A nominee shareholder is an individual or a corporate entity that holds shares in a company on behalf of someone else. Some choose to appoint a nominee if they wish to purchase, own, sell, or transfer shares anonymously and keep their details off the public register of companies. In certain situations, there are also administrative advantages to using a nominee.
Below, we explain the purpose and role of a nominee shareholder, the extent of their rights and obligations, and the importance of drafting a declaration of trust to protect the interests of the actual shareholder.
The purpose of a nominee shareholder
A nominee shareholder is a shareholder in name only. By holding shares on behalf of the beneficial owner (the actual shareholder), the nominee’s details are recorded in the company’s statutory register of members and the public register at Companies House. However, the nominee has no power or entitlements in relation to the shares.
The beneficial owner maintains all legal rights and obligations associated with their shareholdings, just as they would if they were the registered owner. These typically include the right to:
- attend general meetings
- vote on company resolutions
- receive dividend payments
- receive capital distributions
- sell or transfer the shares
Nominees are most commonly used to protect the identity and privacy of beneficial owners. Since the nominee is the registered shareholder on all publicly available documents, the actual shareholder’s involvement in the company remains confidential.
Other common reasons for using a nominee include:
- facilitating business transactions – e.g. the transfer of shares or sale of a company
- simplifying the register of members and cap table in companies with multiple minority shareholders
- minimising the risk of lost business opportunities or time delays caused by transferring shares held by numerous investors
- enabling brokers and financial institutions to buy and sell shares more efficiently on behalf of clients
- complying with legal and regulatory requirements in certain jurisdictions
- holding shares on trust on behalf of minors or other beneficiaries
The nominee’s entries on the registers appear exactly like any other shareholder’s details. There are no annotations stating that they are a nominee. The share certificate is also issued in their name.
However, the nominee has no official position in the company or legal claim over the shares. They must always act on the instructions of the beneficial owner in accordance with the terms of a declaration of trust.
What is a declaration of trust?
A declaration of trust, also known as a deed of trust, is a legally binding agreement that specifies the terms under which assets such as shares or real estate are held on trust by one party for the benefit of another.
Under a declaration of trust over company shares, the nominee shareholder confirms their agreement to hold specified shares on trust on behalf of the beneficial owner. The document defines and regulates the relationship, outlines both parties’ rights and obligations, and safeguards the actual shareholder’s interests.
This agreement ensures the nominee has no power or discretion to act in relation to any rights attached to the shares. It typically states that the nominee must:
- exercise voting rights attached to shares in accordance with the beneficial owner’s instructions
- hold dividend payments and other distributions in trust for the actual shareholder
- transfer any such funds upon request
- sell or transfer the shares on the instruction of the beneficial owner
The declaration of trust is crucial because, as far as companies are concerned, registered shareholders can exercise all rights attached to the shares they hold.
Without such an agreement in place, the nominee (rather than the beneficial owner) would also be liable for any payments owed on the shares, tax due on dividends and other distributions, and tax on profits upon the sale or transfer of the shares.
To ensure the declaration of trust is drafted properly, you should seek professional advice and assistance from a solicitor. Periodic reviews of the terms of the agreement are also recommended, with amendments carried out where necessary. This ensures continued compliance with any changes in law or the company itself.
Who can act as a nominee shareholder?
An individual person or a corporate entity (e.g. a company) can act as a nominee shareholder. Depending on the circumstances of the investment, a shareholder may appoint any of the following to hold shares on their behalf:
- friend or family member
- stockbroker, bank, or other financial institution
- trusted advisor, such as an accountant or solicitor
- another company – e.g. a subsidiary or holding company set up for the sole purpose of acting as a nominee
- professional company secretary
- commercial provider of nominee services
Due diligence is important when deciding who to use as a nominee shareholder. You must also ensure you have the person’s permission and a well-drafted declaration of trust in place beforehand.
Do nominee shareholders appear on the PSC register?
Following the implementation of The Register of People with Significant Control Regulations 2016, UK companies must maintain a register of people with significant control (a ‘PSC register’). This must include the details of any person who directly or indirectly holds more than 25% of the shares or voting rights in the company.
Consequently, if the beneficial owner of the shares is a person with significant control (a ‘PSC’), their details must be provided to Companies House and publicly disclosed on the PSC register. The nominee shareholder cannot replace the beneficial shareholder on the PSC register.
These rules affect the ability of certain shareholders to maintain anonymity regarding their involvement in any company in which they are a PSC, even when their shares are held by a nominee. Under such circumstances, using a nominee shareholder is of little benefit for protecting the beneficial owner’s identity.
Difference between a nominee shareholder and a shareholder proxy
A nominee shareholder is not the same as a shareholder proxy. A proxy is someone a shareholder appoints to stand in for them at a general meeting when they cannot attend.
Once appointed, the proxy can exercise the shareholder’s rights to attend, speak, and vote on company resolutions at the specified general meeting. The shareholder may instruct the proxy to vote in a particular way or abstain on certain matters, or they may stipulate that the proxy has full discretion to vote as they wish.
How are nominee shareholders treated for tax purposes?
The beneficial owner of the shares is responsible for any taxes associated with the shares held by their nominee. This includes tax on dividends and other distributions, as well as Income Tax or Capital Gains Tax on the disposal of shares.
The declaration of trust should clarify these tax implications. The beneficial owner is then responsible for declaring and paying tax on any income they receive from their shares by filing a Self Assessment tax return.
How to appoint a nominee to hold shares on your behalf
Nominee shareholders can be appointed at any time during or after the incorporation of a company. You can choose someone you know to act as a nominee, providing they agree to do so. Alternatively, you can purchase a professional nominee service from a reputable provider.
Whomever you choose, you should consult a solicitor to draft or review the declaration of trust to ensure your interests and legal rights are fully protected under the arrangement. Professional nominee service providers typically include declarations of trust as part of their service.
Be aware that if you hold the shares in your own name at any point before appointing a nominee, your name will appear in historic company filings as the registered shareholder. This is worth bearing in mind if your sole reason for appointing a nominee is to protect your privacy or conceal your involvement in a particular company.
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If you are considering using a nominee shareholder for any reason, we advise seeking legal advice before doing so. This will ensure the protection of your investments and shareholder rights.
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