Setting up an offshore company, you might have heard about nominee services. As there are some misconceptions about the services, it's advisable for you to read on before making a decision whether you are going to use the services or not.
But first thing first: What are nominee services?
Nominee services are popular among offshore businesses for one major reason: They guarantee the offshore businesses' privacy – legally.
There are various reasons why a business owner wants to keep their business records private, but in this article, we are going to talk about the basics of nominee services, and what you should know about the services so that you can make a well-informed decision.
Nominees are directors and/or shareholders who are appointed as the official representatives of the offshore company, on behalf of the real owners.
Nominee services are basically related to appointing nominee directors and/or shareholders to keep the real owners' personal details off of the public records for various privacy reasons.
There are generally two types of nominee: Nominee directors and nominee shareholders
A nominee director is officially function as a company director, and appointed as the company's President, Secretary and Treasurer – whenever allowed. Depending on the jurisdiction of your offshore company, it is a requirement for the company directors to have their name listed on the public record; so, instead of the real owners' names, the nominee directors' name will be listed publicly.
It can be said that nominee directors act as layers of protection for the real owners.
Legally speaking, a nominee director is formally appointed by the issuing of a Power of Attorney document. The document is issued in the name of the nominee director to the real owner of the company (called Attorney.) Attorney can sign documents and contracts, as well as open bank accounts.
Another type of nominee is nominee shareholders. A nominee shareholder is appointed to protect the identity of the real owner from being publicly associated with the offshore company. The nominee will hold the owner's shares, and the company owner can access all the benefits of the shares (e.g. Dividends) – and they are protected in such a way that ownership information will not be exposed publicly.
Legally speaking, a nominee shareholder's appointment is backed by Declaration of Trust, signed by the nominee. The document requires the shareholder to act on the instruction of the real owner in term of dividends allocation, shares transfer, and so on.
Both legal documents are issued for a period of one year. The real owner may renew the service (there is an annual renewal fee involved), or stop the service any time upon request.
What you need to know about nominee services
Now, as you have acquired the basics of nominee services, you need to know what you can or can't do with your nominees. To get started, here are three things that you need to know about nominee services :
Nominees can protect your identity to non-governmental entities – not the governmental ones.
You can use nominee services to protect your investment strategy and details on your asset allocations - not hiding your assets from the authorities.
Tax evasion and money laundering laws require careful consideration when using nominee services. As mentioned above, nominees offer some layers of protection against non-governmental entities – such as your competitors, relatives, creditors or even private investigators – but not against governmental authorities.
If you want to, you could refuse to reveal your identity to the authorities, but doing so is illegal - continue at your own risk.
You can choose to reveal your identity publicly.
A nominee service protects clients during public inquiry and from “bad” people, such as nosy people and the preying eyes of competitors. However, upon request, you may reveal your real identity.
This may be the case when you are, for some reasons, under investigation for questionable business practices, and would like to defend yourself by revealing your identity publicly.
Nominees are not involved in the day-to-day business activities
Nominees are your company's directors and shareholders – on paper. You, the real owner, are still the one who is responsible for day-to-day business activities – and enjoy all the benefits from the activities.
Takeaway: Do I need a nominee service?
Nominee services are not mandatory when you are setting up an offshore company. However, they can be the right solution, depending on your business and investment strategy.
Please bear in mind, there are fees related to nominee services. The annual fee, the additional fees and expenses related to the need for your nominee director for the actual management work done on your behalf. Please consider your options well.
Before you make a decision, it's only prudent for you to consult with someone who is well-versed with nominee services' pros and cons. We can help clearing the mist and show you the right way – ask us anything about nominee services, and let us help you decide.