Many owners of foreign companies use nominee services. These are an instrument of protecting the company owner’s confidentiality in the first place. In addition, nominees can help save on taxes in some cases and provide opportunities for remote business management. A nominee company director has a limited scope of authority and acts on the company owner’s instructions.
Below we describe the essence of nominee services and the functions of nominees. Besides, we discuss the ways of protecting yourself from the risks associated with appointing nominees and point out why you can benefit from hiring nominee company directors and shareholders.
What is the essence of nominee services?
A nominee company director does not have the authority to manage the company: he or she is the company director only in the documents. The company’s true owner makes the strategic decisions and manages the company in reality. The same goes for a nominee shareholder: he or she is a company shareholder only on paper while the ownership shares belong to the true company owner in reality. Sometimes, nominee company secretaries are appointed too. This is done when the legislation of the country where the company is domiciled requires that all companies have local residents as secretaries.
Nominees do not make their own managerial decisions and neither do they have any voting rights when Board of Directors’ meetings are held. At the same time, various public registers and corporate documents contain their personal names. Contracts signed on behalf of the company also carry their signatures. You can find out how nominees affect corporate health at this page.
Who may need nominee services?
Business owners use nominee services to solve the following tasks:
- Register a new company or a subsidiary of an existing company in a foreign country whose legislation requires that all companies have resident directors and/ or resident shareholders. The list of such countries includes Liechtenstein, Luxembourg, Ireland, Switzerland, and a number of offshore zones. Residents of Luxembourg are well-off indeed and this is because every adult person is a director of a few foreign companies at a time in that jurisdiction.
- Optimize taxes. Even if the laws of the foreign country do not require that the company have a local director, hiring a local person as a nominee director can simplify the process of registering the company in the country. In addition, a domestic company (whose director is a local person) may have access to beneficial taxation regimes unavailable to foreign companies. In some countries, subsidiaries of foreign companies are granted better tax conditions if they are headed by local residents (on paper).
- Open a foreign bank account. In some countries, banks won’t open accounts for foreign nationals or foreign companies. If the company director is a local person, setting up a corporate bank account in the country is not going to be a problem.
- Protect confidentiality of company ownership information. In some countries, Business Registers are open to the public. If you do not want your competitors or your greedy relatives to know that you own a company in one of such countries, you can hire nominees. There is one more good reason to keep your company ownership secret: if your business project fails, your reputation won’t suffer: nobody will know that the failure is yours!
- Manage the company remotely. If you have a company with a nominee director in a foreign country, you can manage it from home. The nominee’s signature is needed on the contracts, not yours. You can give instructions where to put the signature, and the nominee will follow them.
Advantages of nominee services
In some cases, using nominee services is the only opportunity to register a company in a foreign country and keep its management in your hands. If the local legislation requires that all companies have resident directors, you have only two options: to hire a nominee director or become a citizen of the foreign country. The latter option looks much more troublesome and costly.
We would like to make a special note on company ownership confidentiality. True, in some countries such as Great Britain, for example, Business Registers are available to the public and hiding behind a nominee company director/ shareholder is an attractive opportunity indeed. You have to realize, however, that you can hide your name only from the public, not from law enforcement agencies or fiscal authorities. If somebody sues your company, your name will have to come out.
You can also lessen your fiscal burden with the help of a nominee company director. In Cyprus, for instance, the company is eligible to use the advantages of double taxation avoidance treaties if it has a resident of the country as its director.
Another advantage that you can gain with the help of a nominee is the opportunity to make an agreement between two companies that belong to the same person. It’s a way of avoiding putting the same signature on both sides of the contract.
Finally, you could score some reputational points too. Suppose you register a company in one of the highly reputable G7 countries and appoint a local person company director. Your clients and investors will be inclined to put more trust into your company.
Responsibilities of nominees
There are three main positions to which nominees are usually hired: company director, secretary, and shareholder. Let’s discuss the responsibilities of each of them.
Nominee director
The nominee director puts his/ her signature on the contracts, financial documents, tax returns, and all other corporate documents. In addition to that, nominee company directors share their personal data with business registers as well as registers of other types. If you wish, you can enlarge the scope of the nominee’s authorities.
Nominee secretary
In Cyprus, Hong Kong, and Singapore, for example, all companies have to have local secretaries. The company secretary can be a nominal secretary exclusively or you can entrust him/ her with some secretarial duties for an extra pay.
Nominee shareholder
A nominee shareholder is a company co-owner only for the register. A trust declaration defines who owns the shares de facto.
How safe are nominee services?
There are several things you can do to protect yourself from possible misconduct on the part of the nominees:
- Use professional nominee service providers with a good reputation;
- Explicitly limit the scope of the nominee’s authority in the company By-laws and other corporate documents;
- Have a letter of resignation with an open date signed by the nominee. If he or she misbehaves, you can put any date on the resignation letter.
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Should you use nominee services?
In some situations, you could not avoid hiring a nominee for your foreign companies. Some national legislations require that any company have a resident director and/ or secretary. In some other situations, nominees can bring substantial benefits such as protecting the confidentiality of your personal information. Besides, a nominee director of a foreign company is a handy instrument of remote company management.
Without doubt, some risks are associated with using nominee services but the advantages that they bring outweigh their disadvantages in most cases.