Nominee Services: How Does It Work & How Much Protection Does It Provide?

In Hong Kong, all the information of a limited company including the details of the shareholders and directors are made public. As such, the most common reason an enterprise might consider appointing a nominee director and shareholder is to protect the identity of the actual shareholders and directors of a company. But how does it work? How do you safeguard the rights of the real shareholders and directors and how much protection do you actually get?

Nominee Services Hong Kong

From a quick search online you will find that there are quite a few professional service providers or if you know someone who is willing to be appointed as a nominee director or shareholder you can also proceed this way.

To protect the ultimate beneficiary’s right to company assets and distribution of income, a nominee contract will typically be entered into and stamped. Meanwhile, under the contract the following are usually included:

  • The beneficial owner is given the right to dismiss the nominee shareholder and/or director;
  • The nominee will not be allowed to sign any commercial contract without the express consent of the beneficial owner; and
  • The nominee will not be liable for business activities of the company.

Appointing A Nominee Director

Hong Kong companies are required to have at least one individual director and appointing a Nominee Director would help to keep the personal information (e.g. name, address, passport number, etc.) of the actual director hidden in that it cannot be searched by the public.

To protect the rights of your company, a Power of Attorney (POA) should be signed for you to retain full control of the management of the company.

Individual Nominee Director

With the requirement of having at least one individual director, if you will only have one director you may be considering to appoint an individual Nominee Director.

Appointing an individual Nominee Director implies the personal liability of the director as an individual. Unless the Nominee Director and ultimate beneficiary have a long-standing relationship, this is a really significant risk and should not be taken lightly; this is why a lot of professional corporate service providers no longer offer the service. An important point to consider for those looking to appoint an individual Nominee Director.

Appointing A Nominee Shareholder

Meanwhile, appointing a Nominee Shareholder and a Nominee Director usually go hand in hand as the information of both the directors and shareholders of a company are publicly available.

When appointing a Nominee Shareholder, a Declaration of Trust should be entered into to protect the actual shareholder’s rights to their shares.

Corporate Bank Account Opening

To protect your account numbers and passwords and signing rights, the Beneficial Owner(s) and Nominee Director(s) and Shareholder(s) should attend the mandatory meeting with the bank.

For those who want to remain completely anonymous, unfortunately, every bank will request the name of the ultimate beneficiaries. Moreover, the banks are now required to release such information when necessary per the recent introduction of tax legislation regarding implementing Automatic Exchange Of Information (AEOI) (for more details, please refer to our article here).

Not to mention using nominees will make corporate bank account opening even more complicated than it already has become (for more info on the challenges of setting up a corporate account in Hong Kong click here).

Legal Matters

Despite the documents described above, even if they work and the nominee is given a decent level of protection, if legal issues should arise the nominee will still need to be involved in the time-consuming process required to resolve them.

Should I nominate?

In the end, unless you have a particular need to have certain information protected, considering the effort it takes to appoint a nominee combined with there being no guarantee of complete anonymity for the ultimate beneficiaries or protection for the nominees, it would seem easier to incorporate using the actual director and shareholder’s information.

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Have more queries? Do not hesitate to contact us. Team LCCS is ready to help.

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