What
Is a Nominee?
According to the Stolen Asset Recovery
Initiative (STAR) of The World Bank, a nominee is an individual or corporate
entity that rents its name to someone else to protect that person’s identity.
Nominees can be any individual, including friends, family members, or
professionals like accountants or lawyers. Business owners often look for
companies that offer nominee services rather than individuals.
While the actual business details are not publicly available,
the Internal Revenue Service (IRS) requires the actual owner’s
information when the business owner applies for an employer information number
(EIN so they have record of who owns the business.
Types
of Nominees
There are two main types of nominees that you may be able to
install as a business owner. Both of the following types remain in effect for
one year, and as the true owner, you may revoke or renew the nominee service at
any time:
·
Nominee
Directors. Nominee directors act as company directors,
and some business owners may appoint them to function as a business’s
treasurer, president, or secretary. Company directors must be listed on a
business’s records. For this reason, business owners may hire nominee directors
to list the nominee’s personal information on the records instead of their own.
To appoint these individuals, the true business owner issues a power of
attorney (POA) document.
·
Nominee
Shareholders. Nominee shareholders protect the real owner’s
identity by holding company shares on the true owner’s behalf. The true
business owner can appoint these nominees by issuing a declaration of trust.
This document outlines the real owner’s instructions regarding his or her
shares, such as how to allocate dividends and transfer shares.
Understanding
Nominee Services
Before deciding to utilize nominee services, it’s helpful to
understand what you can and cannot do with these services:
·
Gaining
Privacy from Non-Governmental Institutions. You may be able to use nominee services to
prevent non-governmental institutions from learning your true identity. This
can benefit your business because it
shields your asset allocations and investment strategies from your competitors,
creditors, and other non-governmental institutions. However, due to laws
created to prevent money laundering and tax evasion, you cannot use these
services to hide your assets from federal and state authorities.
·
Revealing
the Owner’s True Identity. While
you may typically use nominee services to prevent competitors, the media, and
other public members from learning their true identities, selecting a nominee
does not prevent you, the true business owner, from choosing to reveal your
identity at a later date. Sometimes, revealing your identity might be
beneficial for the company. If, for example, your business is under intense scrutiny, you may want to
publicly reveal your identity to defend the business’s actions more
effectively.
·
Remaining
Involved in Business Activities. Nominees are only company shareholders or directors according
to public records. You, as the true business owner, control the company and are
still actively involved in daily business activities. Additionally, you would
still reap the benefits associated with your involvement.
Drawbacks
Associated with Using Nominees
There are some risks associated with using nominees, which
include the following:
●
Nominee
acts contrary to the agreement—Business owners usually have a contract with
their chosen nominees to outline what the nominee can and cannot do. However,
there is still a risk that the nominee may act contrary to the agreement. While
you may be able to seek damages in court if this happens, the nominee might do
considerable damage to the business before the issue can be resolved. Such
legal disputes can be costly and time-consuming. Moreover, if you take a
nominee to court it will reveal your identity to the public, making the whole
process a waste of time.
●
Nominee
becomes incapacitated or dies—You might select a trustworthy and competent
individual to act as your nominee. However, you may encounter issues if the
nominee becomes incapacitated or dies. The nominee’s heirs might fulfill the
role, but you may revoke the declaration of trust or POA if the heirs are not
as willing or competent as the original nominee.
●
There
is a potential for fraud—A trusted nominee might inadvertently commit fraud due
to a lack of knowledge of state and federal laws. For instance, the nominee may
not stay current with business regulations, which might pose a risk to you and
the business. Due to this, you should thoroughly research potential nominee
services before signing a contract to ensure that the nominee is credible,
knowledgeable, and trustworthy.
Alternative
Privacy Measures
There are other things that you can do to maintain your
privacy legally. You can use a specific business address to list on the
business’s public documents. While this does not protect your identity, it can
prevent others from obtaining your personal address. Additionally, you may
consider establishing the business in a state that does not require businesses
to declare the owner’s information in public records. Alternatively, you can
establish multiple LLCs to help maintain your privacy.
Contact
Us To Learn More About How a Nominee Can Protect Your Privacy
When it comes to protecting your personal privacy as a
business owner, it's crucial to have a reliable legal expert by your side. With
our knowledge and experience, we can guide you through the legal and financial
aspects of protecting your privacy and ensure that your rights are protected.
By working with us, you can have peace of mind knowing that your privacy is
safeguarded while you focus on growing your business. Contact us today to learn how we can help.
This article is a service of Ganvir Law, Personal
Family Lawyer™. We offer a complete spectrum of legal services for businesses
and can help you make the wisest choices on how to deal with your business
throughout life and in the event of your death. We also offer a Business
Strategy Session for an ongoing business, which includes a review of all the
legal, financial, and tax systems you need for your business. Call us today to
schedule.
The content is
sourced from Personal Family Lawyer® for use by Personal Family Lawyer firms, a
source believed to be providing accurate information. This material was created
for educational and informational purposes only and is not intended as ERISA,
tax, legal, or investment advice. If you are seeking legal advice specific to
your needs, such advice services must be obtained on your own separate from
this educational material.