Nominees - What risk do they handle?

[cer955]

Hello everyone.
I have one big doubt. Which kind of risks do nominee administrator and shareholders take?
I mean, wouldn't the nominee be legally responsible for taxes and any kind of obligation for the company?
Why would I - the entrepreneur - take care of taxes and bureaucracy if I'm not going to be the one taking the risk?

I am thinking about using a nominee in UK, how "safe" would that be?

Thanks

 

[seabreeze]

It all really depends on the jurisdiction.

In most common law jurisdictions, the "nominee" is a legally existing term. The sheer fact that they are merely obfuscating another person is understood and foreseen, normally in Company Management / Trust Services / Company Administration laws. As such, their responsibility will be capped by contractual agreement with you and they can shun away, you can't.

In civil law jurisdictions, those titled as Directors or Managers can generally not relieve themselves of any personal liability, though they too can contractually hold you to compensate all the negative consequences of following your instructions.

Those legally representing the company are allowed to engage it in regard to third parties, breach of trust in regard to you notwithstanding. So if they ever have their pet koala kidnapped and they need to come up with a ransom, there is nothing stopping them from, in the moment, engaging the company's accounts, pledging some sorts of company property etc. It could even be corporate actions you learn about years later. It could take years in court (as well as tens, if not hundreds of thousands of dollars) to rectify foul play, with no guarantee of satisfactory outcome.
You should check whether the agent offering you nominee services is legally allowed to arrange them in the agent's jurisdiction. If it's a specified type of regulated action and your agent is not licensed to do it, run away. If he is, then he can't shun away from his due diligence requirements in offering a poorly-reputed nominee to you and could be held co-responsible for bad actions in some scenarios. If it's a non-regulated service (rarely so), the agent could pretend it's a non-professional introduction.
Also, it takes a certain kind of character to be a "cheap" nominee and it attracts a certain kind of clientelle. One Panama-papers-like leak, and you could find your company tied to a network of tax dodgers, money launderers or worse by proxy of sharing the same nominee chap. Good luck finding a real bank to onboard you after that.

So yeah, nominees - sometimes good. But probably best for very specific functions or SPVs, not as obfuscation means in a real ongoing business...

 

[cer955]

It all really depends on the jurisdiction.

In most common law jurisdictions, the "nominee" is a legally existing term. The sheer fact that they are merely obfuscating another person is understood and foreseen, normally in Company Management / Trust Services / Company Administration laws. As such, their responsibility will be capped by contractual agreement with you and they can shun away, you can't.

In civil law jurisdictions, those titled as Directors or Managers can generally not relieve themselves of any personal liability, though they too can contractually hold you to compensate all the negative consequences of following your instructions.

Those legally representing the company are allowed to engage it in regard to third parties, breach of trust in regard to you notwithstanding. So if they ever have their pet koala kidnapped and they need to come up with a ransom, there is nothing stopping them from, in the moment, engaging the company's accounts, pledging some sorts of company property etc. It could even be corporate actions you learn about years later. It could take years in court (as well as tens, if not hundreds of thousands of dollars) to rectify foul play, with no guarantee of satisfactory outcome.
You should check whether the agent offering you nominee services is legally allowed to arrange them in the agent's jurisdiction. If it's a specified type of regulated action and your agent is not licensed to do it, run away. If he is, then he can't shun away from his due diligence requirements in offering a poorly-reputed nominee to you and could be held co-responsible for bad actions in some scenarios. If it's a non-regulated service (rarely so), the agent could pretend it's a non-professional introduction.
Also, it takes a certain kind of character to be a "cheap" nominee and it attracts a certain kind of clientelle. One Panama-papers-like leak, and you could find your company tied to a network of tax dodgers, money launderers or worse by proxy of sharing the same nominee chap. Good luck finding a real bank to onboard you after that.

So yeah, nominees - sometimes good. But probably best for very specific functions or SPVs, not as obfuscation means in a real ongoing business...

Thank you.
For my need, the nominee wouldn’t really have access to anything company-related as the company will not even have a bank account. So, if I use a UK LTD, my liability protection is close to zero right?
Thanks

 

[CyprusLaw]

Thank you.
For my need, the nominee wouldn’t really have access to anything company-related as the company will not even have a bank account. So, if I use a UK LTD, my liability protection is close to zero right?
Thanks

I will speak from a Cyprus perspective, which generally follows the UK legal system:

The directors are responsible for the company's actions and/or omissions. For example they are liable for not filing tax returns etc. However, the UBO Register has been implemented all over the EU (and I believe the EU has also implemented it) so now every company has the obligation to disclose its UBO.

Another point to note, is that any proper and professional nominee would ask you to enter into a nominee agreement and/or an indemnity agreement in order to protect themselves. Also, all entities acting as nominees must register as such.

As I said the above is purely from a Cyprus perspective, but I am almost certain that it is identical and/or very similar in the UK as well.

 

[seabreeze]

Thank you.
For my need, the nominee wouldn’t really have access to anything company-related as the company will not even have a bank account. So, if I use a UK LTD, my liability protection is close to zero right?
Thanks

I would assume that your liability PROTECTION by using a nominee is low.

Then there are nominees and there are professional managers.

If you engage a professionally licensed management firm, attorney or similar and you engage them to manage the company in a fiduciary capacity and reward them on a time spent or other reasonable vs risk and lawful basis and they are regulated and insured and they are the director of your firm
AND
you are merely involved in a supervisory/controlling function without micromanagement

then your personal liability will be, I assume, very low. And the insurance of the professional manager should offer some lever of protection from the consequences of gross breach of fiduciary duty.

 

[cer955]

I will speak from a Cyprus perspective, which generally follows the UK legal system:

The directors are responsible for the company's actions and/or omissions. For example they are liable for not filing tax returns etc. However, the UBO Register has been implemented all over the EU (and I believe the EU has also implemented it) so now every company has the obligation to disclose its UBO.

Another point to note, is that any proper and professional nominee would ask you to enter into a nominee agreement and/or an indemnity agreement in order to protect themselves. Also, all entities acting as nominees must register as such.

As I said the above is purely from a Cyprus perspective, but I am almost certain that it is identical and/or very similar in the UK as well.

How does the UBO requirement work with that? Can't the nominee be UBO too? I don't care about being shareholder nor director of the company - no money is going to be handled by that company anyway.
Basically what I need is a EU company to own a Stripe account, but money will go directly to a US company, which is under my control.
The problem is merely about countability and bureaucracy - Stripe may report to UK that the company earned some money, but in fact the company didn't, because the UK LTD Stripe accounts payout goes to another company's bank account.

If Stripe statements are taken to be true by UK, the LTD would be accountable for VAT and taxes for those money of course - money which the LTD never got, because they went directly from Stripe to the bank account of another company. A bit messy but I hope you got the idea.

 

[cer955]

so basically the US and UK company shares the same name right? and the stripe account is set up for the UK one but sending the money to the american one

Yes right. Btw they don’t have the same name (Stripe doesn’t really care about that).