If you’re setting up a business, you’ve probably heard about the option of appointing a nominee director. The simple definition of a nominee director is an individual who acts in the capacity of a director on behalf of another person (the nominator), or according to the instructions or wishes of a nominator.
The role of a nominee director
Typically a nominee director is appointed by a business owner or a shareholder who has a significant share in a company.
In most cases, the articles of association of a company or a joint venture or shareholders’ agreement also give shareholders the right to appoint directors.
A nominee director could also be a representative of a parent company, a lender, or an employee.
The advantage of using a nominee director is the anonymity it gives some business owners.
Why have a nominee director?
1: If you do not want to appear on the public registry.
2: If you want to avoid excessive taxes.
For example, registered companies are listed on an official register along with their directors’ names.
Suppose you do not want your name listed on the register because of business-sensitive issues or confidentiality concerns. In this case, you can appoint a nominee director to replace you as the ‘face’ of the company. However, you still own your business and are entirely in charge.
Another reason to appoint a nominee director
If, for example, you are an investor or business owner from overseas looking to open a business in another country, you may be worried about extra taxes.
Most investors wish to avoid double or additional taxes.
If your name is not in the public registry, you will be able to reduce your tax burden.
What are the duties of a nominee?
There is nothing illegal about appointing a nominee director. Make sure that your candidate director meets the requisites for the job. You appoint a nominee director the same way you do a real director.
The nominee director:
- Must be a natural person
- Must be over 16 years of age in the UK, and over-18 in other jurisdictions
- Has never been disqualified from a director role
- Is not bankrupt
- Is not the company’s auditor
The primary responsibility of a nominee
A nominee director’s primary responsibility is to fulfil the wishes of the nominator (usually the business owner or a group of shareholders).
Simply put, a nominee director must only act on the business owner’s behalf and cannot take any decisions independently. If this occurs, a breach in the contract agreement will arise, and the nominee director may face legal action.
How can I find a nominee?
It’s possible to search and appoint nominee directors yourself, but it will require a great deal of time and effort. Furthermore, you will have to process all the legal documents on your own.
Consider using a corporate services provider (CSP)
The best way to help you select a nominee director is to hire a corporate service provider.
As long as you provide the necessary information, the CSP will handle the rest.
CSPs will appropriately handle legal matters on your behalf so that you can rest easy.
What you should give your director service provider?
The nominee will be appointed by the service provider, with your approval. Here are a few things you can prepare beforehand to simplify your life.
- A copy of the business owner’s or beneficiary’s proof of identity and address
- Why the nominee director was chosen
- The nature of your business
Some key documents
The process of appointing a nominee requires a few documents, and the documents also protect you if the nominees fail to fulfil their obligations.
An agreement containing full details about both parties
The agreement should include the full details of both parties, the beneficiary owner (you) and the nominated agent. Included are name, ID number, address, etc.
After that, the company register will record the nominee director’s details. You will, however, remain anonymous.
This agreement indicates that complete control over the company belongs to the beneficiary owner, not the nominee.
All of your details will appear to show that you hold full responsibility for the company. The appointed nominee director must sign the agreement.
Beneficiary owner’s agreement
This serves as a protection of beneficiary owners, demonstrating that ownership of the company belongs to you. The authorities can use the document to prove who is the actual owner of a company when proof of ownership is required.
Letter of resignation signed by the nominee director but without a date
You need this signed but not dated resignation letter to remain fully in control of your company. If a nominee resigns or you terminate the services of a nominee director, all rights will be returned to you. The nominee should complete the resignation letter, sign it, and leave the date blank so that the date of ‘resignation’ can be filled in later.
Power of attorney
The purpose of a general power of attorney is to carry out director duties, such as opening bank accounts, signing contracts, and collecting debts.
This document is proof that the beneficiary owner can act on behalf of the company even though the beneficiary owner is not listed on the company register. A power transfer may also enable the nominee to accomplish the above tasks.
Where could things go wrong if you use a nominee?
The banks may not accept them as directors.
In some jurisdictions, including the UK, some banks do not recognise nominee directors and may cause some trouble when opening bank accounts.
You should check with your bank before deciding on a nominee.
A lack of relevant experience
Ensure the nominee has the experience and is well versed in dealing with the internal workings of a company. You alone are responsible for making the final decisions for the business, and nominee directors do not have the authority to make any decisions.
Make sure the nominee director works within the regulations. Your company may suffer adverse effects if you fail to comply.
- A nominee director is someone appointed by a business owner to act of their behalf.
- On paper, the nominee takes the role of company director, and they act in place of the company in that jurisdiction.
- The nominee is responsible for maintaining a company’s legal responsibilities. However, they may hand over powers of attorney to other directors in the firm.
- If a nominee shareholder agreement is required, they may also have ownership and be named as a shareholder.
- The role of the nominee director is a valuable device, which can help protect the privacy of other executives in the company.
- The actual owner of a company can be hidden behind a nominee director if that is the company’s wish.