Should You Use a Nominee Service for Your Overseas Company?

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The use of companies registered in overseas jurisdictions is widespread across the globe because of the benefits of tax flexibility and anonymity and despite the fact that the understanding of anonymity is currently changing value, the use of nominee services remains relatively unchanged and still very popular. Corporate service providers are often asked by clients to provide their newly registered company with nominee directors or shareholders.

So, let's have a look at the advantages and disadvantages of using nominee services for companies registered in overseas jurisdictions.

What is a Nominee Service?

A Nominee service is a legal way of protecting the identity and anonymity of the company owner. The nominee director or shareholder can be a real person or a legal entity exercising fiduciary duties over the company. The nominees appear in the official register as a company director or shareholder, but, in fact, all their actions are restricted by the owner’s instructions and the designated nominees do not manage the company. Depending on the type of agreement, the owner may grant authority to run the business, manage the company and/or even open and manage bank accounts. Typically nominees only formally represent the company, however, remain liable in respect of any acts or omissions.

It is important to remember, that the law does not recognize the concept of “nominee director” or “nominee shareholder”. As such, if a person or company is appointed as a director, all the duties and liabilities will be imposed on the nominee officer.

The main function of nominee directors or shareholders is to maintain the anonymity of the real owner by taking their place in all public records relating to the company and non-governmental bodies. At the same time, if the company’s owner intends to hide his identity from governmental bodies, e.g. tax authorities, then this will not work.

The nominee director should not be confused with the local resident director that is required to be appointed by law for the company formation in certain jurisdictions. Usually, resident directors are required for registration of companies in Singapore or New Zealand.

When are Nominee Services Used?

Company owners tend to use nominee services for the following purposes:

  • To ensure the anonymity of the ownership for non-governmental bodies and safeguard disclosure of ownership information in case of public inquiry.
  • To ensure the anonymity for making business deals and signing agreements.
  • When the personal presence of the company director is required to conduct business in another country and the beneficial owner does not have an opportunity to travel.
  • In order to prevent lawful restrictions on deals between affiliate bodies. This option is useful for the transfer of assets within a holding company.
  • When it is necessary to extend the statutory bodies by the right amount of members

One vital point to note is the appointment of nominee bank account signatories. Usually, fiduciary service providers do not manage the accounts of their clients as nominee signatories. This is because such services are associated with having a high risk for both the client and nominal officer. Firstly, in case of appointment of nominee signatory the company owner will not have control over his company’s funds. In turn, the nominee officer bears full responsibility for the funds in the company’s accounts, which is also considered to be high risk. Therefore, such nominee services are charged separately and in addition to the bank’s charges, the owner will pay an extra nominee fee, which can be extremely expensive if the company makes a lot of bank transfers.

Also, even in the case of using nominee signatory, all banks will still require disclosure of the real owner of the company and to hide the owner’s identity by using nominee signatory is illegal.

Given the high risk and cost of nominee signatory services as well as the availability of secure, remote access to accounts through e-banking systems, in most cases there is no need to appoint a nominee signatory.

How Does it Work?

When you are ready to arrange nominee services for your offshore company, a professional corporate service provider will supply you with a full set of corporate documents including relevant documentation for your legal protection. These documents are as follows:

Management Services Agreement

This document will govern all commercial and managerial arrangements between the beneficial owner and nominees.

Nominee Shareholder’s Declaration of Trust

It is a document that outlines who the nominee is, how many shares he holds, and who he holds the shares for.

Signed by the nominee shareholder and undated Share Transfer

This document will allow the owner of the company to immediately sign over the ownership of the company.

Signed and undated Meeting Minutes for transfer of shareholder or director/secretary resignation and Signed by the Secretary or Director and undated Secretary’s or Director’s Resignation Notification

Undated Meeting Minutes and Resignation letters allow the owner to effect the resignation of a nominee shareholder, director or secretary.

General Power of Attorney signed by the nominee director

The beneficiary has the right to control and legally act on behalf of the company as an authorized representative with full rights.

In addition to the above documents, corporate service providers sometimes furnish their clients with a Consultancy Agreement in order to create transparent arrangements in terms of an owner’s business relations with his company. The Expression of Wishes is also a commonly used document for setting out relations between the beneficial owner and nominees in the event of the owner’s death or incapacity.

What is Important to Remember about Nominee Services?

We suggest our clients not to use nominee services if it’s not needed and to consider all the pros and cons before ordering such service. If you are planning to form an offshore company with nominee services, you should seek the professional assistance of a reputable corporate service provider who will not compromise your company and who will always warn you in advance of all advantages and disadvantages of your choice. For example, the presence of a nominee director will cut off the possibility of opening a bank account in Hong Kong or Singapore.

You also have to remember to ask how your ownership and legal rights will be protected and which documentation will be provided in order to safeguard the real ownership of the company from the encroachments of the nominees. And of course, it will be considerably more expensive to form a company with nominee services.