George Orwell’s book, “Nineteen Eighty Four”, predicted a world where a tyrant called “Big Brother” invaded the privacy of every citizen. He was being optimistic. The truth 20 years after the doomsday date is that everyone invades our privacy. If someone wants to know where you live, who you are related to, or even how much you are worth they can find out online from their own home. No wonder we all feel exposed.
The “information age”, which is supposed to bring us great freedom poses serious problems to people who need to keep legitimate secrets. How, in this environment, can a company undertake a new business venture without its competitors finding out? How can a celebrities go into business without the world finding their name and address on the Companies House website? How can a well-paid but much threatened executive lay serious plans for an independent career? This is the role of the nominee…
There is nothing new about nominee directors and shareholders. The novelty is the increase in the reasons for using such services. There is nothing shady about wanting to be private; a professional nominee takes great care to avoid providing services to people with dubious records of intentions. But, for people with legitimate reasons for keeping their details out of the public record of their company, this is an effective and honourable solution. The principle is simple… the names registered on the company register held at Companies House are the names of the nominees. Contact details of the true owner (called the “beneficial owner”) are held confidentially in the nominee’s files and will not be declared (unless the beneficial owner is trying to conceal a crime).
People from across the world use this service, and the majority are doing it because they have other businesses and want to prevent their competitors from seeing the link. Competitors are thirsty for information and make tactical decisions based on what they believe their business rivals are doing; so it pays to keep strategic plans under wraps – including any clues that may show up on Companies House.
The most popular of these services is the nominee director. That is because company directors’ details are one of the easiest pieces of information to search for. The beneficial owner pays the nominee to stand as proxy and that Nominee is registered as the director of the company. The nominee then issues a Contract and General Power of Attorney setting out the rules of the arrangement and empowering the beneficial owners to operate the business much as they would if they had been appointed in the normal way. Of course, the client must keep the nominee informed of important company issues, and the nominee must sign documents that require a director’s signature. The arrangement is generally reconfirmed on an annual basis and, if the reasons for confidentiality no longer apply, the beneficial owner may opt to conclude the contract and accept appointment as a full director.
It is slightly less easy to obtain personal details about shareholders, but only slightly. For that reason the nominee shareholder service is gaining in popularity. In this case, the nominee accepts instructions to hold a certain number of shares on behalf of an individual or company. Just as for nominee directors, the arrangement is confirmed by a contract but, in this case, a Declaration of Trust document is issued (this document is subject to stamp duty). The Declaration of Trust confirms that the nominee holds the shares on behalf of the client and agrees not to sell, transfer or use the shares other than as instructed by the client.
These are effective procedures with a lot of history behind them. They are irrelevant to most companies but provide the perfect solution to a number of legitimate business needs. The guiding principle is trust – thank goodness the Internet has not made that obsolete!
