Nominee service is a kind of service agreement that specifies that an individual is selected as a director or a shareholder of the company. The individual cannot have any say over their actions but must always act by the directions of the other shareholder(s), who are called the beneficial owners.

An individual most frequently comes across as a nominee shareholder when a stockbroker or a bank holds or purchases shares for a client. The nominee directors are selected as directors of the company in name only, and they don’t have the power of the proxy to control the company.

Companies can keep the identity of a company secretary or shareholder private with the help of nominee services. However, companies in the UK must provide the names of their company secretaries and shareholders. Such information is public and anyone can get access to the official website of Companies House. 

It is to be noted that a nominee shareholder in the UK owns nothing and is a shareholder only by name. The UK allows companies to appoint shareholders, but it is still up to them to decide what actions they want.

Nominee Shareholders in the UK

In the United Kingdom, the purpose of using nominees is confidentiality. Because of the confidentiality requirement, owners are reluctant to associate themselves with beneficial ownership, and the practice of nominating shareholders will hide their association.

Another important factor involved to have a nominee shareholder in the UK can be understood by the following scenario. Suppose a company is owned by a legal entity, which owns various other companies and, they’re all at the exact physical location and are frequently managed by the same people. Such a case provides a basis for creating a group of companies, where an organisation is formed under the guidance of a facilitator, which in turn associates with a nominee shareholder.

Beneficiary Owners

The ultimate owner or controller of a corporate entity is the entity’s legal owner or the entity that has the power to direct the entity’s activities, known as beneficiary owners.

Beneficiary owners are individuals who own shares in a company and may also be entitled to receive dividends. These owners are usually entitled to a share of the company’s profits. They are also known as equity holders and ordinary shareholders.

What’s the Difference Between a Beneficiary and a Nominee Shareholder?

A beneficial owner is interested in the shares and holds the legal title to the shares bought from a limited company. The owner has the option to remain anonymous, so it is possible to sign an individual as a nominee shareholder.

A beneficiary owner holds shares in a company and receives dividends or income. Still, a nominee shareholder’s name is used to hold the share certificates or in the company’s records.

Nominee shareholder does not own any shares, nor does they have an interest in the stocks/shares of the company. Their rights are limited to voting at meetings and being counted towards quorum. Nominee shareholders must sign a statement of trust that states that they will not take advantage of or have any claim over the shares.

Nominee shareholders don’t have the same voting power as regular shareholders because they are not part of the shareholder’s stock portfolio and don’t have an official position within the company.

The nominee shareholder’s interest in the partnership won’t entitle them to other assets or bank accounts. They don’t have the right to make critical decisions or sign contracts for the company controlled by limited liability. They are just a name on a stock certificate or any other document issued by the company that relates to its registration. So, to nominate someone for a board seat, you’ll need to make sure they are a nominee shareholder first.

Suppose you want to protect the interests of the original beneficiary shareholder. In that case, you can nominate a personal representative who doesn’t have any beneficial interests in the company.

Nominee Directors

Nominations for the board of directors can be made by the owners, management, or an independent committee that the owners have selected to oversee the company’s affairs.

A nominee director is an appointment made in name only, and they are assured to follow the directions of their principal. A company can appoint one of their directors as the nominee director to represent their interests at board meetings.

If a nominee director is misused, appointing the director is a considerable risk. Even though particular aspects of the organisation will always have an impact on the risks; these risks can consist of the following:

Nominee Director and Nominee Shareholder in the UK

The company appoints the nominee director to act on its behalf, who does not have a directorship of the company itself. On the other hand, the nominee shareholder has a shareholding in a company but has no right to vote or receive dividends from the company.

To nominate a director or shareholder, you need to complete and submit a nomination form to the company secretary or the company before the next annual general meeting.

However, you must make sure that the nominee director and nominee shareholder are not already directors or shareholders of the company. Suppose the nominee director is an existing director. It is the company’s liability to check that they have resigned from their current position with the company.

Suppose the nominee shareholder is an existing shareholder. In that case, the company should also check that they have sold their shares in the company.

The nominee director and nominee shareholder in the UK do not have any rights as directors or shareholders of the company. However, they can be given a right to receive dividends and information under the Companies Act 2006.

How Does a Nominee Shareholder in the UK Work?

A nominee shareholder in the UK performs no defined function. However, all nominee shareholders serve the same function: their names appear on the list of shareholders. Everyone will believe that the nominee shareholder is the legitimate owner of the stock. Furthermore, no one can tell if a shareholder is listed on the list as a nominee shareholder. The agreement to appoint a person as a nominee shareholder is solely between the company and the nominee shareholder.

Is it Reliable to Use a Nominee Shareholder?

Nominee shareholders do not receive all the benefits they are looking for. Therefore, your nominee shareholder in the UK is safe if a claim or lawsuit is filed against the company. Following are the ways your nominee shareholder is capable of:

  • The shareholder named as a nominee will only be a shareholder in the company’s name. There’s no reason to worry about the nominee shareholder owning the stock.
  • The name of the nominee shareholder may appear on the public list for viewing. Still, you will always be the owner of the shares and retain ownership rights.
  • Furthermore, while the nominee shareholder will have access to the property and the firm’s bank account, they will have no authority over the company. The beneficiary will constantly have the advantage in this situation and all rights.

If you have an agreement of trust, there is no reason for you to be worried. It’s easy to maintain your anonymity as an owner of the company.

Why Assign a Nominee Shareholder?

Shareholders can do a lot for your business. Appointing a shareholder gives them access to your business. It allows them to work from within to make your business successful. Following are the benefits that you’re likely to gain by appointing a nominee shareholder:

  • Appointing a nominee shareholder will help you protect your identity and your assets. Keeping your identity secret is a matter of choice. It may be to your advantage to keep your identity a secret if your life is in danger or your livelihood is at stake. 
  • In the UK, each piece of information is unveiled, including the names and addresses of those who own and manage corporations. Let’s suppose you are a shareholder in a company, and you want to keep it a secret for whatever reason. If this were a case of a company using its majority voting shares to keep a secret, a nominee shareholder would be your secret keeper. 
  • You may also choose to appoint a nominee shareholder to help manage your private information and prevent it from being shared or stolen.

Risks Involved in Using Nominee Shareholders

If you have a written agreement appointing a nominee, there won’t be any problems appointing someone as a nominee shareholder. Many nominees are appointed from within the family with a verbal contract, making it difficult to see if they have signed an agreement or contract.

Verbal contracts are just words that can’t be proven in a court of law. Therefore, there is no evidence that a verbal agreement between two parties can ever be proven.

How Can I Guarantee That I do not Risk my Shares’ Ownership?

We all know that some risks are unavoidable, but we can work hard to minimise them. You will be prepared for any challenge if you do thorough due diligence on your legal front. When appointing a nominee shareholder, it’s essential to have a legal document that can be used as proof of the appointment.

Additional Factors

It is essential to know about the laws and regulations governing the nominee service. A nominee service agreement is a contract between the nominee and the company, and this contract governs the relationship between them.

The contract also includes the rights and duties of both parties, and the nominee has no say in how they act. If there is any dispute regarding the agreement, the court will decide who has the right to act in the company.

The nominee can be appointed as a company shareholder by a shareholder or board of directors. The nominee service agreement can be terminated with or without cause. In this case, it will be the company that has the power to terminate the nominee’s contract. A nominee cannot exercise powers in the company unless they are allowed to do so.

A nominee has no right to share the company’s profits; the profit is for the company’s benefit. The nominee may be removed from the position if the company believes that the person is misbehaving or is abusing their position.

However, nominees must be aware of the following:

  • The company has its name and does not represent the nominee. It only provides services to the nominee.
  • The company is an independent entity and is under no obligation to provide any information or answer any questions to anyone regarding the company’s business.
  • The company does not control the nominee in any way, and the nominee must follow the company’s policies, procedures, rules, and guidelines.