Using Nominee Directors
Many clients have come to me 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, lets 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 elses 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.
Protecting Your Wallet and Your Privacy
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. My 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 corporations 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.
To hear about some of the successful things we have done for our clients, please contact us.