Nominee company

From CEOpedia | Management online

Nominee company - is usually created by bank or different trustee organization. This kind of company hold and administer securities as a registered owner on behalf of an beneficial owner.

Nominee company is a legal entity in its own right with own share capital. In essence a nominee company is legally isolated from the custodian. This is important because if the custodian fails to keep his commitments the company company remains as a going concern. The company can't default itself because it does not lend money, invest or take risk. The company's name is listed in the shareholders' register and it acts as legitimate owner of the securities. Securities registered on behalf of the nominated company have the same legal status as those registered by custodian but it is worth noting that the biggest difference is the separation of the custodian's risk of default. Using of nominee company is very popular because empower the custodian to keep safe and control its customers securities to its maximum efficiency. The client receives dividends in the normal way, although it is paid by his custodian rather than the issuer. However customer lose the direct relation with the issuer that he would have if his own name was reported in the shareholders' register (K. Dickinson 2015).

Registered owner vs Beneficial owner

Registered owner also known as nominee shareholder is usually individual or company who owns shares on behalf of real owners. The nominee and true owner they have entered a contract on the basis of which the nominee shareholder would hold the shares in the name of owner. The true owner would hold all rights and control of his shares (A. V. Chang, A. H. Thorson 2010).

Beneficial owner is usually an individual who enjoys benefits of ownership or customer property control on behalf of whose this tranasction is being conducted. Beneficial ownership differs from legal ownership however usually legal and beneficial owners are one and the same but sometimes there are cases legitimate and sometimes not-so legitimate, where beneficial owner want to remain anonymous (D. Cox 2014).

The differences between register owner and beneficial owner:

  • The main differences between a beneficiary owner and a nominee shareholder is that the first one is the legal owner of the shares which he bought form a limited company.
  • The beneficiary owner may stay anonymous as he designates someone to be a nominee shareholder.The nominee shareholder appears on company's official documents and public records but the beneficiary owner receives the income from the shares.
  • The nominee shareholder does not own and has no claim form the shares. Also he has to sign a declaration of trust that protect the beneficiary owner's assets (What are the main differences 2019).

Examples of Nominee company

  • Euroclear: Euroclear is a leading global provider of securities settlement solutions, established in 1968. It is the world’s largest provider of cross-border settlement services, enabling securities to move in more than 100 markets around the world. It provides a wide range of services such as safekeeping and administration of securities, as well as settlement services to financial institutions.
  • Bank of New York Mellon (BNY Mellon): BNY Mellon is one of the world’s leading asset management and securities services companies, providing a wide range of services such as custody, administration and other support services for institutional investors. It is also the world’s largest custodian bank, with more than $30 trillion in assets under custody. It provides nominee services to its clients, allowing them to nominate their holdings to be held in the name of the bank.
  • JPMorgan Chase: JPMorgan Chase is one of the world’s largest banks and a leading provider of financial services, including asset management, securities services and custody services. It offers a range of nominee services, including the ability to register securities in the bank’s name for its clients. It also offers services such as safekeeping and administration of securities, as well as settlement services.

Advantages of Nominee company

A nominee company offers several advantages for beneficial owners of securities. These include:

  • Increased anonymity - Beneficial owners can remain anonymous when the nominee company holds their securities instead of the owner directly.
  • Security - As the securities are held in the name of the nominee company, the beneficial owner is protected from any potential creditors.
  • Cost savings - Beneficial owners are able to save money on fees and commissions as the nominee company can often act as an intermediary between the issuer and the owner.
  • Increased convenience - When a nominee company holds the securities, the beneficial owner is able to make transactions more quickly and easily.
  • Reduced paperwork - The nominee company is responsible for completing all necessary paperwork and ensuring the accuracy of the records, so the beneficial owner does not need to complete any paperwork.

Limitations of Nominee company

A nominee company is a type of entity that is used to hold and administer securities on behalf of an beneficial owner. Although a nominee company can provide many advantages, there are a few limitations that should be considered. These include:

  • Reduced flexibility: When securities are held in a nominee company, the beneficial owner is restricted in how they can manage their investments. They cannot directly access their securities or take advantage of opportunities to diversify their investments.
  • Potential conflict of interest: The nominee company may be biased towards making decisions that benefit its own interests instead of those of the beneficial owner.
  • Lack of privacy: The beneficial owner’s details may be exposed to the nominee company, which could lead to unwanted disclosure of confidential information.
  • Possible costs: The nominee company may charge fees for their services, which can add up over time.
  • Lack of control: The beneficial owner will have limited control over the management of their securities, as the nominee company will be primarily responsible for making decisions.

Other approaches related to Nominee company

Other approaches related to nominee companies include:

  • Trustee Services - A trustee is a professional who holds legal title to assets on behalf of a beneficiary, such as a bank or other financial institution, and has fiduciary responsibilities to manage the assets in the best interests of the beneficiary.
  • Custodian Services - A custodian is a financial institution that holds and safeguards assets for clients, such as stocks, bonds, and other investments. Custodian services are often used by individuals and institutions to protect their assets against loss, theft, or misuse.
  • Escrow Services - Escrow services are provided by a third-party agent who holds funds on behalf of two or more parties who are entering into a transaction. The funds are held in an account until the terms of the transaction are met.
  • Asset Management Services - Asset management services are provided by a third-party agent who manages and oversees the investment of assets on behalf of the beneficial owner.

In summary, Nominee company is a legal entity that holds assets or securities on behalf of another entity such as an individual or business. Other approaches related to nominee companies include trustee services, custodian services, escrow services, and asset management services.


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References

Author: Hanna Cugier

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