What is a nominee shareholder?

Nominee shareholders should not be confused with proxy shareholders. A proxy shareholder stands in for a shareholder in their absence and has all the voting powers of the actual shareholder. As we shall see, that is not the case with nominee shareholders.

There is no way of knowing from the records themselves that a member on the public register is a nominee shareholder.

The main purposes of a nominee shareholder are to:

• hide the real owner’s name from public view, or
• ease the administrative burden in cases where there are numerous shareholders.

The following are examples of genuine practical uses of nominee shareholders.

• A large company may choose to use a nominee shareholder company to consolidate multiple diverse shareholders into one registered member. This nominee company can engage in corporate actions and otherwise act on behalf of the actual shareholders. This works in cases where the shareholders are willing to hand over some or all of their decision-making ability to the nominee.
• An overseas investor may choose to use a nominee for simplicity and to reduce costs.
• A financial institution or stockbroker buys and holds shares for a client. They act as nominee shareholder because it would be costly and time-consuming to register the client as the shareholder for every share transaction that takes place. Strong bonds of trust, usually codified and documented, ensure that the beneficial owner has full access to and control over their shares.
• Confidentiality rather than obfuscation. For example, a politician or other public figure may wish to conceal their interest in a company or their wealth in general, to avoid possible reputational damage.
• In addition to protecting identity, using a nominee will keep personal details such as month and year of birth and address off the public register.

Who can act as a nominee shareholder?

A nominee shareholder can be an individual or a corporate entity, such as a limited company. Depending on the circumstances and the purpose for holding shares in this way, any of the following might act as a nominee shareholder:

• A family member or friend
• A bank, stockbroker, pension provider or other financial institution
• A professional adviser, such as an accountant or solicitor
• An individual company secretary or corporate secretary acting as a nominee shareholder
• Another company in a group of companies

There are commercial providers, which typically offer nominee services for a fee. These often act for many different beneficial owners.

How much anonymity do nominee shareholders give?

There is no way of knowing from the records themselves that a member on the public register is a nominee shareholder. The name will appear on the register of members without annotation or comment, just as that of the beneficial owner would. It therefore gives the beneficial owner complete anonymity as far as the public record is concerned.

Using a corporate provider can make it obvious that a nominee service is being used, especially if the name of the nominee is obvious. For example, if a shareholder is listed as XYZ Nominees Limited, it will be obvious that shares are being held on behalf of one or more beneficial owners. It is worth considering any reputational implications resulting from being associated with ‘known’ nominee accounts.

What is the declaration of trust?

The relationship between the nominee shareholder and beneficial owner should be defined in a written declaration of trust. This document is sometimes also referred to as a deed of trust or nominee shareholder agreement.

This is a legal agreement which in essence confirms that the nominee only holds the specified shares on trust for the beneficial owner and retains no beneficial interest in them. It should be documented and signed by both the beneficial owner and the proposed nominee. Without an appropriate written declaration of trust, there is the possibility that a nominee might attempt to claim the shares as their own. It’s prudent to use a professionally drafted agreement that adequately supports the specific circumstances.

By virtue of this arrangement, the nominee holds the shares on behalf of the shareholder in a ‘bare trust’. The feature of this type of trust is that the nominee does not have discretion – they must act on the beneficial owner’s instructions in respect of the shares.

The declaration of trust may contain various provisions, such as:

• That the nominee must exercise voting and other shareholder rights only in accordance with the beneficial owner’s instructions
• That the nominee will account to the beneficial owner for dividends, other distributions and capital payments
• Providing for appropriate confidentiality arrangements
• Restricting the ability of the nominee to transfer, assign, charge or otherwise encumber the shares without approval from the beneficial owner
• That the nominee must transfer the shares upon any instruction from the beneficial owner
• Indemnification of the nominee shareholder by the beneficial owner
• How any disputes between the parties will be handled

The beneficial owner is usually able to transfer the shares into their own name whenever they wish. Some providers or nominee shareholder services give the beneficial owner an undated share transfer form for this purpose.

Share certificates are issued by the company in the nominee’s name, since only they are registered as a member. Similarly, the company will not record the trust arrangement on its register of members. The company is not a party to the declaration of trust – it is a private agreement between the beneficial owner and the nominee.

The PSC Register and restrictions on anonymity of beneficial owners

The Register of People with Significant Control (PSC Register) was introduced by the Small Business, Enterprise and Employment Act 2015. The requirements came into force from 6 April 2016, including the need to report Persons with Significant Control (PSCs) to Companies House. Their details are shown on the public register in much the same way as for directors.

This means that, for example, anyone holding more than 25% of a company’s shares will have their details visible at Companies House. As the PSC regime looks through nominee arrangements, a beneficial owner holding more than 25% of the shares would need to be declared as a PSC or, if a body corporate, as a relevant legal entity (RLE). This will restrict the ability of a significant shareholder to remain anonymous through nominee arrangements.

There is a positive duty for companies to identify their PSCs, and it is a criminal offence to fail to follow the disclosure requirements.

Nominee shareholders and corporate transparency

Why aren’t nominee shareholders banned? Considering the government’s ongoing efforts to improve corporate transparency, it might be surprising that substituting names under nominee arrangements is still permitted. It seems to run against the current push to clarify multiple layers of ownership and control to reveal the true beneficial owners of a company.

Nominee shareholders can be used as fronts for criminal activity in much the same way nominee directors can, especially corporate directors. This type of abuse is being tackled in the Economic Crime and Corporate Transparency Act by forcing directors and PSCs to have their identities verified. But what of nominee shareholders?

There are still legitimate uses of nominee shareholders (see above), and a blanket ban would be highly disruptive. Efforts to shed light on chains of corporate ownership are therefore being focused on where they are needed most: tackling the abuse of the UK’s open economy by overseas actors. That means unexplained wealth in the UK and money laundering operations carried out by criminals, terrorists and Russian oligarchs.

“A share held by a person as nominee for another is to be treated … as held by the other (and not by the nominee).”

– Companies Act 2006, Schedule 1A, Part 1, paragraph 19 and Economic Crime (Transparency and Enforcement) Act 2022, Schedule 2, Part 5, paragraph 19

The Economic Crime (Transparency and Enforcement) Act 2022 has given law enforcement ‘X-ray specs’ when it comes to overseas nominee arrangements. Like the rules on PSCs, it treats an overseas entity as a beneficial owner of a UK company or property if it holds more than 25% of the shares or voting rights. But like the PSC rules it also states that they will be treated as a beneficial owner if they have the right to exercise, or actually exercise, significant influence or control over the UK company. If the nominee shareholder is simply acting on instructions from a third party, the third party is treated as if exercising significant influence or control.

This brings beneficial ownership in line with PSC rules. It effectively ‘looks through’ any nominee arrangement that could be used to obfuscate ownership and circumvent transparency laws. It also aims to thwart attempts to sidestep the rules on beneficial ownership by playing with the figures. One example has been having five people or entities each own 20% of a company. This way none owns 25% and none are therefore registrable as beneficial owners.

Section 793 notices

A nominee shareholder arrangement only assures anonymity to the beneficial owner on the public record held at Companies House. It is possible under certain conditions for a company to require a beneficial owner’s identity to be revealed. Section 793 of the 2006 Companies Act allows a public company to issue a notice requiring anybody it thinks may have an interest in the company to state whether they do or not. Section 793 notices can only be issued by public companies, for example to protect themselves from suspected takeovers or other outside attempts to influence their boards.

How to register a nominee shareholder

If you are considering using a nominee shareholder in order not to have a shareholder’s name appear on the public record, you can approach one of the corporate service providers who offer this service on a commercial basis. They usually charge a setup fee and an ongoing annual fee. If you do not pay to continue the service they will resign as a shareholder and pass the shares to the beneficial owner.

You may register a nominee yourself, but a professional nominee service provider can guide you through legal steps such as the declaration of trust. They will also be better equipped to manage any issues that may arise either around the time of nominee appointment or further down the line.

A nominee can be appointed at the time of incorporation or at a later time. Bear in mind that when appointing one at a later time, the beneficial owner’s name, if previously registered, will remain on historic confirmation statements.

A previous version of this article was originally published by David Hill on 1 February 2023.