Here you can read Turner Little’s latest article on the legality of using a Nominee Directors when setting up a company abroad.
The majority of jurisdictions around the world stipulate that a Limited Company, where such an entity is allowed, must have one or more Directors appointed on each Company. The actual number varies by jurisdiction. In some jurisdictions, notably the UK, it is also required that the director be a real person; that is, not a corporate entity which was allowed until fairly recently.
There are situations where it is desirable for the persons in direct control of day to day management of a company not to be in the public domain. It is in these circumstances that someone may wish to use a Nominee Director. The use of such a person is not illegal though it should be made clear that the UK does not recognise a Nominee Director per se. In the UK if you are appointed a director then you are a director. Whilst the UK takes this stance it rather perversely does have a situation where it recognises that persons are acting as ‘shadow directors’; i.e. they are acting as directors even though not appointed as such. The reality is that they can only do this if they do it through a Nominee Director, i.e. a director they control.
Although the concept of Nominee Services generates much criticism in some quarters, and whilst the media choose to generally link the use of Nominees with tax avoidance, fraud and general wrongdoing, the fact is that the use of nominees is perfectly legal and in some cases both advisable and indeed necessary. Whilst it may provide benefits it can also be disadvantageous and comes with some risk attached.
Nominee
Why use a Nominee? More often than not a Nominee is appointed to provide anonymity to the real person in control.
Why might a person desire anonymity? Well, aside from the fact that we all, each and every one of us, have the right to privacy enshrined in law, there are many reasons. One person may simply not want his family to see what he has, another may want not want anyone able to see what he has. Another may not want his competitors in business to know that it is he who is competing with them; maybe they simply don’t know he operates in their field and he wants to keep it that way. There are lots and lots of reasons and all of them legal at that. Of course the use of nominees is open to abuse and misuse, what isn’t? The fact is that Due Diligence and Anti-Money Laundering procedures are undertaken on virtually every client now forming companies be it in the UK or overseas and these checks are stringent and very thoroughly carried out. Part of these procedures includes finding out the reasons for requiring nominees, or establishing whether the term “Nominee” will actually relate to the Company in question. For example, some people may need to appoint a Nominee Director simply because the jurisdiction in which they have their company requires that any director appointed be a resident of that jurisdiction. Believe it or not, this applies to the Isle of Man. Such an appointment would simply be to satisfy legislation. Maintaining the company in accordance with the relevant local legislative administrative requirements by a local resident and leaving the Principal free to conduct the day to day activities of the Company in another country may be another reason. This practice is popular amongst business owners who trade with companies that are domiciled in countries with different time zones.
Another reason for employing nominees can be for the purpose of establishing and branding a global corporate image for the company in question. For example, a U.K. business expanding into overseas territories may wish to establish a subsidiary to trade overseas that will utilise a Nominee to act as Director. Although the U.K. individual would administer the day to day running of the parent Company, the Nominee of the overseas subsidiary is in place to execute any documentation relating to the trade and in some cases provide local correspondence from the overseas Company to the head office in the U.K. or indeed direct to overseas clients in other jurisdictions.
Provided that this practice is not prohibited in the jurisdiction in which a Company is incorporated, or the jurisdiction from which the Nominee services will be applied, a Nominee Director or even shareholder can be appointed. Such appointments come with a raft of legal documents both to ensure that nothing illegal is done by the nominee and to give them protection as well as to afford the same to the principal involved and give him or her protection against some unauthorised act on the part of the Nominee.
Reputable Nominee Providers or Corporate Service Providers will ensure that these matters are always conducted in the correct manner not least because they must exercise due diligence in their dealings. This is a heavily regulated sector and for one’s own security clients should only deal with a registered and regulated provider. Such providers will always ensure that the Nominated Director is supplied with a full business plan for the Company and ensure that any transactions conducted by the Nominee are effected in accordance with law by undertaking due diligence on a transactional basis.
In summary, the use of Nominees is in itself, perfectly legal and it is important not to rule out the possible use of Nominee Directors without considering all the factors.
Turner Little
Contact Turner Little on 01904 783101 should you wish to discuss the use of Nominee Director services in greater detail.
