Many
clients have come to us after speaking to some Offshore firms or law firms
regarding the idea of using nominee directors
for the masking of true ownership or as
a protection mechanism. To clarify the matter and to explore some strategies
with this idea,
let’s first define what a nominee director
actually is.
A nominee
director is someone who in fact is renting his or her name to you.
In other words, the name of this person is used and
not yours for the incorporation documents.
They are also taking the positions on paper of the company directors.
The term of
straw man or front man has been used to
describe someone who is acting as the nominee. The problem with any
nominee
comes down to trust. I know of many
people who would not even consider the idea of placing control of their
assets into the
hands of a brother, sister or other family
member. Why would you consider doing so with someone you never met
before?
I am sure there are quite a number of
honest and ethical lawyers or accountants who can be successfully used
as a nominee
director. The problem is how do
you know who is honest and ethical? Also, if the person is honest
and ethical now, how do
you know that some personal problem down
the road will not tempt them to abuse the powers you have given to them?
No one starts out wanting to have marital,
gambling or other types of problems, but the frailties of human nature
can get the
best of everyone sometimes. To see
someone have a problem is unfortunate, but someone else’s need for cash
should not
become your problem by default. Protect
yourself first. Never give control of your money to someone else.
Here is how.
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People use Nominee Directors because they
want to maintain their privacy and keep their name out of the public record.
A legitimate and fair enough goal.
In reality though, if your Foundation or Company is domiciled in a jurisdiction
governed
by Civil law and privacy statues, it can
be your benefit to set things up in such a way that the no nominees are
used or are
only used for some things.
Strategy # 1 - Using a mixture of nominee directors and yourself.
Since most jurisdictions require that three
people be named as directors, you can certainly use two nominees for the
positions
of vice-president and secretary.
This may be out of practicality, especially if the client is acting alone
in setting up an offshore
structure. Our suggestion then is
for the client to take the position of president. The articles of
incorporation should clearly state
that the president is the only director
who is authorized to; open and control bank accounts, enter into contracts
on behalf of the
company, purchase property or goods, and
any other activities relating to the company. While this method does
address any
tax or reporting issues, it certainly
solves the problem of having someone else control the corporation’s assets.
Strategy # 2 – Using a Foundation or Trust Structure
Because
of recent legislation aimed at addressing the large number of people that
have taken their assets and themselves
offshore, some firms have developed some
exotic plans with regards to cross ownership of companies and a number
of
other strategies as well. I do not
want to try and explain them all, but just keep in mind that a juridical
person can certainly
form or act as the board of directors
for a company. With that in mind, there are some general strategies
that allow one
entity to own the stock of another or
allow one entity to control the board of another. Some of these strategies
can become
quite confusing, and expensive.
As mentioned in other articles, the Foundation
or Trust structure is basically an estate planning and asset protection
vehicle.
It is not an entity that is meant or permitted
to engage in business activities. That role is left to the Corporation
structure.
It can however certainly own 100% of the
stock of an offshore corporation, thus alleviating the problem of the client
having
to claim ownership of a foreign corporation.
In addition, the trust or foundation structure can certainly act in the
capacity as
a board member of the company as well.
When
setting up an Offshore Structure, the key to any initiative is using some
common sense. You should never turn control
of your money over to anyone. However,
that does not mean that you cannot use nominee directors for certain things
or that
you need to so something that will create
a conflict with current tax legislation in your home country. The
right mix of planning
and safeguards can make sure you are well
protected and in control.
For
Additional Information Regarding the Use of a Foundation and other vehicles
for asset protection, please send us an Email.