Nominee service is a privacy technique used by corporate shareholders and LLC members to keep their names out of the public records. The first thing a contingent fee attorney does before taking a case is an asset search. If the attorney cannot find assets, the law firm is less likely to take the case. So, by keeping your name out of the public records, you can put the odds in your favor. Thus, you help reduce the chance of lawsuits, garnishments, bank account levies, real estate seizure and expensive legal fees. Privacy of ownership is one of the firsts layers in a good asset protection plan.
Corporate Formalities, Legal Shield Service
In addition, nominee service can help you with legal formalities. The nominee can, at your request, prompt you to conduct annual shareholder and director meetings. Plus, he or she can help you draft legally required resolutions of the board of directors. These are called corporate formalities. In a court proceeding, a judge will typically determine if you treated the corporation as a separate entity. One of the most important factors is that you undertook the needed corporate formalities and documented your important business actions.
Plus, you will need to be sure that you do not co-mingle corporate funds with personal ones. Don’t pay your personal electrical bill with your corporate bank account, for example. Moreover, you or your nominee will sign contracts in the name of the company, and not personally. For example, sign Pat Smith, President of ABC Inc., not simply Pat Smith. Your nominee can help you maintain your company so that it stays in good standing and adheres to the needed formalities. The corporate formalities service, called the Corporate Shield Service TM and is an added service for an additional fee. Here is a link to find out the price for these valuable service.
How are You Protected?
Can a nominee run off with my money? No, a nominee cannot simply run off with your money, and here is why. First, there is a strict contractual agreement that the nominee can only make certain acts at your direction. Second, the nominee is not typically a signature on your bank account. You are. So, the nominee does not have access to your bank account. Third, the agreement states that the nominee cannot sell company property unless you give instructions to do so.
Nominee means, “in name only.” As such, the nominee is simply a name in the public records and does not have control over your company. You, as the shareholder, have the ultimate control. You have the voting rights.
What if I don’t like what the nominee is doing? Though this is not an actual issue that we know our clients to have had, it is worth answering the question. The answer is simple. If you do not like what the nominee is doing you have the right to vote him or her out. You can vote the nominee out and yourself in anytime you like. Again, you, as the majority corporate shareholder or LLC member, have the ultimate control.
You are the CEO. In most states the Chief Executive Officer (CEO) is not a matter of public record; same with corporate Vice President. So, if you wish, you can retain these positions for yourself. Therefore, through voting rights and holding the CEO position, you maintain control. Thus, with your nominee holding the publicly listed positions, you fly under the radar.
Is this legal?
From time to time people ask us, “Is this legal?” Since this is obviously a legal question, it deserves a legal answer. There is no better place to look than the law itself. Corporate laws in many states across the United States have similar provisions. Many sections of US corporation and LLC law in all 50 states are mere carbon copies or paraphrased versions of one another.
Keep in mind an officer and a director is different from a shareholder. Officers and directors are positions within a company. A shareholder is an owner of the company. Let’s use an automobile as an analogy. Say you own an automobile that you use in your business. You are the owner of the car. However, you may instruct an employee to make deliveries in the vehicle. In this example you are roughly equivalent to a shareholder because you own the car. Your employee is analogous to an officer or director because he or she is operating the car.
So is this legal in the corporate world? Can you have one person as a shareholder and another person holding the officer and director positions? To answer this we will take a look at some of the most popular states, Nevada, Delaware and Florida. What do the statutes say about who can become an officer or director? Are there any laws against nominee officers or directors? We have conducted extensive research to provide solid evidence for our findings.
First, we will see if nominee directors are legal. Then, we will look, in this regard, at corporate officers. To begin with, let’s take a look at the Nevada Revised Statutes.
NRS 78.130 indicates the following:
- Every corporation must have one or more directors.
- A director must be a natural person (human being) who is at least 18 year old.
- Unless otherwise provided in the articles of incorporation, directors need not be stockholders.
Similarly, Delaware Code, Title 8, Ch. 1, Subchapter IV, § 141 (b) states clearly, “Directors need not be stockholders unless so required by the certificate of incorporation or the bylaws.”
Florida Statutes Title XXXVI § 607.0802 (1) says that, “Directors must be natural persons who are 18 years of age or older but need not be residents of this state or shareholders of the corporation unless the articles of incorporation or bylaws so require.” (Emphasis added.)
While we’re at it, let’s take a look at Nevis. Nevis is located in the Caribbean southeast of Florida. It is one of the most popular offshore company formation jurisdictions. The Nevis Business Corporation Ordinance (NBCO), Part VI, 45 states that directors may be natural persons or other corporations. They need not be Nevis residents or shareholders of the corporation. Moreover, it says the company may appoint alternate or substitute directors.
So, what does this tell us? First, every corporation must have a director. Second, a director must be a human being (or in Nevis, another corporation). Clearly, nowhere does the law say that a director needs to also be a stockholder (owner). To the contrary, the law specifically states that, unless the corporate articles state otherwise, “directors need not be stockholders.” So, according to the statues, as long a nominee meets these requirement, he or she can serve as director.
Okay, so a nominee can serve as a director. What about serving as one or more officers? With respect to officers, again, Nevada, Delaware, Florida and, yes, Nevis have very similar provisions.
In Nevada, for example, NRS 78.130, in summary, says the following:
- Every corporation must have officers (president, a secretary and a treasurer, or the equivalent thereof).
- Officers must be natural persons (human beings).
- They must be chosen as prescribed by the the bylaws or determined by the board of directors.
So, every corporation must have officers. They have to be people. The board of directors can determine how to choose them. We have already seen nominees can hold the position of director. Therefore, if they meet the above requirements, the nominees may appoint themselves as officers if the shareholders agree.
Delaware is very much alike. Delaware Code, Title 8, Ch. 1, Subchapter IV, § 142 (b) says, “Officers shall be chosen in such manner and shall hold their offices for such terms as are prescribed by the bylaws or determined by the board of directors or other governing body.”
In a similar vein, Florida Statutes Title XXXVI, § 607.08401 (1) says that a corporation shall install officers as described in its bylaws or as appointed by the board of directors in accordance with the bylaws. There is nothing about officers needing to be shareholders.
Finally, Nevis statutes contain similar verbiage. (NBCO), Part VI, 51 (1) simply says officers shall each be appointed by the board or in the manner directed by the articles of incorporation or the bylaws. All officers shall be natural persons except the secretary which may be a corporation.
What About Nominee LLC Managers?
What about LLCs? Can LLCs have nominee managers? LLCs generally do not (though can) have officers and directors. They have what the law calls one or more managers. The Uniform Limited Liability Company Act is adopted across most of the 50 US states and many foreign countries. There are variations, but most provisions are very similar if not identical. So, let’s take a look at a couple of states here.
In Nevada, NRS 86.071 defines “Manager” as a person, or one of several persons, designated in or selected pursuant to the articles of organization or operating agreement of an LLC to manage the company. We see nothing requiring manager to also be a member.
Delaware LLC Code § 18-101 (10) states that a manager is a person who is named or designated as a manager of an LLC pursuant its agreement or similar instrument under which the LLC is formed. Delaware § 18-402 says that unless otherwise provided in an LLC agreement, the management of an LLC shall be vested in its members. So, clearly, the LLC agreement can provide otherwise and appoint a manager who is not a member.
What the Law Says About Nominees
Does the word nominee appear anywhere in the corporate statutes? Yes, in Nevada and many other states it does. What does it say? NRS 78.418 (2) says that a person is not considered to have control of a corporation if the person is a nominee of one or more beneficial owners. So, if a nominee officer or director also acts a nominee shareholder for one of the owners, that does not give the nominee control of the company. So, that statute should give peace of mind to the true owners of the company in that the shareholder, not the nominee, maintains control.
Even foreign statutes acknowledge the use of nominees. In Nevis, NBCO, Part VI, 45 says that alternate or substitute directors may be appointed.
Nevada LLC statutes acknowledge the use of nominees during winding up procedures. Plus, there is no provision prohibiting the use of nominee managers for LLCs.
So, it is quite apparent to us when looking at the statutes that nominees are legal. This is the case in both corporate and LLC laws that we have observed. Not only do we find them legal but nominees and their equivalents are often addressed by statute. Though we have addressed the laws of only four jurisdictions, we did not cherry pick for the ones that suit our purposes. We investigated the statutes of many U.S. states in this regard as well as the most popular offshore jurisdictions. We were able to find nothing to the contrary.
Legal Purposes Only
The nominee service can give tremendous privacy and peace of mind. The nominee can also help with corporate formalities that may aid in strengthening the corporate shield. That said, privacy is fine. Breaking the law is not. NRS 78.030 agrees. It says that a person shall not establish a corporation for any illegal purpose or with the fraudulent intent. So, lawbreakers need not apply. If someone indicates that he or she intends to use this service for other than legal purposes, naturally, we will refuse to provide this service. In addition if, down the road, we feel someone is using the company in an illicit manner or is under criminal investigation, we will resign and cut our ties.
Moreover, we our nominees need to make sure what they do for your company does not give them personal liability. So, we need to take a look at each transaction from legal, ethical and liability perspectives.
Do you want to enhance your privacy? Do you want to take steps to protect your assets and decrease your odds of becoming a lawsuit target? Do you want to run your business and garner assistance from those experienced at keeping the corporate veil strong? Do you only plan to use your company for legal purposes? Then the nominee service might be for you. There is a telephone number on this page to call. There is also an inquiry form on this page in order to get more information about this valuable service.