{"id":1040,"date":"2021-12-30T00:28:25","date_gmt":"2021-12-30T00:28:25","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=1040"},"modified":"2024-09-03T04:10:31","modified_gmt":"2024-09-03T03:10:31","slug":"what-is-nominee-shareholder","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/business-structures\/what-is-nominee-shareholder\/","title":{"rendered":"What is a Nominee Shareholder?"},"content":{"rendered":"\n

P<\/span>ut simply, a nominee shareholder<\/strong> is an entity or individual that holds shares on behalf of someone else. The most frequent form of a nominee is a trustee holding shares on trust for beneficiaries. Furthermore, nominee structures have many benefits, including tax management, regulatory compliance, and simplified corporate governance and company administration.<\/span> This article explains formal nominee structures where a company engages a nominee company to hold shares of minority shareholders. <\/span><\/p>\n\n\n\n

The Nominee Structure<\/span><\/h2>\n\n\n\n

W<\/span>hen a company has a lot of shareholders that hold small parcels of shares, the company may consider establishing a nominee structure. <\/span><\/p>\n\n\n\n

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The principle of a nominee structure is that the shareholdings of individual minor shareholders are transferred to a single shareholder entity with the sole purpose of holding those shares on trust for the shareholders. <\/span><\/p>\n<\/div>\n\n\n\n

The nominee entity is often either an entity engaged by the company (there are a number of businesses that provide nominee services to hold shares and manage nominee structures) or a subsidiary incorporated by the company. <\/span><\/p>\n\n\n\n

T<\/span>o implement the nominee structure<\/span>, you will need the following documents:<\/span><\/p>\n\n\n\n

Shareholders Agreement<\/span><\/h3>\n\n\n\n

You will need to amend the shareholders’ agreement<\/a> in respect of the company <\/span>to incorporate changes to the voting rights of the beneficial holders (being the former minor shareholders), and take into account the aggregation of the relevant shareholders\u2019 parcels of shares, into the single nominee entity.\u00a0\u00a0<\/span><\/p>\n\n\n\n

Nominee Deed<\/span><\/h3>\n\n\n\n

This is a document t<\/span>hat the company and the nominee entity enter into. It regulates the manner in which the nominee will acquire, hold and deal with each shareholder\u2019s shares. <\/span><\/p>\n\n\n\n

Bare Trust Deed<\/span><\/h3>\n\n\n\n

This is a document e<\/span>ach relevant shareholder enters into in respect of the nominee entity. I<\/span>t creates a bare trust, in which the nominee is the trustee and the shareholder is the beneficiary, in relation to the relevant shares. Under the bare trust, the nominee entity has no discretion to act in relation to the shares. Rather, it must only act a<\/span>ccording to the beneficiary\u2019s instructions (including transferring any dividends or proceeds related to the shares directly to the beneficiary). <\/span><\/p>\n\n\n\n

Power of Attorney<\/span><\/h3>\n\n\n\n

This is a document each relevant shareholder enters into in favour of the company.\u00a0Under this power of attorney<\/a>, the shareholder generally appoints the directors of the company (or some other authorised individual) to execute certain documents on the shareholder\u2019s behalf regarding the establishment and ongoing administration of the nominee structure.<\/span><\/p>\n\n\n\n

Purpose and Benefits of the Nominee Structure<\/span><\/h2>\n\n\n\n

Regulation <\/span><\/h3>\n\n\n\n

Pursuant to the Corporations Act 2001 (Cth) (the <\/span>Act<\/b>), one of the key characteristics of a proprietary limited company is that it cannot have more than 50 non-employee shareholders (with some specific exceptions). Therefore, if a company has more than 50 non-employee shareholders, it must convert into a public company. This can be listed or unlisted. Consequently, unlisted public companies are subject to additional regulatory requirements, including changes to minimum officeholders, and increased financial reporting requirements. Additionally, all companies which have more than 50 shareholders (employees or not), are now subject to the Act\u2019s takeover provisions. <\/span><\/p>\n\n\n\n

Corporate Administration <\/span><\/h3>\n\n\n\n

When a company has m<\/span>any shareholders, it can become increasingly difficult to effectively carry out its corporate governance. This includes administering the company\u2019s affairs in accordance with the company\u2019s constituent documents (such as a constitution and shareholders’ agreement). Thus, giving notice to, or seeking approval or consent from all shareholders, can become time consuming and complicated. Further, the Act requires t<\/span>he unanimous approval of all circular resolutions. Therefore, if any minority shareholders are unresponsive, the company w<\/span>ill need to carry out all business by way of general meetings, adding to the administrative burden and increasing time delays and costs. <\/span><\/p>\n\n\n\n

Employee Incentive Schemes <\/span><\/h3>\n\n\n\n

The increasing popularity of employee incentive schemes (employee share schemes<\/a>, or ESOPs) is also increasing the utility of nominee structures. As companies grow and employ more staff, the number of ESOP participants who could become shareholders increases.\u00a0Therefore, a nominee structure ensures that companies can continue offering equity to employees, beyond the shareholder limits imposed by the Act.\u00a0<\/span><\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n

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