A nominee shareholder holds shares on behalf of the beneficial owner, allowing for anonymity in ownership. The scope of powers is determined by a confidentiality agreement, but disclosure may be ordered by legal authorities in some countries.
Sometimes referred to as a nominee shareholder, a nominee shareholder is an individual or entity who is granted the responsibility to hold shares on behalf of the beneficial owner. Such a shareholder is liable to the owner for the way the assets are managed, with the terms of that liability set out in a custodial agreement or other type of confidential document. As part of his responsibilities, the nominee shareholder is listed in the register of the company issuing the shares and is presented in public contexts as the registered owner of those shares.
One of the main advantages of the nominee shareholder agreement is that the beneficial owner enjoys complete anonymity with respect to ownership of a particular company’s shares. This means that the beneficial owner is not publicly associated with the shares or with the company that issues them, a set of circumstances that is sometimes useful when the owner does not wish to acknowledge the relationship in public. This may simply be a personal preference from not wanting others to be aware of the owner’s investment decisions or a desire not to influence the movement of the stock as a result of that ownership.
The scope of powers conferred on a designated shareholder is governed by the confidentiality agreement that has been established between the two parties. Depending on the terms of the agreement, the shareholder may have the option to buy or sell part of the shares without consulting the owner. Most often, the owner retains all rights to buy and sell shares, while granting shareholder privileges regarding the management of any voting rights associated with the shares. Again, the owner may choose to vote on specific issues, usually by providing the shareholder with instructions on how to vote.
In many countries, there are regulations in place that allow disclosure of beneficial ownership to be ordered. This type of event can occur when there is doubt about the legality of the actions taken by the owner or designated shareholder, necessitating an investigation by one or more government agencies. It is not uncommon for a court order to be required to enforce the release of beneficial owner information. If so ordered by legal authorities, the nominee shareholder must disclose the name and contact information of the actual owner of the stock, allowing those authorities to establish communication with the owner and resolve any issues at hand.
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