September 28, 2014 Leave a comment
A nominee shareholder is a person or entity listed as the holder of the securities or shares of an offshore corporation rather than its actual owner, which allows them to remain anonymous.
Traditionally, the way to maintain the privacy of investors and business owners has been the use of bearer shares. However, these titles are losing popularity due to restrictions imposed by measures against money laundering. But the offshore industry soon devised an alternative and introduced the figure of the so-called nominee shareholder or trustee. This can be a natural person or another offshore company that is exclusively incorporated to be used for this purpose and is usually provided by the registered agent or the formation agency ie a corporate trustee.
The data contained in the incorporation documents of the company, which are either filed with the registrar of companies or deposited privately at the registered office, depending on the legal requirements of the jurisdiction where the company is incorporated, refer only to the nominee shareholder.
So how are the rights of the real owner guaranteed? Because the nominee shareholder is included in all the documents of the company, it is necessary to take additional steps to ensure the rights of the real or beneficial owner. This can easily be solved by means of a document called declaration of trust. It is a private contract in which the nominee shareholder recognizes holding in their custody the company´s securities, although they actually belong to their client.
The use of a nominee shareholder allows the rightful owner to remain anonymous. This is important when it is necessary to be formally detached from the company, combining in these cases the use of a nominee shareholder with that of a nominee director. The reasons for this may be diverse but they have mostly to do with asset protection against third parties, confidential participation in other companies or the establishment of transfer pricing schemes. This is known also as offshore re-invoicing and consist of inserting an offshore company between the importer and the exporter of goods, with the intention of reducing the tax burden by diverting part of the benefits to a third country, usually a tax haven. However this practice is considered tax evasion in most countries.
However, there are disadvantages of using a nominee shareholder. Measures against money laundering applied by banks, financial entities and even some trading companies, require the correct identification of directors, shareholders and beneficial owners of the companies. For example, opening a bank account or signing certain contracts may require extensive documentation from all the parties involved, including the nominee shareholder. This slows down the proceedings, although this effect can be mitigated by relying on a dynamic and professional agent. There will also be additional costs, since the agent will charge a fee when having to provide documentation and sending it by mail or courier, etc.
The transfer of ownership by contract, obviously always involves a certain risk. While the declaration of trust is accepted without any major problems in the jurisdiction of incorporation, it may encounter difficulties of recognition outside its borders because it is just a private contract, not a publicly registered document.It is therefore essential that the formation agent and nominee shareholder are honest and reliable people or entities. It is also important that the declaration of trust is properly drafted, which will prevent future problems related to the claim of ownership of the company.
People who do not feel comfortable with the use of a nominee shareholder ,prefer to use as a shareholder another company controlled by themselves, located in a distant jurisdiction. This prevents having to resort to an external nominee shareholder and solves documentary complications.