Should You Use a Nominee Service for Your Offshore Company?

The utilization of offshore companies is widespread around the world due to the advantages of tax flexibility and anonymity and even though the knowledge of anonymity happens to be changing value, the usage of nominee services remains relatively unchanged and still very popular. Corporate service providers are often asked by clients to provide their newly registered offshore company with nominee directors or shareholders

So, let’s check out advantages and disadvantages of using nominee services for offshore companies.

What is a Nominee Service?

A Nominee service is a legal method of protecting the identification and anonymity of the company owner. The nominee director or shareholder could be an actual person or a legal entity working out fiduciary responsibilities over the company. The nominees come in the state register as a company director or shareholder, but, actually, all their activities are limited by the owner’s guidelines and the specified nominees usually do not manage the company. Depending on the kind of agreement, the owner may grant authority to perform the business, manage the company and/or even open up and manage bank accounts. Typically nominees just formally represent the company, however, remain liable respect of any functions or omissions.

It is important to remember, that the law does not recognize the concept of “nominee director” or “nominee shareholder”. As such, if a person or company is appointed as a director, all the duties and liabilities will be imposed on the nominee officer.

The main function of nominee directors or shareholders is to maintain the anonymity of the real owner by taking their place in all public records relating to the company and non-governmental bodies. At the same time, if the company’s owner intends to hide his identity from governmental bodies, e.g. tax authorities, then this will not work.

The nominee director should not be confused with the local resident director that is required to be appointed by law for the company formation in certain jurisdictions. Usually, resident directors are required for registration of companies in Singapore or New Zealand.

When are Nominee Services Used?

Company owners tend to use nominee services for the following purposes:

• To ensure the anonymity of the ownership for non-governmental bodies and safeguard disclosure of ownership information in case of public inquiry.
• To ensure the anonymity for making business deals and signing agreements.
• When the personal presence of the company director is required to conduct business in another country and the beneficial owner does not have an opportunity to travel.
• In order to prevent lawful restrictions on deals between affiliate bodies. This option is useful for the transfer of assets within a holding company.
• When it is necessary to extend the statutory bodies by the right amount of members

One vital indicate note may be the appointment of nominee bank account signatories. Generally, fiduciary service providers usually do not manage the accounts of their clients as nominee signatories. It is because such services are connected with having a higher risk for both client and nominal officer. First of all, in the case of appointment of nominee signatory, the company owner won’t have control over his company’s funds. Subsequently, the nominee officer bears complete responsibility for the funds in the company’s accounts, which can be considered to be risky. Therefore, such nominee services are charged separately and likewise to the bank’s charges, the owner can pay an extra nominee fee, which may be extremely expensive if the company makes a whole lot of bank transfers.

Also, even regarding using nominee signatory, almost all banks will still require disclosure of the true owner of the company and also to hide the owner’s identity through the use of nominee signatory is illegal.

Given the high risk and cost of nominee signatory services along with the availability of secure, remote usage of accounts through e-banking systems, generally, you don’t have to appoint a nominee signatory.

How Does it Work?

If you are prepared to arrange nominee services for your offshore company, a specialist corporate company will give you with a complete group of corporate files including relevant documentation for your legal safety. These files are the following:

Signed by the nominee shareholder and undated Share Transfer

This document will allow the owner of the company to immediately sign over the ownership of the company.

Management Services Agreement

This document will govern all commercial and managerial arrangements between the beneficial owner and nominees.

Nominee Shareholder’s Declaration of Trust

It is a document that outlines who the nominee is, how many shares he holds, and who he holds the shares for.

General Power of Attorney signed by the nominee director

The beneficiary has the right to control and legally act on behalf of the company as an authorized representative with full rights.

Signed and undated Meeting Minutes for transfer of shareholder or director/secretary resignation and Signed by the Secretary or Director and undated Secretary’s or Director’s Resignation Notification

Undated Meeting Minutes and Resignation letters allow the owner to effect the resignation of a nominee shareholder, director or secretary.

As well as the above files, corporate service providers occasionally furnish their clients with a Consultancy Agreement in order to create transparent arrangements in terms of an owner’s business relations with his company. The Expression of Wishes is also a commonly used document for setting out relations between the beneficial owner and nominees in the event of the owner’s death or incapacity.

What is Important to Remember about Nominee Services?

We suggest our clients never to use nominee services if it’s unnecessary also to consider all of the benefits and drawbacks before ordering such service. If you’re planning to form an offshore company with nominee services, you should look for the professional help of an established corporate service provider and who will always warn you in advance of all advantages and disadvantages of your choice. For example, the current presence of a nominee director will take off the chance of starting a bank-account in Hong Kong or Singapore.

You also have to remember to ask how your ownership and legal rights will be protected and which documentation will be provided in order to safeguard the real ownership of the company from the encroachments of the nominees. And of course, it will be considerably more expensive to form a company with nominee services

By: Starting Business