A common statutory requirement around the world for setting up a company is to have at least one director. To fulfill this requirement, many entrepreneurs turn to nominee directors, who act as company director but in a passive role. Here are a few reasons to highlight the benefits of engaging the services of a nominee director for your next offshore company.
Investor privacy
Nominee directors are a huge boon for investor privacy. Many jurisdictions require the personal details of the company director to be included on a public register. This is an issue that has come under pressure from the OECD and other international tax authorities to make this information public, in an effort to combat tax evasion. Thus, a nominee director offers an extra degree of asset protection, as the nominee director’s details appear on the jurisdiction’s company registry instead of any of the investors.
Meet statutory requirements about residency
A nominee director may be required to meet certain statutory requirements. Singapore and Australia, for example, both require newly registered companies to appoint a resident director who has been residing in the country in which the offshore company is formed for a certain amount of time. Some jurisdictions, like Dubai, require the director to be a local citizen. This requirement can be troublesome for investors looking to take advantage of a foreign countries company law but the requirement can be met through the use of a nominee director.
A nominee director who is a resident/citizen of the jurisdiction is fully capable of meeting this statutory requirement on behalf of the company. For entrepreneurs looking to manage their business from their own country, a nominee director would allow them to meet company law requirements while still being able to live where they choose.
Logistical benefits
Nominee directors can also be immensely beneficial for logistical reasons. Offshore companies often require the opening of a corporate bank account to complete company incorporation and the corporate bank account applications often require the director of the company to meet with the bank in person. A nominee director can save the investors the time and money required to travel to meet the bank by meeting with the bank on their behalf.
The nominated director may also complete other legal requirements that may arise, such as the need to register with certain government organizations, the need to register for taxes, and the need to obtain special licenses. Thus, a nominee director is capable of saving the investors significant amounts of money despite having to pay a fee for the nominee director’s services.
The risks
Hiring a nominee director is not without risk. While a nominee director should act in a passive manner, with all business decisions being deferred to the investors, the nominee director is bestowed with power in the company. The nominee director is capable of making strategic decisions related to the operations and management of the company and may also act on behalf of the company with clients, suppliers and governments without the expressed consent of the investors.
Thus, it is very important that only a professional corporate services firm with available references be hired to provide a nominee director. Consideration can be given to including special clauses in the contract to stipulate specific guidelines regarding decision-making responsibilities. This can help to ensure that the nominee director fulfills their role effectively and the company achieves the desired objectives for its investors.
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