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What is a Nominee Shareholder?

What is a Nominee Shareholder

Nominee shareholders are people or entities that hold shares on behalf of someone else – perhaps someone who wishes to remain anonymous. When a nominee shareholder is appointed, their name is registered as shareholder.

Unlike customary shareholders who buy and own shares by themselves, and are publicly known, nominee shareholders are reliable people nominated by someone to hold shares on their behalf; they become the public shareholder.

Let’s say someone wishes to buy shares but they wish to stay anonymous – perhaps for business or legal reasons – a nominee shareholder can step in and buy the share, giving the owner all of the benefits, without the drawbacks.

Whether you’re considering enlisting the services of a nominee shareholder, or wish to become one yourself, we’ve outlined all the information you need. Discover the benefits and hindrances of nominee shareholders status here.

The Difference Between A Nominee Shareholder & A Shareholder

Nominee shareholders and conventional shareholders differ on one key point – conventional shareholders own the stock directly, while nominee shareholders own them on paper, but in reality, they belong to someone else.

People hold shares for many reasons – shareholder voting rights, dividend payments, and selling rights. Nominee shareholders hold the share in trust for a conventional shareholder, but they forfeit any rights to the share benefits. As you might expect, the true owner retains the share benefits and access.

Whether a shareholder is a direct owner or has recruited the help of a nominee shareholder, that person or entity retains full rights and access to the share’s benefits – they get to vote on the board depending on the share type, enjoy quarterly dividend payments, and they can also sell the share.

Benefits of Using Nominee Shareholders

People choose nominee shareholders for a multitude of reasons, including:

  • To remain anonymous: quite often nominee shareholders are used to avoid the attention of business leaders or the public; politicians are known to employ nominee shareholders to stay out of the public eye.
  • Makes administration easier: some companies wish to streamline their operations by communicating with a single person rather than many individuals – nominees shareholders mean fewer people on the books.
  • Builds flexibility into a business: Let’s say a business has an employee share scheme or wishes to consolidate share ownership –nominee shareholders offer the business better options for structural flexibility.
  • Protecting the business from takeovers: Nominee shareholders offer a business better protections against hostile takeovers or third party intervention since the shareholder owners are harder to track down.
  • Keeping the business more private: Businesses with sensitive information or confidential business dealings can make use of nominee shareholders to guard operations and maintain advantages.

How Are Nominee Shareholders Appointed?

When someone wishes to become an anonymous shareholder, they need to identify a suitable nominee shareholder to represent them. After finding an appropriate third party, they must reach a formal agreement on the terms and conditions of the arrangement. Most agreements contain the following items:

  1. Beneficial owner’s identity: Anonymity is often the main reason for this type of agreement, but the owner’s identity will be known to the nominee; however, the nominee must maintain total confidentiality.
  2. The number of shares to be held: Every nominee agreement should outline how many shares are to be held by the nominee shareholder.
  3. The duration of the arrangement: Nominee shareholder agreements always specify the duration of the arrangement, which can be for a fixed term, or until the shares are sold by the beneficial owner.
  4. The rights of the beneficial owner: Nominee shareholder agreements should outline the rights of the beneficial owner; things such as rights to dividend payments, selling rights, and other ownership rights.
  5. The duties of the nominee shareholder: These agreements should also include the duties of the nominee shareholder, like the requisite to act according to the instructions of the beneficial owner and act for them.

On signing such an agreement, the nominee shareholder becomes the legal guardian of the share on behalf of its owner. The nominee shareholder’s name appears on the public register and any legal documentation, that said, they don’t have any right to the benefits of the share and legally, the beneficial owner controls it, can access it at any time, and can sell it when they choose.

What Regulations Surround Nominee Shareholders?

Nominee shareholder regulations are different depending on the country, for this reason, it’s imperative for companies to be fully aware of region specific regulations that can influence the nominee’s agreement with the shareholder.

Disclosure Requirements

Nominee shareholders tend to be used in order to shield beneficial owners from the public register or third-party companies, but regulation states that companies still need to hold a register of beneficial shareholders, even if they are held by a nominee shareholder. Additionally, companies can be asked to disclose the names of beneficial shareholders.

Anti-money laundering regulations

In some instances, authorities might ask a company to disclose its beneficial shareholders in relation to money-laundering enquiries. In this case, nominee shareholders would need to provide sufficient information of the beneficial shareholder, including their identity and funds.

Fiduciary Duties

Fiduciary duties are a duty of care to the beneficial shareholder and typically form part of the nominee’s agreement. These duties require the nominee shareholder to always act in the best interests of the beneficial shareholder and offer total transparency in regard to conflicts.

Tax Regulations

Shareholders might have a nominee on the register, but that doesn’t mean they avoid taxation. Whether it’s reporting dividend profits, or capital gains to the tax authorities, beneficial shareholders are obligated to compile reports and satisfy the tax authorities.

Securities Regulations

In special circumstances, such as national defence or insider trading, nominee shareholders are required by law to disclose the beneficial owner’s identity and any pertinent information. These security measures are in place to protect markets and the public from security threats.

Enlisting the services of nominee shareholders can be incredibly beneficial, but it’s also crucial to ensure that official regulations are followed at all times. If in doubt, beneficiary shareholders should seek legal advice before agreeing terms with a nominee, so they completely understand all of the implications.

The Companies Act 2006 in the UK

The Companies Act provides a framework for the use of nominee shareholders in the UK, its guidelines ensure transparency and accountability in share ownership streamlining the share acquisitions and reducing conflicts. The Companies Act provides guidance on the appointment, disclosure, and rights of nominated shareholders.

Under the Act, companies are permitted to appoint a nominee shareholder to hold shares on behalf of another person or entity known as the beneficial owner. Companies that appoint nominee shareholders must keep a register of their name and address, and the name and address of the beneficial owner.

Under the Act, the nominee shareholder must disclose the identity of the beneficial owner upon request; the beneficial owner may also request their name be disclosed to other members of the company when appropriate.

Under the Act, the beneficial owner retains all rights and benefits associated with the shares, including voting rights and dividend payments. Nominee shareholders must exercise their rights as directed by the beneficial owner.

Who Should Consider Nominee Shareholders?

The main benefit of using a nominee shareholder is to take advantage of share ownership without the beneficiary name appearing on the register. There are a number of parties who can take advantage of this useful tool.

  • High-profile individuals: High-profile individuals including celebrities and politicians, may wish to maintain private share ownership to avoid unwanted attention or influence.
  • Company Investors: Investors wishing to consolidate their shareholder ownership for a variety of reasons might prefer a nominee shareholder.
  • Employee share schemes: Companies use nominee shareholders to hold shares on behalf of employees who participate in an employee share scheme.
  • Small business owners: Small business owner’s use nominee shareholders to protect their privacy and confidentiality.
  • Family offices: Family offices sometimes enlist nominee shareholders to consolidate their ownership of shares across multiple family members or entities.

In short, those wishing to remain nameless of the shareholder register for personal or professional reasons can benefit from the assistance of nominee shareholders. They can stay anonymous and still benefit from their shares.

Who Can Become A Nominee Shareholder?

Anyone meeting the criteria in their company or legal jurisdiction can become a nominee shareholder for an individual or a company. If there are any questions or doubts about eligibility, they are answered in the Company’s Act.

Individuals, companies, trusts, and other legal entities can all become nominee shareholders provided they meet the necessary criteria outlined in the Companies Act. That said, it’s entirely possible for individual entities such as companies to impose individual requirements on nominee shareholders; these requirements might include qualifications, licences, disclosing information, as well as anti-money laundering compliance.

If you want to appoint a nominee shareholder or you’re thinking of becoming a nominee shareholder yourself, it’s never a bad idea to consult a legal professional before taking on any responsibilities. Review the agreements, policies and regulations carefully, before committing to any arrangement.

What Are The Tax Implications Of Becoming A Nominee shareholder?

Bear in mind that becoming a nominee shareholder has tax implications in the UK, and these can differ depending on the circumstances. Again, make sure you understand all of the implications of the agreement: keep these UK taxes in mind:

  1. Dividend taxes: Companies are required to withhold taxes on dividends paid to shareholders, and the tax implications of using a nominee shareholder depends on whether the beneficial owner is a UK resident or non-resident. If the beneficial owner is a UK resident, they may be eligible for a tax credit to offset the tax withheld by the company, but if the beneficial owner is a non-resident, they may be subject to different tax rates and should seek advice from a tax professional.
  2. Capital gains taxes: If shares are sold at a profit, the beneficial owner may be subject to capital gains taxes. The tax implications of a sale may be different if the shares are held through a nominee shareholder, and the beneficial owner should consult with a tax advisor to understand their specific tax obligations.
  3. Reporting requirements: Nominee shareholders are required to report their holdings to HM Revenue & Customs (HMRC); failure to comply with these requirements can result in penalties. Beneficial owners may also be required to report their shareholdings on their tax returns.
  4. Stamp duty: Stamp duty may be payable when shares are transferred, and the tax implications of using a nominee shareholder will depend on the specific circumstances of the transfer.

If you wish to become a nominee shareholder and act on behalf of a client, you must first understand the tax implications to avoid any repercussions. Tax professionals are on hand to support your progress toward nominee status, they assist with your tax liability to ensure all records are compliant.

What Is A Nominee Company?

Nominee shareholders can be companies as well as individuals, the main difference is that companies are classed as entities and can take on different shareholder positions. For instance, nominee companies might hold director positions on share issues without any direct interest from the true company.

As with individuals, nominee companies offer confidentiality and anonymity to beneficial companies. Again, these entities might wish to avoid the company name on a public register, or sidestep integration issues in a new region. These measures can support internal structures and business growth.

Some other reasons companies use nominees is to set up registered office addresses, integrate mail forwarding into the workflow, and provide support.

Summary

Companies and individuals should be acutely aware of any applicable laws and regulation standards governing the nominee shareholder arrangement. They must seek suitable legal advice if they are uncertain about any aspect of the arrangement, including its effects and obligations, especially around tax.

Whether an individual or business wishes to remain anonymous for personal or professional purposes, but still retain the benefits of profitable shares, nominee shareholders are an excellent option: if the obligations are covered.

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