What is a nominee shareholder?
A nominee shareholder is a person or entity that is appointed to have registered ownership of shares or other securities on behalf of the real owner, known as the beneficial owner. The nominee’s role is to hold the shares or securities on trust and will have their name and details listed on all public documentation in place of the beneficial owner.
Even though, on paper, the nominee shareholder appears to own the securities, the beneficial owner remains the legal owner of the securities and is therefore entitled to the capital gains, dividends or other benefits generated by ownership of the securities.
How does this work?
To ensure the beneficial owner retains control over the securities, an agreement between the nominee and the beneficial owner or client must be executed stating that the securities are held in trust by the nominee for the owner’s benefit and that the nominee’s name and details will be used on documentation. An agreement can also outline specific terms, such as whether the nominee, as the registered owner of shares, can exercise any control such as voting rights.
Why use a nominee shareholder?
A nominee shareholder is typically appointed for reasons concerning either convenience or confidentiality.
Overseas investors, which can be individuals or a company, may find it difficult to manage the day-to-day management of securities. Appointing a nominee can therefore save time and money and minimise the risk of lost opportunities arising from time delays. It is also common to use a nominee in order to separate shareholding from other activities. For example, brokers generally use a nominee company to facilitate transactions while leaving their clients as the real owner of shares.
A nominee may be appointed to maintain confidentiality of the beneficial owner. To register a company in Australia, there must be at least one member (shareholder) so, in cases where a shareholder wants to remain anonymous, appointing a nominee shareholder is an effective way to protect their identity and keep their information from being publicly available.
Wishing to remain anonymous is often perfectly legal and legitimate. It may be for personal reasons such as wishing not to disclose financial affairs or commercial reasons such as avoiding conflicts of interest or retaining status as a proprietary company.