What is a nominee shareholder?
A nominee shareholder is a person who represents the interests of another person in the securities market without the right to own them. The first attorneys arose as a phenomenon in the early years of privatization.
The shareholder was legalized later. Their occurrence was in the obstacles that issuers created when registering new shareholders and drawing up a shareholder agreement; this led to the unification of the owners of securities and the separation from their midst of a delegate who defended their rights and represented their interests.
Later their place was taken, who was specially hired specialists, professionals in this field.
Due to this phenomenon’s short period of existence in the economy, the legal framework is under development and provides a fairly wide scope for interpretation.
Who can be a shareholder?
The person representing the interests of shareholders in this sector of the economy can be the following categories of citizens:
- Depositary. This is a market participant who has the right and the ability, confirmed by a license, to store and account for shares. The depositary can only be a person registered as an individual entrepreneur. The actual holder of the securities or the investor is obliged to register the depositary in the registry system.
- Broker. It is a kind of intermediate link between the seller and the buyer of shares. It can be both a legal entity and an individual. A depository license is required to conduct this type of activity.
A broker cannot be a shareholder but can be entered in the registry system as such.
Their actions can be carried out based on a nominee shareholder agreement (assumes work for a percentage of the conclusion of transactions) or a commission agreement (in this case, the broker is an attorney, and his registration in the register is not required).
The essence of the relationship between the employer and the holder of shares should be reflected in the agreement, which is concluded between the owner of the securities and their attorney.
The contract specifies the following:
- Remuneration of the attorney.
- Authority in actions with shares that are delegated to them.
- Intended Accounts and Responsibilities of the Holder.
A nominee shareholder has the following responsibilities:
- Shares must be registered in off-balance-sheet accounts; this means that the shares cannot be used to pay off their debt obligations in the event of the attorney’s bankruptcy and the seizure of their property.
- Return of shares to their rightful owner and complete transfer of control upon request within seven days. Regardless of the text of the agreement, it can be terminated at any time unilaterally.
- Acting solely in the interests of the employer. A certain range of free decision-making is possible depending on the drawn-up agreement; however, these decisions must contain an objective and obvious benefit for the owner of the shares.
- Maintaining confidentiality and preventing disclosing information about the employer, the state of their affairs, and their account.
- Providing information to the owner of shares about all operations performed at his first request.
Also, modern laws provide for the impossibility of transferring shares into full ownership; this means that no matter how illiterate and vague the contract was drawn up, the owner’s rights remain protected.
What are the functions of shareholders?
They turn to the services to register or formalize a foreign company, keep the names of real shareholders secret and prevent the possibility of establishing a connection between them and the offshore firm. Moreover, the use of a nominee service does not contradict the laws of most countries of the world.
An individual or legal entity can appear as a shareholder. This person will nominally own the firm’s shares; this does not mean the actual ownership, but when the nominee shareholder only acts on behalf of the foreign firm owned by the agreement. In turn, the firm owner can change the shareholder at any time without consequences for the firm.
The shareholder has no clear functional responsibilities. The only thing required of them is to agree to the inclusion of their name and surname in the list of shareholders. At the same time, the par has no legal property rights to shares.
Documenting the relationship with the nominee shareholder
The nominee shareholder signs a general power of attorney with the firm owner and draws up an agreement, which makes it possible to legally manage the firm, work with bank accounts, put a visa on documents and represent the interests of the firm. A non-trade declaration serves as a guarantee that the firm does not trade. And to be able to change the shareholder at any time, the director of the firm signs a resignation letter with him without dates.
Also, an agreement is drawn up for a shareholder; it is also a declaration of confidence. It says that the face value acts as a formal holder of shares and cannot dispose of them at its discretion without the firm owner’s consent. The annex to the agreement indicates the exact number of shares under the formal control of the shareholder, the dates of their issue, and information about the specific individual in whose favor the par value owns the block of shares. There can be more than one agreement according to the number of ultimate owners of the firm.
Organizational and legal features of work
Offshore operation requires the obligatory opening of a bank account. If the firm has turned to nominee services, then the real owner of the firm will need to be present when signing an agreement with the bank. Also, the bank will need to provide an agreement and a document that confirms the identity of the beneficiary of the firm. At the same time, a shareholder will not be able to access the management of a bank account, account, will not know passwords, or have signing rights. In most cases, even the bank account number is unknown to the par.