Hi, my name’s Keeghan and welcome to another edition of It Depends Today, I’ll be talking about whether you can use a nominee shareholder to hold shares in a private company on your behalf.
What is a nominee shareholder?
So, a nominee shareholder is just another person who is nominated by you to hold shares in a private company on your behalf. So, the nominee shareholder arrangement effectively allows you to hide your identity as the true shareholder of the shares and you have legal title to those shares being held instead by someone else as effectively a custodian or trustee for you. It’s really important that this nominee shareholder arrangement is documented in writing. You can run into significant troubles if it’s just a verbal agreement. So, one trouble that you might find is that a regulatory authority, for example, the ATO might not accept that you are in fact the true owner of those shares, if it’s not documented in writing, preferably before the shares are issued or acquired by the nominee for you. You might also find that the nominee shareholder doesn’t deal with the shares in the way that you would like, if you don’t have terms in writing about how they are to deal with those shares for you. So, the written agreement would usually say that you, as the beneficial owner, have the right to acquire title to those shares at a future point in time, if you so wished.
Can a nominee hold shares in a company on my behalf?
It depends. We do these types of arrangements quite regularly for clients. They can be really useful like I said, if the real beneficial owner of the shares isn’t wanting to disclose their ownership of those shares publicly and there might be commercial reasons for that. For example, they don’t publicly want to be associated with the company if it might prejudice a potential deal or opportunity that’s available to that company, or it could just simply be for personal privacy reasons and in that case, a nominee shareholder arrangement can be really, really useful for those individuals. We also sometimes see that a nominee shareholder is used for administrative reasons or just for mere convenience. So, if the real owner, those shares doesn’t have the time or capacity to deal with those shares and vote on them, so they appoint a nominee to hold them and take those steps instead. However, there are some circumstances where it might not be particularly useful or possible for a nominee to hold shares. So, the company in which the shares are issued may not allow a nominee to hold the shares under the terms of its governing rules or the Constitution. There are some commercial reasons why it might not be a good idea. So, if there’s not someone that you trust or can find to act as nominee for you. Because obviously there is some risk involved if you’ve got a nominee holding the shares, you need to have some trust in that person to deal with them appropriately. Whether or not there is a written agreement in place about what they are to do. Also, if you’ve already got the shares of beneficial owners, you’re already holding them.
If you’re looking to transfer those shares to a nominee, you have to consider the duty and tax implications of that. And that might then dictate whether or not doing that type of arrangement is possible. If you have any questions or you’d like us to put in place a nominee shareholder arrangement, please feel free to get in touch with a member of our team.