One of the main disadvantages of using a nominee in this prominent role is that the shadow director may find it difficult to prove that they are actually running the company and that they also have total ownership. UK Banks will typically perform a Companies House search during the course of an entity applying for banking facilities with them. The results of course will show the company formation agent as director and not the person who actually engaged their services. Companies House has no provision for recording shadow directors or the deeds of indemnity or powers of attorney which support them. In the past some banks have insisted that the nominee director resign and be replaced with the actual person who will run the company. Different banks and indeed different branches of the same bank might respond to nominee directors in alternate ways. This may be due to differing interpretations of the relevant banking guidelines and their own internal money laundering procedures. Cost of the ServiceA further drawback to using a nominee director is the cost. The formation agent may sign an occasional document, but will not engage in the company in terms of its commercial business. It is not uncommon for a person who uses this service to not contact them at all, particularly in cases where they are able to secure a business bank account on their own. Signing DocumentsEven with a deed of indemnity, witnessed by a professional person, there might be some transactions which the company formation agent will not allow their nominees to enter in to. The agents will consider the merits of signing any document placed before them and weigh up the possible consequences before adding their signature. It is perhaps ironic that some new companies, by their very nature, might be engaged in some highly speculative and risky ventures. Some might be planning some form of e-commerce using online payment facilities which in turn, will require merchant services of some description. The risk of impropriety and the resultant consequences increases the nominee’s exposure. There have been cases where the agent has refused to sign a particular document or make a particular representation to a third party purporting to be the director of the business in question. The object of the person employing the nominee service has on some occasions been so that the registration agent can sign that specific document or make that specific representation. Obtaining AssurancesIt is certainly worth checking with a particular agent that they are willing to undertake the transactions which you may require them to complete before you engage their nominee services. Any such assurances provided should be obtained in writing. |
FAQs
One risk is being held accountable for any illegal activities or misconduct carried out by the company. If the company engages in fraudulent behavior or violates any laws, as a nominee director, you could potentially face legal consequences.
What are the risks of being a nominee director? ›
One risk is being held accountable for any illegal activities or misconduct carried out by the company. If the company engages in fraudulent behavior or violates any laws, as a nominee director, you could potentially face legal consequences.
Why use a nominee director? ›
For example, registered companies are listed on an official register along with their directors' names. Suppose you do not want your name listed on the register because of business-sensitive issues or confidentiality concerns. In this case, you can appoint a nominee director to replace you as the 'face' of the company.
What are the liabilities of nominee director? ›
Liabilities of a nominee director
Therefore, under Section 149(12) nominee directors are liable in respect of any acts of omission or commission by a company which had occurred with his knowledge, attributable through board processes, and with his consent or connivance or where he had not acted diligently.
What are the powers of a nominee director? ›
Nominee directors don't hold executive powers, so they're not responsible for the day-to-day running of the business. Nevertheless, they should understand their duty of care. What is duty of care? Duty of care requires nominee directors to act in good faith and make informed decisions in service of their organizations.
What are the disadvantages of a nominee? ›
Some of the disadvantages are:
- Risk and liability: By using nominee directors and shareholders, the owners may expose themselves and the company to potential risks and liabilities. ...
- Cost and trust: By using nominee directors and shareholders, the owners may incur additional costs and fees for their services.
They are required to act in the best interests of the company, exercise care and diligence, and ensure that the company complies with all relevant laws and regulations. Failure to fulfil these obligations can result in legal and financial consequences for both the nominee director and the appointing party.
What are the fiduciary duties of nominee directors? ›
The duty of the nominee director is to cast his vote towards the course of action best suited for the corporation, regardless of how such course may impact the interests of his appointing shareholder.
Do I need a nominee director? ›
As per Singapore's Companies Act, every Singapore company must have at least one resident director on their board of directors at all times. A nominee director can fulfil this requirement, provided they are a citizen or permanent resident of Singapore with a permanent address located in Singapore.
Is nominee director a beneficial owner? ›
It is therefore essential to determine the natural person(s) who ultimately own or control the entity (i.e., the beneficial owner). A director is a nominee director if they are a person under an obligation to act in accordance with the directions, instructions or wishes of another person.
If a nominee director wants to step down from the post, they may do so by writing a letter of resignation. However, the company must find a replacement before they quit as the law demands that companies must have one local director at all times.
What are the rights and duties of nominee director? ›
Purpose of Nominee Director
Additionally, the nominee director is tasked with fulfilling responsibilities towards the borrower company and its stakeholders. The nominee director is accountable for the institution or investor and also oversees the activities of the borrower company or investee.
Is a nominee director not an independent director? ›
The Nominee Director is a Non-Executive Non-Independent Director on the Board. He/she does not usually get remuneration from the company on whose Board he/she is appointed.
What are the risks of nominee director? ›
Although, the risks will always depend on specifics of the structure, these risks can include:
- personal liability of the nominee director for any loss to the company flowing from the breach of duties;
- criminal liability of the nominee director for breach of their director duties and/or insolvency law;
When you form a company, privacy may be a key factor for you and your business. Appointing a nominee director can help you achieve a certain level of privacy within your company as your directors name will be kept confidential and away from public record.
Why have a nominee director? ›
The nominee director is usually used to protect the identity and privacy of the beneficial owner of the company, or to comply with the local legal requirements for having a resident director in the country where the company operates.
What are the risks of becoming a director? ›
Where a director fails to comply with their duties they may be liable to, amongst others, customers, clients, suppliers, governmental authorities, the company and its members. If a director neglects to oversee the proper management of the company, they expose themselves to both civil and criminal actions.
Can a nominee director be removed? ›
Removing a Nominee Director: The Case
The relevant clause 15.3. 1(b) (albeit clumsily worded) provided that when a default notice is served '… each director, including themselves, appointed by the defaulting shareholder is automatically removed'.
What are the risks of nominee shareholders? ›
There is a significant Money Laundering risk involved with Nominee Shareholders and Directors as they are misused by criminals to conceal the true identity of the beneficial owners.
