A nominee shareholder is an individual who contributes his identity to act as the registered proprietor of shareholdings but he or she just owns the shares for someone else’s profit. The beneficiary owner is thus protected from being publicly linked to that specific business. If nominated shareholder is designated, he will seek the entire world as the actual owner of the assets, keeping the deal hidden. A nominee shareholder is a shareholder only in name. The nominee shareholder does not really own anything and is only a shareholder on the face of it.

Who can be a nominee shareholder?

Any company or individual can become a nominee shareholder who acts as trustee to the shares in order to not disclose the identity of the actual shareholder. The holder of share does register nominee shareholders on behalf of the original shareholder to register them under whose hand’s securities shall vest upon the death of the original shareholder. Shares include securities in its definition.

Nominee shareholders do not own any benefit or legal claim over shares until the beneficial or original shareholder is alive. Every company maintains a list of the shareholders who are beneficial owners of the company’s shares. This list also includes details of the nominee. Details of the nominee have to be updated by the company from time to time-based on details provided by beneficial owners. Such details are authenticated by the company secretary or another person nominated by the company’s board. In case of the death of beneficial shareholders, such a person ensures the filing and validity of the nomination.

Importance of nominee shareholder

There are various benefits of appointing a shareholder to work in one’s name. However, there is one primary benefit that can be gained from appointing a nominee shareholder. The appointment of a nominee shareholder will help one keep the identity safe and anonymous. The reason to keep identity a secret could be as per circumstances and need. The nominee, rather than the beneficiary, is a member of the company in which the shares are held, and only the name is entered in the register of members.

Why have a nominee shareholder?

Personal convenience

Personal convenience is the most common reason for the use of nominee shareholding. Overseas investors, which can be individuals or a company, may find it difficult to manage the day-to-day management of shares. Appointing a nominee can therefore save time and money and minimize the risk of lost opportunities arising from time delays. For example, sharebrokers generally use a nominee company to facilitate transactions while leaving their clients as the real owner of shares.

Administrative convenience

In terms of administrative convenience, it is common to use a nominee shareholder to separate shareholding from other activities. Also, a group of companies may use a nominee either as a repository for shares acquired before it is decided which group member will hold the shares or as a central holder of all shares owned by the group.

Confidentiality

Wishing to remain anonymous is often perfectly legal and legitimate. It may be for personal reasons such as wishing not to disclose financial affairs where one could be a politician, public servant or journalist who would be embarrassed if known to hold such wealth.

On the other hand, a company that wants to take over control of another company may wish to keep confidential of its identity so that it would encounter little or no resistance to the first stage of takeover or perhaps be able to buy the shares at a lower price than otherwise, since the market price usually goes up when a take-over bid is made.

The reason for choosing a nominee shareholder through nomination.

Through the nomination process, the company can name a legal successor of the original shareholder in the event of the shareholder’s death. This helps avoid disputes over who is legally entitled to the previous shareholder’s stake. Additionally, it involves a quick and easy process for a company to choose whom to contact and connect with after a stakeholder passes away.

The following are some of the factors considered while choosing nominee shareholders:

• A person may keep his information secure and private by selecting a nominee shareholder.
• Depending on a person’s needs and circumstances, he can have a justification for keeping his identity a secret. A nominee shareholder can assist a person in maintaining his privacy if he is a shareholder in a corporation but doesn’t want people to know.
• To give corporate entities and people who are unable to invest on their own a choice.
• A company is said to be a majority owner when it buys stock in another business.
• There must be enough investors to satisfy the requirements.