards—preferably IFRS—and provide sufficient information for informed investment decisions. Conflicts of interest must be properly managed, ensuring any related-party transactions occur on normal commercial terms. Finally, issuers must clearly notify investors of resale restrictions, emphasizing that securities acquired through the exempt offer cannot be freely transferred without meeting another exemption or obtaining a prospectus.
Protecting Both Your Company and Investors
Although a full prospectus is not required for exempt offers, your company still bears significant responsibilities. All information contained in the offer document must be accurate, complete, and free from misleading statements. If an investor incurs a loss due to false or incomplete information, both the company and the individuals responsible for the document may face civil liability. The level of detail provided should follow the principle of proportionality—professional investors generally require less extensive disclosure, while retail or non-professional investors may need more comprehensive information to make informed decisions. Additionally, strong internal governance is essential. Your company must maintain processes to ensure the accuracy of offer materials, proper handling of investor data, and full compliance with all regulatory obligations associated with exempt offers.
Real-World Example
Consider a technology company raising AED 2 million after successful seed funding. A full IPO would cost AED 400,000+ and take months. Bank financing offers less flexibility. Instead, using the 50-person exempt offer category, the company identifies 35 investors, prepares a clear offer document, and secures capital in 4 weeks for under AED 50,000. The exempt offer was ideal for this growth stage.
Exempt offers represent ADGM’s recognition that capital raising is not one-size-fits-all. For growing companies at earlier stages seeking to raise more modest amounts from limited investor numbers, the exempt offer framework provides a practical, cost-effective alternative.
By meeting specific conditions—whether offering only to professionals, limiting to 50 natural persons, using a Private Financing Platform, or relying on another defined category—your company can access capital without full prospectus burden.
The key is understanding which category fits your circumstances, meeting all conditions rigorously, preparing accurate offer documents, and maintaining proper records. When done correctly, exempt offers allow your company to focus on building your business, not navigating unnecessary regulatory complexity.
