Nominees: Overview, definition, and example
What are nominees?
Nominees refer to individuals or entities that are appointed to act on behalf of another person, typically for a specific purpose or transaction. In business and legal contexts, nominees are often used to represent shareholders, directors, or other stakeholders in certain matters without being the actual beneficial owner. For example, a nominee may hold shares in a company on behalf of the actual shareholder or may act as a placeholder in a legal structure for various administrative or privacy reasons.
Why are nominees important?
Nominees are important because they provide flexibility and privacy for individuals or entities involved in business transactions. They are often used in situations where the beneficial owner wishes to remain anonymous or where local laws require a specific representative for certain roles, such as directors in a foreign company. Using nominees can help streamline business operations, protect the identity of the actual owner, and ensure compliance with regulatory or legal requirements. However, it is essential to clarify the responsibilities and rights of the nominee to avoid confusion or legal disputes.
Understanding nominees through an example
Imagine a foreign investor who wishes to buy shares in a company in a country where foreign ownership is restricted. The investor might appoint a local nominee to hold the shares on their behalf. The nominee, in this case, acts as the registered shareholder but does not have any beneficial interest in the shares. The actual investor retains the economic benefits, such as dividends or capital gains, through an agreement with the nominee, ensuring that they maintain control over the shares while complying with local laws.
In another example, a company may appoint a nominee director in a jurisdiction where local laws require a certain number of directors to be residents of that country. The nominee director holds the position but does not actively participate in the management of the company. The real owners or managers of the company continue to control the operations, but the nominee director ensures compliance with local regulations.
An example of a nominee clause
Here’s how a clause related to nominees might look in a contract:
“The Nominee shall hold the shares in trust for the Beneficial Owner and shall act solely in accordance with the instructions of the Beneficial Owner. The Nominee shall have no right to vote, transfer, or dispose of the shares except in accordance with the Beneficial Owner’s directions.”
Conclusion
Nominees are a useful legal and business tool for representing individuals or entities in specific roles or transactions while protecting the actual beneficial owner’s identity or ensuring compliance with legal requirements. Whether for shareholding, directorship, or other administrative functions, the use of nominees helps maintain privacy, streamline operations, and ensure that business activities align with local laws. Proper agreements must be in place to clarify the rights, responsibilities, and limitations of the nominee to avoid conflicts or misunderstandings.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.