There is a perpetual tension between shareholders who wish to maintain anonymity and the UK and international governments who demand greater transparency regarding company ownership to combat money laundering.
Prior to 2016, appointing a nominee shareholder ensured anonymity so long as a written agreement or Declaration of Trust was established. However, with the implementation of the The Register of People with Significant Control Regulations 2016, achieving anonymity now demands a strategic approach.
In this article, we provide an explanation of what a nominee shareholder is, as well as the potential risks to beneficial owners' anonymity.
What is a nominee shareholder?
A nominee shareholder is a person or company holding shares on someone else's behalf. The main form of a nominee is a trustee holding shares on trust for beneficiaries or a company acting as a nominee for overseas investors.
What is the purpose of a nominee shareholder?
A beneficial owner of shares appoints a nominee shareholder because they do not wish to have the shares registered in their name. Appointing a nominee assures the beneficial owner of anonymity and privacy. Personal information, such as their home address, will appear on any documents that are part of Companies House’s public record.
Does a nominee shareholder guarantee privacy?
With a nominee shareholder, your identity can be protected and kept confidential, as well as your personal information such as your address and owned assets. Additionally, it’s difficult for outsiders to determine that a shareholder listed is actually a nominee. This is because the agreement is typically only known between the beneficial owner and the nominee.
Are nominee shareholders legal?
It’s perfectly legal for company shares to be held by one or more trustees on trust for the beneficiaries of a trust or for a nominee to hold share on behalf of actual shareholders. The name of the trustee(s) or nominee will be entered in the company's register of members as the holder (or joint holders, as the case may be) of the relevant shares. Therefore, the trustee(s) or nominee will be a company member rather than the beneficiary of the shares.
How do you appoint a nominee shareholder?
To appoint a nominee shareholder, a nomination form must be completed and submitted to the Company Secretary before the date of the next AGM. Provisions under the Companies Act 2006 clarify that a UK company only has to concern itself with shareholders listed on the register. This principle is reinforced by the Model Articles of Association for both private and public companies. The articles state that, except as required by law:
- No person is to be recognised by the company as holding any share upon trust
- The company is not bound by and must not recognise any interest in a share except the registered owner's absolute right to it
This means that as far as the company is concerned, a nominee can:
- Exercise any voting rights attached to the shares
- Receive dividends, distributions, and returns on capital
- Transfer their shares
They’ll also be liable for payments owed on the shares and all other membership obligations. The company's only recourse regarding any issues with the shares is with the nominee.
The nominee and beneficiary owner should enter into an agreement or a Declaration of Trust. This regulates their relationships and sets out the rights and liabilities of both parties.
How are nominee shareholders treated for tax purposes?
The beneficial owner is responsible for any taxes associated with shares held by a nominee. This should be reflected in any agreement or Declaration of Trust. The nominee will transfer the dividends to the beneficial owner and provide them with a consolidated certificate of total dividends and interest received. The beneficial owner will present the income on their tax return and are taxed accordingly. Any Capital Gains Tax on shares is automatically charged to the beneficial owner.
Can a company be a nominee shareholder
A nominee shareholder can be an individual or a company.
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For beneficial owners of shares in a company who do not fall under the definition of a PSC, appointing a nominee is relatively straightforward, provided an agreement or Declaration of Trust is in place. For those that may be defined as a PSC, both the company and the individual should seek legal advice before appointing a nominee.
LawBite has helped thousands of startups and small businesses with the necessary guidance to reach their commercial ambitions. Through our nominee shareholder service our expert lawyers can provide guidance on appointing a nominee shareholder. To find out more book a free 15 minute consultation with one of our expert lawyers or call us on 020 3808 8314.