03 Mar Nominee Services and Corporate Governance
Nominee services are contractual arrangements between Nominees (directors and shareholders) and the actual or beneficial owners of these positions. It involves the official representation of directors and/or shareholders in a Company both physically and legally. Nominee services are generally sought after for the purpose of legal privacy. A business/asset owner desirous of keeping their business records private will find these services most useful.
Nominee services are offered for various reasons some of which include;
- Registers of Directors and Shareholders being easily accessible to the public
In Nigeria, the information of directors and shareholders are readily available to public scrutiny, including addresses. Nominee services protect clients from such reviews by replacing the details of the actual director or shareholder with that of the Nominee representative.
- Legislation requirements (especially for offshore companies)
New companies may be required to include local directors or shareholders in their ownership structure which may not be an easy task for foreign business owners to achieve. Local directors/shareholders can be provided by appointing a Nominee company to act as a local shareholder and/or director.
- Investment/Business Strategy Reasons
Companies or individuals may for strategic reasons use the services of a Nominee company
Generally, the two types of Nominee services are Nominee Directors and Nominee Shareholders.
A Nominee director is an officially registered Company director acting on behalf of the actual director. The Nominee is appointed by virtue of a Power of Attorney (POA) which is issued by the beneficial director also known as the donor.
Upon the proper execution of the POA, the Nominee director may open bank accounts and sign documents or contracts on behalf of the donor. The extent of power of the Nominee will be determined by the terms stated in the POA. The POA may be issued on an annual basis so that the power to act is renewed yearly or it may be drafted in such a way as to enable an immediate termination upon request.
In selecting fit and proper directors, companies must apply the corporate governance principles and also be able to explain how their business activities fulfil the objectives of the governance principles. Generally, in Nigeria, Corporate Governance is regulated by the Nigerian Code of Corporate Governance 2018 (Code). This code aims to ensure good corporate governance practices in private and public companies.
Some companies are expected to have a fully structured board and organizational structure consisting of a mix of Executive Directors, Non-Executive Directors and Independent Directors. The size and composition of the board may be determined by the Company in accordance with any sector focused governance code that may also apply to such companies.
It is important that the functions of the Chairman are separated from those of the Managing Director and where the Managing Director intends to transition to the position of Chairman, it is recommended that he/she takes a three (3) year break first.
The code also provides the criteria for becoming an Independent Director which includes not owning any shareholding in the Company or having any direct or indirect relationship with the Company.
The role of Company Secretaries, Auditors and other internal parties must be considered in the business. Risk Management, Compliance and Remuneration Policies may also be adjusted in accordance with the code.
A good relationship with shareholders is one of the key pillars of corporate governance in any organization. Shareholders generally have the right to pass resolutions by voting at general meetings, attend meetings, to receive dividends, to review the Company’s registers inter alia.
Appointing a Nominee Shareholder enables the beneficial owner of the shares to protect and maintain their privacy.
To appoint a Nominee shareholder, the shares will be held in trust by the Nominee on behalf of the owner by virtue of a Declaration of Trust.
The trust may not automatically amount to the right to participate in the business of the Company such as voting at general meetings. The beneficial owner may still execute written instructions for the Nominee to act on his behalf. The Declaration gives effect to the fact that the shares are being held in trust by the Nominee and the Nominee is obligated to implement all the instructions of the actual owner such as transfer of shares, allocation of dividends inter alia.
It is important to note that Nominee directors or shareholders only hold their positions on paper. The actual/beneficiary official will still be responsible for the decisions of the business (where necessary) and will still enjoy the benefits (including financial) of the position being held.
It is imperative that companies regularly review their corporate governance structure. Board charters should be adopted to define the roles of the company officers in line with company policies. The board structure must be properly constituted with no conflict of interest.
Companies should also consider engaging Nominee Services where they require assistance to fill the board with qualified officers.
Berkeley Legal can act as a legal adviser in any of these instances, proffering advice on corporate governance and instrumental Company policies such as remuneration policies for the board and appointment criteria. Berkeley Legal also offers Nominee Director and Nominee Shareholder Services to companies in accordance with the relevant legislation and code of the business sector.
The information provided in this article is for general informational purposes only and does not constitute legal advice. If you require specific legal advice on any of the matters covered in this article please contact firstname.lastname@example.org.