Setting up an offshore company isn’t particularly difficult but, one of the key things you will need to consider, is whether to use a nominee as a director. Subsequently, let’s dig in and consider the key nominee director risks that you will face.
What is a Nominee Director?
A nominee director is someone that you appoint to your company to be the official director/s of record. Typically, they are appointed in the formation documents and, in many cases, may also be your registered agent. In short, they are the legal face of your company and retain all the rights, and obligations, to the shareholders of the company.
In actual practice this can have very different meanings depending on the jurisdiction where your offshore company is based. In most offshore jurisdictions, nominee directors are simply a “rubber stamp” and exercise no due diligence or control over the company.
In onshore countries, such as New Zealand, directors have wide personal liability to the company in cases where they are not exercising due diligence or care. This means that they will, likely, take an active interest in the running of the company to ensure that they do not accrue any personal liability.
Ultimately, in your typical offshore company setup the nominee director will only undertake an activity when requested to do so. This would be my preferred definition of a “nominee” and basically makes them a stamp on request service.
What Does an Appointed Director Actually Do?
The answer is…as much or as little as you direct them to undertake. In most cases, they will also be your corporate service provider (CSP). So, they will typically keep your company in good standing and ensure that any legal notices served on the registered office will be relayed to you.
Additionally, they will also sign any required documents for you, and this may also include being a signatory on a bank account. However, this is something I typically advise against (more listed below).
What Does Appointing Someone Cost?
The costs of using a nominee can range from insignificant to megabucks depending on your planned business operations and the inherent risk. However, most offshore service providers will bundle the cost of the 1st years’ service into their formation fees. Following year 1, you can expect to pay around $500 a year for a reputable service.
You should also confirm their time costs for executing and filing any required contracts or documents for you. Typically, agents in the Caribbean will charge approximately US$50 for executing and sealing a contract for you.
Any requests outside the normal are likely to incur fees in the range of $100-$150/hour for their time.
A Consideration of Nominee Director Risks
Regardless of their status, they typically have legal ability to exercise almost any action of the company’s affairs. Subsequently, you should be aware that any assets, businesses, or operations that you place into the company structure could be misused or misappropriated.
From the outset though, I would have to say that this is incredibly rare. In the days of the internet, reputation spreads fast, and the nominee/CSP would likely be out of business overnight. Subsequently, in all of my years dealing in the offshore world, I’ve never run across a case of theft from a nominee.
Another big risk of using an appointed director is that they could become difficult to deal with and necessitate removing them from the company. This is definitely a process which is not easy and takes having specialized knowledge in moving your registered agent and filing the appropriate documents (depending on jurisdiction).
How Do I Protect Myself and My Assets?
This is a question you should be asking yourself before every single decision that you make. In the case of using a nominee, you should be undertaking a few key steps with:
- Check out their references and background thoroughly. This will not tell you everything, but some detailed searching online may demonstrate a track record of unreliability. Ask in forums as to whether anyone has dealt with them before.
- Make sure you have a declaration of trust or a nominee directors’ agreement directly with them. This agreement should detail explicitly what their obligations are to you and what you expect from their conduct.
- Never allow them to have any direct access to bank accounts or assets. In most cases, they will sign a power of attorney over to you which allows you to open the bank accounts directly. This way they should have no knowledge or access to the accounts.
- Open bank accounts in a different jurisdiction to your company. This acts as an additional information shield and makes it hard to locate a bank account.
- Never give them access to any information they have no need for.
Following most of these points will protect you from 99% of the issues that you might have with a rogue director.
Final Word on Nominee Director Risks
Using a professional nominee for your offshore company, isn’t something that you should lose sleep over. You will be fine, as long as you undertake the appropriate due diligence before getting into bed with a new counterparty.
Please reach out if you get stuck or would like to use us as your nominee director.