- Nominee directors share the same level of legal responsibilities as any other director. These responsibilities cannot be signed away to others or be treated as non-existent.
- Nominee directors are easily identified as such. Inactive nominee directors may be suitable for dormant companies. However active companies need directors that are active too.
- Carefully consider the need for privacy against the relevant experience required from a director. Active directors require a higher level of professional skills.
- A company acting as an agent is very similar to a person acting as a nominee. The concept of an agent operating for an undisclosed principal is useful for commercial confidentiality.
A nominee name can be shown as the owner of an asset, for example shares or property, as an alternative to the actual owner. This is a passive role for a nominee.
The nominee concept can be extended to some duties and capacities, for example directors and company secretary required at formation or in the continuing business as a visible alternative to the owners. In an active company this is an active role for a nominee.
Generally nominee directors are easily identified as such and that may be acceptable for many purposes. However if your business requires something more, either now or in your future plans, then you will need to consider an enhanced role for nominee directors.
Companies and humans as nominees
In legal terms a companyis a body corporate or legal entity. Indeed company formations can be made with other companies acting as directors, secretaries, and shareholders. They do so as nominees.
A company may be a legal person but it is not a human – it cannot think and act within a personality or with skills and experience. The law recognises this and requires at least one human to act as a director. That human can come from any nationality and be resident in any country.
In some cases, particularly where the owners of a business seek confidentiality, one human face is preferred to that of another. Where greater knowledge and skills of a location are required, foreign owners will prefer a UK based nominee.
A company acting as an agent, is very similar to that of a person acting as a nominee. The concept of an agent operating for an undisclosed principal is useful for privacy and commercial confidentiality.
Nominees can be part of a low cost alternative to a UK establishment. A traditional nominee rents out his or her name to others
International clients need more than just a name – so in our formation packages we offer a choice of director type from:
- Compliance Director – is a traditional nominee director to cover only the basic requirements for registration and compliance
- Professional Director – can offer professional reputation and standing to a company to protect your interests
- Mentor Director – can provide knowledge and experience of UK business to help development and leave you to run your business.
Each of the above types of director are included in a choice of Formation packages.
To fully appreciate the value of our Nominee Support you also need to understand companies.
A company acting as an agent, is very similar to that of a person acting as a nominee.
Ownership & Direction from non-UK owners
The director, secretary and shareholders do not have to be based in the UK and can be of any nationality.
However shareholders and directors originating from outside of the UK can give rise to issues about where a company is being directed and managed from. This in turn can raise the issue of dual tax residency. In what are complex matters, how far a foreign owner exercises conclusions on contracts, prices and key decisions on the direction of the business, becomes important.
Nominees for owners of companies
Nominees lend their names as an alternative to the names of others – usually the owners of the business. So nominees can feature in the public record of a company, so that the names of owners do not.
Nominees can become share-holders and members of the company. In this role the nominees become agents and the relationship with the true owners can be covered by a nominee agreement. In terms of voting power at extra-ordinary or general meetings of members they operate with direction from the true owners.
Since shareholders can also be directors both functions can be undertaken by a single nominee. In such cases the nominee may have to first consider himself as a director. Unwavering compliance with the wishes of the true owners does not hold a nominee director harmless from any breach of his duties to the company.
A nominee acting on behalf of true owners can also be placed in a position of trust by the terms of a nominee agreement. In this capacity he also acts as a trustee.
Even when nominees are used a fundamental principle remains – shareholders do not run companies, but directors do. It is not unusual for the same nominee to act as a shareholder and as a director. However the role as director is far more demanding.
Nominees as Directors
For many, appointing a nominee as director of a company is simply to shield others from the public disclosure requirements that exist in the UK. This is designed to help a person who would rather not disclose their interest or association with a given company. It is a perfectly legal device which preserves the privacy of an individual. However this is too often abused. Scrutiny of published information can lead to headlines:
A Latvian pensioner has emerged as one the World’s richest men – on paper. The 73 year old, appears to be a billionaire with an empire that has interests in hundreds of businesses including banks, investment funds, pharmaceuticals and shipping. But they are not his.
He is revealed today as the stooge nominee director of “brass plate” companies from London to the Caribbean. He and others have also served on companies linked to a series of financial scandals. The stooge directors would have signed away rights to any powers and been unaware of any alleged fraud. The Times, London 16 June 2013
It must not be overlooked that nominee directors share the same level of responsibilities as do normal directors. Their obligations cannot simply be signed away and directors cannot treat responsibilities as being non-existent (an accusation known in law as “abrogation”.)
Traditional nominee directors may not be required to have an active role in the company. Thus dormant companies may reasonably use a traditional nominee director as the same level of exposure is not required as would be received if the company was trading. However the traditional limited role of nominee directors is less suited to a company that intends to become active.
We recommend that active companies need directors that are active too. Active directors may also require a higher level of professional skills to meet the greater demands of a new UK company working within an established international business.
Our clients need to carefully consider the balance between non-disclosure and privacy and the relevant skills and experience to be available from a director. In today’s highly regulated business environment it is the latter that increasingly demands more attention.
Nominee Directors – some essential facts
A nominee director is someone who is renting his or her name to others. They are no more than that. To provide a living, or often only to supplement one, nominees may have many other directorships.
The term “front man” has been used to describe someone who is acting as a nominee. It follows that in an active company someone must stand behind a nominee to exercise influence on the company. They could be termed a “shadow director” and UK company law specifically recognises this concept. Various consequences can arise and they can be significant.
Generally nominee directors are easily identified as such and that may be acceptable for many purposes. However if your business requires something more either now or in your future plans, then you will need to consider an enhanced role for nominee directors.
An enhanced role for Nominee directors
Our experience of international clients suggests that they often need something more than a front man as a nominee director. They may not have a candidate from their own interests but they would prefer not to talk in terms of a nominee.
International clients are not experienced in UK corporate matters. They come to us for advice. They consider the UK as a new location for their interests. They come to us when they do not have any infrastructure in the UK. They ask us to get involved.
To offer appropriate support to such international clients we consider nominated directors as covering the following.
For UK company formation nominees are appointed directors primarily to discharge requirements for registration and compliance in the UK. We refer to this basic “front man” role as that of a compliance director.
This role is designed to deliver all requirements of UK company law that has regard to the filing of annual returns and accounts – see accounting. Such accounting requirements are normally contracted to other professionals and may also extend to compliance with taxation and other related matters.
Within UK company law a director is personally responsible for keeping books of account and for filing accounts and submitting tax returns. Changes to company details and annual returns are also required. A director is at no less risk of fines or prosecution because he is a nominee.
We associate this level of director with our SHIELD formation package.
International clients sometimes have a need to ensure that their company is clearly managed and directed from the UK. This is not only to demonstrate residency compliance for taxation but to evidence location status for operations in other countries. Use of a UK director can provide that assurance.
In addition there are some UK, EU and international regulatory requirements, particularly relating to financial services, investments and money transfers that can be more easily provided by professionally experienced UK directors – for example as lawyers, accountants, and consultants regulated by UK professional bodies.
Such directors are more than renting out their name as front men. They are offering their professional reputation and standing to a company. With that at risk they inevitably need to take a more active role and they monitor how a company conducts itself. They also provide an UK face to protect a client’s business when a response is required to enquiries from outside of the UK.
We associate this level of director with our PROTECTOR formation package.
By definition a mentor is involved in a personal development relationship where his possession of more experience, or more knowledge, is used to guide a less experienced, or less knowledgeable, person.
We have applied this concept to international clients that seek to operate from the UK. It is no reflection on our client’s ability that they may not know the UK and its laws and business systems. What we describe as a mentor director introduces the idea of our clients having UK support to their interests from our UK face and from our advice when they need it. The overall objective is simply to leave a client to run their business.
All directors are required to operate in the best interests of the company. This objective does not exclusively refer solely to the interests of the owners. For example clients may be very experienced in their own country. Generally they have been successfully operating in their own business culture. However that culture may not work as well in the UK. A mentor director is required to reconcile a client’s business culture with best practice in the UK.
We believe that this mentor support requires attention beyond requirements of compliance or business practice. We can offer international experience in a range of business activities. We understand different business cultures and how they relate to the UK. It also demands an active role and a mentor director is best placed to provide a convincing UK face to a client’s interests.
We associate this level of director with our MENTOR formation package.
Nominee as Company Secretary
The nominee company secretary will normally be provided by a specialist company. Nominee secretaries do not usually have an active role or function in the actual running of the company but can add value to your company formation.
Nominees and transparency
Nominees lend their names as an alternative to the names of others. Nominees feature in the public record of a company, so that the other names do not. This purpose would seem far removed from transparency.
There are many good commercial reasons for using alternative identities, within a system that has supported the practice for many decades. However in modern times serious issues like money laundering and requirements of banking impact on this.
Nominee agreements provide evidence of the background to arrangements. Whilst there is no requirement for placing these in the public domain, such documentation can be shown in confidence to banks and others on enquiry if the parties involved permit this.