United Kingdom Nominee Services

Nominee services (also known as mandatory services and sometimes as “bare trusts”) is where a person is appointed as director or shareholder having no discretion over their actions; they can only act in accordance with instructions from the beneficial owner. The situation in which people most commonly encounter nominee shareholding is where a bank or stockbroker buys or holds stock/shares for a client. In this case by default the shares will be held in the name of the broker or bank as nominee for their client. Nominee directors are individuals who are appointed as director in name alone and who either give full power of attorney back to the client to operate the company or who undertake to follow the instructions of beneficial owners. The use of nominee shareholders is widespread in all countries but the use of nominee directors is generally avoided however it is commonplace in the UK.

Nominee Shareholders
The main reason for the use of nominees in the UK is privacy. The UK registry is a matter of public record so it may be possible with little effort for a member of the public to identify the owners of a registered company taking little more than a Google search. In many beneficial owners' case the client may not wish to be publically associated with the company and the use of nominee shareholders will conceal their connection. Another consequence of nominee shareholding is that the client’s company is owned by a licensed nominee who also owns hundreds or perhaps thousands of other similar companies registered at the same address and frequently having the same directors. In this sense the company is part of a group of companies connected to a service provider which may identify or single out any one company. This may also be seen as negative since it creates an easily traceable route to a company which, for example, may specialise in low tax company formation and tax avoidance and this may not be desirable. This risk can be mitigated by using an accountancy or law firm as nominee but the connection will always exist and is a reputational consideration. On a more practical level it may delay a change in service providers if the incumbent nominees are reluctant to be replaced. Choice of a nominee should be made with regard to reputation, professionalism, as well as financial stability since in the event that a nominee company would go into liquidation it could be problematic to retrieve control of the shares. The holding of shares by nominee rather than in the name of the beneficial owner may also have numerous administrative advantages for example it will allow the nominee shareholder to attend or conduct Annual General Meetings (AGMs) in the client’s absence and more generally to act on the client’s spoken or email instruction to make changes to the structure or activity of the company without waiting for paper documents to be signed by the client. The use of nominee shareholders confers no tax advantage (by comparison with a trust or foundation for example which may give tax advantage). Since a nominee has no beneficial interest in the assets they hold any gains are directly attributable to the beneficial owner and will be taxable on him (this is a general principle but is also usually set out in the nominee declaration signed by the client). Consequently, any tax advantage gained from for example the transfer of shares through a nominee will be based on non-disclosure and could be tax evasion. If tax advantage is desired (as opposed to merely privacy and administrative ease) a nominee alone is not an appropriate method. Although nominee shareholdings gives no tax advantage it can make the transfer of shares to a third-party considerably simpler, faster and less obvious than a transfer from shares held by the beneficial owner directly which is usually recorded on the permanent records of the company and which will depend on the receipt of documents signed by the named shareholder. Though nominees will conceal the identity of owners from searches on the public registry and from other shareholders it may nevertheless be necessary to disclose the identity of the beneficial owners and their due diligence documents at various occasions in the life of the company for example to open bank accounts, to disclose to commercial partners or to sell part of the company or its underlying assets. Generally occasions requiring such disclosure will be the result of local Know Your Client (KYC) requirements and therefore cannot be avoided however the company is structured. This means that this disadvantage is not specific to the use of nominees but it is important to note that the protection offered by a nominee will sometimes need to be lifted or operating the company may become impossible.

Nominee Directors
Nominee directors are directors appointed in name only who are bound to follow the instructions of their principal or in some cases have issued a power of attorney allowing the principal to conduct business directly. UK companies are required to pay UK corporation tax regardless of their directors so there is no tax benefit to the use of nominee directors; their purpose is anonymity. Many clients wish to keep themselves distanced from their UK company especially since a simple Google search will reveal their connection. In some cases clients envisage that they may abandon the company in the future and let it be struck off (rather than comply with filing regulations or carrying out a liquidation), in such cases they would not want their name to be associated with a company in bad standing. Whatever the reason for their use, providers of nominee directors are widespread and their services are highly affordable (much cheaper than in low tax countries, for example, where in general there is a higher level of responsibility for officers of companies). It should be noted that the use of nominee directors is likely to make banking problematic except with certain institutions which are familiar with the nominee director in question. Many service providers also offer account opening formation as part of their package, though this generally attracts a reasonable cost (where a direct application by the beneficial owners, if successful, would achieve the same benefit at no cost). Nominee directors are generally UK passport holders resident in offshore centres such as the Isle of Man or the Caribbean. This is to avoid any risk of the UK company from becoming tax resident in both the UK and in the country where the director is resident and having to pay tax in both countries (this might be the case if, for example, a Spanish or French resident were director of a UK company).

Professional Management
In other countries nominee directors are not used since their use has been effectively outlawed by many onshore tax avoidance infrastructures (the UK’s amongst them). This means that if, for example, an Isle of Man company were run by nominee directors acting for a UK domicile residence principal there would be no legal tax advantage. In this situation anti-avoidance rules would hold that the principal was in fact the director and the company was subject to UK corporation tax, defeating any benefit of the system. In a response to this almost all countries (except the UK) attempt to replace the use of nominee directors with a board of professional managers who have autonomy over the operation of the company.