How does a nominee shareholder service work?

Companies incorporated in the UK are required to have at least one shareholder, being either an individual or body corporate.  There is an obligation on these shareholders to disclose their name or company details on the public record maintained by Companies House, and on the statutory registers of the company in which shares are held. Both the company register and Companies House records are available for public inspection.

But what if individual shareholders do not wish to disclose their identity or a company does not wish to disclose its investment in other companies?

In such circumstances, shareholders can maintain confidentiality by asking a nominee shareholder to hold shares on their behalf through a nominee shareholder service.

A Nominee Shareholder can be an individual or a company, although nominee shareholder service providers normally choose to set up a nominee company (rather than appointing an individual), created for the purpose of holding shares and other securities as a nominee for various beneficial owners.

Does ownership of the shares transfer to the nominee?

A nominee shareholder only holds the legal title to the shares on behalf of the beneficial owner (the shareholder). Accordingly, the nominee holds the shares in name only. All of the benefits of ownership remain with the shareholder – but crucially, the nominee's details will appear on the public record and in the company's statutory registers in place of the shareholder's details.

This is achieved by the nominee shareholder executing a Declaration of Trust in favour of the ultimate beneficial owner of the shares (the original shareholder), agreeing to exercise all voting rights and deal with the shares only in accordance with the instructions of the beneficial owner. The beneficial owner still receives all financial income from the shares e.g. dividends.

It is worth making a distinction at this point with what is known as a nominee subscriber.

A nominee subscriber is a nominee shareholder that has held shares on behalf of a beneficial owner from the initial formation of the relevant company. The nominee's details will appear in the relevant company's Memorandum of Association as a subscriber. If a nominee subscriber is used then no prior owner of the relevant shares will appear on the public record.

Why use a nominee subscriber service?

Using a nominee shareholder service has a number of advantages for individuals who wish to keep their status as a shareholder of a company confidential, in addition to commercial advantages:

• If a company is incorporated using a nominee subscriber as the first shareholder then this will ensure that the beneficial owner's name and other details never appear on the public record.
• There are legitimate commercial reasons for keeping your shareholding confidential.  For example, if you hold shares in a company which also supplies your competitors you may not want your competitors to know that you are a shareholder.  You may also wish to keep the extent of your shareholdings confidential.
• For companies, they may not wish competitors to know that they have invested in other companies or sectors.
• An interested person may not be prevented from knowing that the relevant shares of interest are held on behalf of another person or company.  This is due to the records at Companies House showing the nominee's name, which typically contains the word ‘nominee'.  However a nominee shareholder will typically not disclose the identity of the beneficial owner unless legally compelled to do so.
• A company may have a historic requirement in its Articles of Association to have two shareholders. Using a nominee may be an effective way for a individual shareholder to meet this requirement. In other words one of the shareholders could be a nominee of the other. An alternative approach is to amend the relevant Articles of Association.
• To aid the management of numerous shareholdings, the use of a nominee service provider may purely be of administrative benefit.

Services provided by a nominee subscriber service:

In addition to the aforementioned trust deed ensuring beneficial ownership remains with the shareholder, a nominee subscriber service will:

• forward a reasonable volume of official correspondence received by the nominee and marked for the attention of the beneficial owner;
• maintain the confidentiality of the beneficiary except where the nominee is legally obliged to disclose the beneficiary's details by the court, or with the beneficiary's express consent;
• send a signed, undated stock transfer form to the beneficiary, aloowing the beneficiary to transfer the shares back into their name at any time by simply presenting the stock transfer form to the company;
• if the shares to be held by the nominee are more than a specified amount (usually £20) the nominee shall require evidence that the nominee shares have been fully paid up by the beneficiary; 
• require the beneficiary to provide photographic proof of their identity, such as a passport, in order to comply with money laundering regulations.

Conclusion

In summary, a nominee shareholder service is particularly useful in order to preserve the privacy and confidentiality of shareholders, be they individuals or companies, and as a result it has commercial value where it is important to to maintain anonymity related to sensitive financial agreements.

The full financial control, and ownership in all but name of the shares remain with the beneficiary; and there is no fixed term for which a nominee shareholder must be used – the provision of a stock transfer form allows the nominee to be changed or removed at any time.

Jamie Hunt

LegalClarity.co.uk

The information provided in this article is intended as a general guide only. It is not exhaustive or tailored to your individual circumstances.