The appointment of a Nominee Shareholder commences after the incorporation and documentation of a company’s information. The Nominee Shareholder’s name will appear on the incorporation documents under the shareholder’s details.
The Nominee Shareholder is chosen to keep the beneficial shareholder’s information away from public records. But, he is required to file an Annual Return to update the Companies House with the new Shareholder Information. It is a legal requirement to update the changes within your company. The Nominee Shareholder does not get involved in running the business.
All you need to register a Nominee Shareholder is the Beneficial Owner’s Name, Address, and the number and value of shares you wish to allocate the Nominee for the relevant documentation.
Who is a Nominee Shareholder
A Nominee Shareholder is someone who lends his name to you to act as the registered owner of company shares. He will appear to be the owner of the shares, and you keep the secret arrangement. If the appointment is executed correctly, the beneficial owner will retain all the rights and benefits of the shares, such as voting at general meetings, receiving dividends, and rights to sell the shares.
A Nominee Shareholder can be a corporate or an individual authorised by the shareowner. Individuals with shares are not only for the Singapore citizens, but those holding Employment Pass, Permanent Resident Employment Pass, or Dependent Pass. Under Singapore law, nominating a company shareholder is legal when the arrangement has legitimate reasons.
Nominee shareholders are family members, trusted friends, accountants, or lawyers. He is appointed together with a Nominee Director. A Nominee Shareholder also acts as a director, and they are usually the same person.
This agreement is legal under Singapore law if used for legitimate reasons. The beneficial owner’s identity is recorded in the Accounting and Corporate Regulatory Authority (ACRA) and the Inland Revenue Authority of Singapore.
Authorising a Nominee Shareholder
Anybody in Singapore can easily search for the company shareholders and directors. For a minimal cost, you can access the personal facts of the shareholders and directors.
The ACRA will only have the name of the nominee shareholder in their register. This advantage will let the shareowner have absolute anonymity while enjoying the nominee shareholder’s share.
Many nominee shareholders and directors are appointed without proof of their arrangement. Beneficial owners only rely on gentlemen’s agreement with nominees. While appointing a nominee shareholder, you can keep the beneficial owner’s details confidential without any risk. Therefore consider professionally designating a Nominees Shareholder to protect your interest because of these possibilities:
- The Nominee Shareholder will assume and claim the share as a gift.
- He demands unreasonably enormous payment for his appointment.
- If the Nominee Shareholder passes away, his heirs will undertake the shares as property of the departed.
- The Nominee Shareholder loses cognitive capability, and his heirs assume shares as mentally incapacitated individual property.
- You lose track of the Nominee Shareholder.
- The Nominee Shareholder sells shares or uses his share to secure a loan and makes business judgments without your approval.
- The Nominee Shareholder divulges your agreement to others.
In every single one of these cases, you endanger:
- Relinquishing ownership of the shares.
- Yielding your anonymity to the public.
- Negotiating with undesired consequences.
- Legal costs and lawsuits.
Need for Nominee Agreement
As a declaration of trust, execute a nominee agreement when appointing a Nominee Shareholder. Both the beneficial shareholder and the nominee shareholder will sign these agreements. It must mention that the Nominee Shareholder is not the lawful owner and has no authority over the shares. The nominee agreement should also articulate that all capital and income remunerations on the shares belong to the beneficial owner. Repaying and assigning of shares can only be executed upon the owner’s instructions.
To ensure that the shares are transferred to you even if the nominee refuses to arrange a share transfer, obtain a signed but undated share transfer for you. You can keep the share certificates with you if you have a private limited company.
There are other ways of doing this by using a call option or loan agreements. However, these are more complicated and suitable for countries that do not recognise the nominee structures.
Have a properly-written document signed by the nominee director that he will only act on your instructions. He may act on behalf of the company in signing contracts and opening bank accounts. An undated letter of resignation with his signature will protect your company against claims. It is also easier to remove him at the appropriate time.
Given the risks, it is essential to use a well-written document to record the nominee shareholder and nominee directors.