In Singapore, a nominee shareholder arrangement is often used by individuals or companies looking to maintain privacy or protect their identity while still holding shares in a company.
This setup involves appointing a third party to hold shares on behalf of the actual shareholder, ensuring that their identity remains confidential in public records.
Understanding how nominee shareholders work is crucial for anyone involved in corporate structures or investments.
Here are seven key facts about having a nominee shareholder in Singapore that will help clarify this often misunderstood role.
#1. What Is A Nominee Shareholder?
A nominee shareholder in Singapore is a registered owner of company shares who holds them on behalf of the actual owner, also known as the beneficial owner.
While the nominee holds the legal title to the shares, the beneficial owner retains the economic benefits, such as receiving dividends and exercising rights related to those shares. This arrangement is often used to maintain the confidentiality of the real owner’s identity.
Nominee shareholders are appointed to ensure the share owner’s identity remains private, which can be important for competitive or personal reasons.
They fulfil specific criteria, such as being obligated—either formally or informally—to vote and act according to the instructions of the actual owner. They also receive dividends on behalf of the beneficial owner.
It’s important to note that a nominee shareholder doesn’t have to be a Singaporean citizen. They can be a Singapore Permanent Resident or hold an Employment or Dependent Pass.
#2. What Are The Responsibilities Of A Nominee Shareholder?
A nominee shareholder has several responsibilities, starting with legal compliance under Singaporean corporate laws. One of their key duties is to inform the company of their status as a nominee shareholder and provide the relevant details of their nominator, whether an individual or a legal entity.
For individual nominators, the nominee shareholder must provide the following information:
- Full name and any aliases
- Residential address and nationality
- Identification or passport number
- Date of birth and the date they became a nominee shareholder
If the nominator is a legal entity, the nominee must supply:
- Name and unique entity number (UEN)
- Address of the registered office
- Legal form and jurisdiction of incorporation
- Registration number as issued by the corporate register of the jurisdiction
- Date of nominee shareholder appointment
Nominee shareholders are required to update the company on any changes to this information or when they cease to act as a nominee.
For companies incorporated after 4 October 2022, nominee shareholders must provide this information within 30 days of incorporation or becoming a nominee. For companies incorporated before that date, the nominee must comply within 60 days of 4 October 2022 or within 30 days of becoming a nominee.
Nominee shareholders also have a fiduciary duty to act in the best interests of the beneficial owner. This means they must vote in line with the instructions of the beneficial owner and ensure the owner receives dividends and other entitlements.
While the nominee holds the shares, the beneficial owner retains all shareholder rights, including attending meetings and making business decisions.
Finally, nominee shareholders ensure the company complies with laws and regulations, including filing annual returns and maintaining corporate records. This is essential for both the company and the nominee to avoid legal repercussions.
To formalise this arrangement, a declaration of trust in a nominee shareholder agreement is often signed. This ensures clarity on the nominee’s limited rights and protects the beneficial owner’s interests.
#3. Why Should You Appoint A Nominee Shareholder?
In Singapore, it’s a legal requirement for companies to maintain a register of nominee shareholders. This register details the nominee shareholders and their nominators, ensuring transparency in business operations.
Apart from fulfilling legal obligations, appointing a nominee shareholder can significantly enhance privacy for company owners.
Public records in Singapore disclose information about the directors and shareholders of incorporated companies, which is accessible to anyone. To maintain confidentiality, especially in competitive business environments, a nominee shareholder agreement is crucial.
For example, suppose your business intends to branch out into a new field or sector of which your suppliers, distributors, or customers are a part. In that case, a nominee shareholder agreement helps delay or prevent the public from discovering this move (especially if your company is in direct competition with these entities).
There are many other reasons to obtain nominee shareholder services, such as:
- Your employment terms prevent you from establishing a company, even if the new company does not directly compete with your employer, or;
- You’re considering resigning from your current job, but the non-compete period prevents you from incorporating a company early, or;
- You’re about to resign from your current job, but you are serving a notice period and want to begin incorporating a new business as soon as possible.
As mentioned, there’s nothing illegal with this arrangement. But before requesting a nominee shareholder service, we advise you to take extreme prudence and care. This helps prevent potential breaches of contract or litigation actions.
#4. What Are The Risks Of Appointing Nominee Shareholders?
There are many instances in our years of providing corporate law services wherein nominee directors and shareholders are appointed without a written agreement. The beneficial owner depends only on a verbal agreement with the nominee shareholder.
But not having a written or signed declaration of the nomination can lead to several risks:
- The professional relationship between you and the nominee has fallen out. They begin treating the shares as a gift from you, and they claim they’re the actual owner of the company’s shares.
- You lose touch with the nominee shareholder because they’ve absconded or have become uncontactable for various reasons.
- The nominee shareholder does not act on your behalf and makes decisions based on their personal interests. This may include using the shares as collateral for a personal loan, selling them, or paying themselves a shareholder’s fee.
- The nominee shareholder demands payment (or a higher payment) before they honour the terms of the arrangement.
- The nominee shareholder passes away or has become mentally incapacitated. His personal representatives, donees, deputies, or heirs refuse to recognise the arrangement’s terms and begin treating the shares as the initially-appointed nominee’s property.
- The nominee shareholder discloses the details of the arrangement to other individuals.
In these cases, you primarily risk losing ownership of the shares, confidentiality, incurring high legal costs, and dealing with the consequences of your nominee shareholder’s unchecked and unauthorised actions.
We urge you to engage with a corporate lawyer first and undertake the necessary steps in nominating shareholders and directors for your business.
#5. How To Properly Appoint Nominee Shareholders In Singapore?
The proper way to set up a nominee shareholder arrangement is through a Declaration of Trust. This is a signed declaration between the beneficial owner and nominated shareholders to protect the former’s rights regarding dividends and income generated by the shares.
The Declaration of Trust explicitly states the nominee shareholder does not hold legal claims over the shares. It serves as security that the nominee will not only act based on your instructions but will also transfer you the shares as requested.
Another way of ensuring you receive the shares even if the nominee has refused or cannot make the transfer is by signing an undated share transfer form that favours you. You can also keep the share certificate private (particularly for a private limited company).
#6. How To Appoint A Nominee Director In Singapore?
A nominee director acts as your company’s director on your behalf. They’re different from a nominee shareholder who simply “lends” you their name as your company’s shares registered owner.
Signing a properly written document is also essential before assigning a nominee director. The document must state they will act only on your instructions.
You can also execute a power of attorney to allow your director to sign contracts, open bank accounts, and act on behalf of your business.
Expect your nominee director also to sign an undated letter of resignation. The purpose is to protect the company against any potential future claims made by them. The resignation letter also makes removing them as a director easier, as circumstances require.
#7. What Are Nominee Shareholder Agreements In Singapore
A nominee-shareholder agreement in Singapore is a legally binding contract that is essential when appointing a nominee to hold shares on behalf of the actual owner.
This agreement outlines the rights, obligations, and limitations that apply to the nominee shareholder, providing clarity and legal protection for all parties involved.
Key Components Of A Nominee Shareholder Agreement
The agreement should clearly detail the roles and responsibilities of the nominee shareholder. This includes:
- Rights and Duties: The agreement must specify that the nominee will act according to the instructions of the beneficial owner and only exercise rights over the shares as explicitly allowed under the agreement.
- Obligations: The nominee must agree to comply with all applicable laws and regulations, including keeping the register of nominee shareholders updated. They must also report any changes in their status or in the particulars of the nominator as required.
- Termination Conditions: The agreement should outline the circumstances under which it can be terminated and the process for doing so. This ensures that both parties have clear expectations about the duration and ending of the agreement.
Customisation For Specific Needs
It is crucial to tailor the nominee shareholder agreement template in Singapore to the specific needs of the business and the legal requirements of Singapore. This customisation might include provisions for confidentiality, specific operational procedures, or additional safeguards to prevent corporate malpractice.
Companies offering nominee shareholder services, especially regulated entities such as offshore companies, are often preferable to individual nominees.
These companies provide structured services that include additional safeguards and are organised to ensure compliance with corporate governance standards.
Conclusion About Nominee Shareholders
Nominating a shareholder for your Singapore-based business or foreign company is legally recognised under Singapore law.
Many intricacies are involved in appointing someone as a shareholder or director, which is why engaging with an experienced corporate lawyer in Singapore can help.
Tembusu Law is a law firm in Singapore offering tailor-fit legal advice to our clients. We specialise in Corporate Law, Litigation, Divorce/Family Law, Criminal Defence, Bankruptcy, and other fields.
If you need advice or assistance with family law issues, including divorce, our divorce lawyers in Singapore are here to provide expert guidance.
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Frequently Asked Questions About Nominee Shareholders
Is A Nominee Director Legal In Singapore?
Yes. Singapore law recognises appointments of nominee directors and shareholders as long as there are legitimate reasons for doing so. Nominee directors typically act on the company’s behalf and cannot make decisions independently unless expressed by the company owner.
What Powers Does A Nominee Shareholder Have?
Nominee shareholders don’t have specific powers and functions. Their only purpose is for their name to be present on the public list of shareholders.
Can A Nominee Shareholder Receive Dividends?
Yes. Nominee shareholders can receive dividends if the company pays them.
What Is A Disadvantage Of A Nominee Shareholder?
One disadvantage is the tediousness and cost of registering and maintaining details. The company may have difficulty understanding the owner of the shares and who to hold liable for the benefits attached to them.
Who Can Be A Nominee Shareholder?
An individual or a corporate body can become nominee shareholders. Brokers create companies acting as nominee shareholders, as it helps reduce the administration of buying/selling holdings on behalf of the clients.
