What is a nominee director?

/What is a nominee director?

What is a nominee director?

This is an often confused matter, but there is simply no such thing as a "nominee" director even though many service providers advertise such services.  A director is a director.  Even worse some providers will offer the services of a "nominee" director along with provision of a General Power of Attorney to the client or another third party to do any act on behalf of the company without the knowledge of the directors.  As this is often a deciding factor for a client when choosing a service provider it is important for prospective clients to clearly understand the risks and other considerations in relation to provision of director services by the chosen service provider.

1. Considerations/Risks for the Client - the provision of director services for an offshore company by the service provider is usually necessary to ensure that "management and control" of the company is deemed to be in a favorable jurisdiction for tax purposes (usually where the offshore company is incorporated) rather than where the client is located for instance.  This location of "management and control" determines the tax residency of the company in the case of an otherwise exempt company such as an International Business Company.  There is typically no public record of the directors of such an offshore company.  Therefore, logically where this would be important would be in a situation where there is a tax inquiry into the affairs of the company under a bilateral tax information agreement or the upcoming multi-lateral framework being adopted and implemented by countries.  In such a case, the framework of the company and oversight by the directors must be consistent with them maintaining "management and control" of the company in the low tax jurisdiction and this "nominee" along with a General Power of Attorney given to the client by many firms will simply not stand up to this requirement.  Exchange of information for tax purposes is simply a new global reality being led by the G8 and OECD that everyone must understand, embrace and prepare for to be sure it does not cause any adverse consequences.

2. Considerations/Risks for the Service Provider/Director - it is important for clients to understand that the service provider and appointed director provided by the service provider have risk as well and thus must be comfortable with the level of oversight and operations of the company.  Directors provided by service providers are legally expected to think and act in a way consistent with what is expected of company directors of any company.  As such, the directors of any company have a legal obligation to maintain a certain level of oversight regarding the affairs of the company.  If a client company is found to be engaging in illegal activities, committing tax evasion or similar the service provider and director can both face fines, criminal prosecution and the possible revocation of the license to provide such services in the future putting the firm out of business.

Sterling's Professional Director Services

Sterling Offshore  provides professional director services carried out by senior level employees approved by the Financial Services Authority as "fit and proper" to act in such a role.  The services are provided under strict terms of business and a services agreement to give comfort to the client.  While we cannot provide director services on a company that issues a General Power of Attorney, it is usually possible for the company to issue a Limited Power of Attorney to the client or other designated third party which provides appropriate oversight such as requiring that the directors be made aware of any contracts before signing by the LPOA holder and other similar provisions.

By | 2016-10-29T17:17:31+00:00 August 14th, 2014|0 Comments

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