Nominee Director and Nominee Shareholder: Are They the Same?
Have you ever incorporated an overseas company? Or are you planning to incorporate an overseas business soon? If yes, then chances are you have already heard of the terms “nominee director” and “nominee shareholder.” For many people outside the business world, these terms seem to refer to the same thing, as they function in basically the same way – as representatives.
However, if you look closely into their specific functions and roles, you will learn that a nominee director is not the same as a nominee shareholder. And as an entrepreneur who plans to begin an overseas business, it is crucial for you to know who is who. Read on to find out the major differences between a nominee director and a nominee shareholder.
What is a nominee director?
A nominee director is a person who acts on behalf of another person or entity in a company. They are appointed by anyone with a substantial interest in the company, such as a shareholder, investor, bank, creditor, or any other interest group. The agreement between the appointer and the nominee is usually made contractually or through a resolution made during a company conference.
Functions of a nominee director
Appointing a nominee director is a mandatory requirement for some countries, such as Singapore, when you start an overseas company. These countries require that a resident non-executive director be appointed by the non-resident beneficial owner of the overseas company to represent them on the board of directors.
The non-executive nominee director should be actively engaged in the company’s regular business so that, in a sense, they fill the beneficial owner’s position. This means that the nominee director can sign contracts, make invoices, and perform other functions as if they are the owner of the overseas business. But of course, all these are done in accordance with the directives and intentions of the appointor.
The participation of the nominee director in the company is formal. They are compensated with a fixed nominee director fee for their rendered services. In Singapore, nominee director fees are charged according to the services provided by the nominee to the company. Most of the time, people or companies do not appoint a nominee director directly. Instead, they do so through firms that provide such services.
What is a nominee shareholder?
A nominee shareholder acts as the apparent shareholder who holds a company’s shares on behalf of the beneficial owner. They are often appointed by a company shareholder who does not want their shares to be registered under their name and who wishes to remain anonymous. A nominee shareholder usually acts in accordance with the stipulations of a custodial agreement called the Declaration of Trust.
Functions of a nominee shareholder
The main reason a nominee shareholder is appointed is to maintain the anonymity of the beneficial owner and shield them from publicly associating with a company’s affairs. The duties, responsibilities, and assertions of the nominee shareholder are usually expressly provided in the Declaration of Trust.
The agreement also shows the total number of shares held by the nominee and includes a clause declaring that the beneficial owner retains the rights over the said shares. Hence, the role of the nominee shareholder is limited to simply holding the beneficial owner’s shares by having them registered under their name. Like nominee directors, nominee shareholders are also often appointed indirectly, with the help of a firm providing nominee services.
Why appoint a nominee director or a nominee shareholder?
There are different valid reasons for appointing a nominee director or a nominee shareholder. However, the most common and significant reasons are to keep one’s identity as a company owner confidential and to comply with the requirement in many countries that companies should have at least one director who is a local resident.
Additionally, if you plan to expand your business into a new sector, using a nominee arrangement can help you delay or prevent other entrepreneurs from discovering that your business is in direct competition with them. However, although there are many advantages in appointing nominee directors and nominee shareholders, there can also be several pitfalls.
For one, you may lose ownership of your shares, lose the confidentiality of your identity, and suffer from the consequences of unauthorised actions if the nominee becomes uncontactable, discloses the nominee arrangement to other people, or does things contrary to their duties and your intentions. To avoid these risks and pitfalls, it is necessary to always get professional advice and have written proof of your arrangements.
While they function similarly, a nominee director is not the same as a nominee shareholder. A nominee director acts as the director of a company on your behalf. In contrast, a nominee shareholder merely lends you their name to serve as the registered owner of a company’s shares.
Do note that it is legal to appoint these representatives. However, to avoid the risks that come with nominee directors and nominee shareholders, make sure that the necessary documents are always written, signed, and handed over to you. Moreover, it is best to involve a third-party firm that will assist you in setting up the agreement with the nominee.
For the most reliable nominee director services in Singapore, OneStop Professional Services is the firm you should work with! We offer a wide array of valuable corporate services, ranging from auditing and accounting services to nominee director and company secretary services. Contact us today to learn more about our services and how we can help you meet your business needs.