Nominees, Representatives and Front men

The whole issue of nominees, representatives and front men has become increasingly complex in recent years. Many clients come to us after speaking to another offshore consultant or lawyer to discuss the idea of utilising nominee directors either to conceal the true ownership of their company or as a security measure. To clarify the issue and to explore some options lets first define what nominee directors, representatives/agents and front men actually are.

A Nominee Director - A nominee director is a person, company or trust who is effectively renting their name to you for an annual fee.  In other words, the name of this person is used and not yours for the incorporation documents.  They are also fulfilling the function of appearing on documents and contracts as a director of the company.  The term of straw man or front man has often been used to describe someone who is acting as a nominee but we tend to view front men differently as you will see below.  From a legal angle the traditional nominee is responsible for the company or entity.  It must also be considered that a nominee, who also acts as shareholder, will have the related ownership responsibilities as well.

Representatives and Agents – A representative or agent differs from a nominee in that he has no real power. The plus here is that you can be the director and/or shareholder in any jurisdiction which does not place directors and shareholders details on public record. Most leading tax havens meet these criteria although a few such as Panama do not. We will always advise on this point prior to forming a company for you. What the representative or agent does is speak for the company and pose as a senior member of staff or as an officer of the company. Representatives and agents are normally professional individuals in a suitable geographical location who can deal with day to day enquiries, give instructions to staff, send faxes or emails and carry out a range of functions to create the illusion that they are in charge and that you are responsible to them. This is very helpful if you want the clients you deal with or the staff who work for you to believe the offshore structure is owned by someone other than yourself. The advantage of this route is you are distanced from the company on a day to day basis whilst at the same time retaining control of the bank accounts and the company itself.

Front Men or Straw Men – Where Front Men or Straw Men differ from nominees, representatives or agents lies in the degree to which they play the role of being the “owner” of the company. They are basically passive and whilst not participating readily or actively in the businesses affairs on a day to day basis they are there to be called upon should the need arise. Front Men or Straw Men are the low cost option at only $295 / £150 / EUR189 per annum each. ORCA has access to over 150 Front Men worldwide and provides their services for both companies formed by us and for our clients existing companies. The main role of the front man is to act in effect as an insurance policy. In the event your business comes under attack or people ask awkward questions you can use the front man to buy time and deflect the problem. A typical situation might be if someone tries to serve legal documents. Should this arise you can say “I only work here you need to speak to Mr De’Souza in Portugal (it could be any of 67 countries) he owns the business, here is his number and email address. I am sorry I can’t help you but I don’t have the authority to deal with the issue” once the person contacts the front man he will be handled according to your instructions. This stage we call the Spin because in adverse circumstances it is at this point the person can be spun around or placated depending on the specific circumstances. Most of our Front Men are also our local suppliers of phone lines and support services in their locality so they will also assist you with hitching up a local line if needed which can then be diverted to any number you choose worldwide.

As regards which of the three options is best it all hinges on what you are seeking to achieve. The downside of traditional nominees is that it comes down to trust.  Fundamentally there are two issues here. One involves control or responsibility for the company or entity involved.  The other issue which is the primary concern of most clients is their money.  For a nominee to be listed as a director does not necessarily mean they control the related bank accounts although in most cases they do. What concerns our clients is that they potentially relinquish a lot of control whilst the issue still exists that banks insist on knowing the identity of the beneficial owner of the funds in the account. In our opinion this negates many of the benefits of using a nominee. An area that concerns us is that many Offshore Firms have a hidden agenda which is to control both the company itself and the client's money as well.  The incentive behind this for many firms is that if they can take control of the client’s assets they can earn annual or residual fees for money management or investment services.  I am sure that most firms are pretty much above board but the real problem is: How do you know who is straight and who is not?  Also, if the firm is totally straight now, how do you know that in the future events will not tempt them to abuse the authority you have granted them?  We recommend you never give control of your money to someone else.  This is how that objective is achieved.  

Privacy Protection and Safeguarding your Money.

Clients normally use traditional Nominee Directors because they wish to maintain their privacy whilst keeping their name off of public records.  The key point here is that 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 specific things.  In addition, it is very important to compartmentalize your business.  You can use nominees, representatives or front men in such a way that they have absolutely nothing to do with your core business activities.  In addition, it is also an excellent idea to have two different companies handle different parts of your business.  There are many ways to achieve this but one route is to form two companies with the same name in say Belize and the Seychelles, now let’s assume the Belize company trades and the Seychelles Company controls the bank account. If you arrange things carefully, the nominees will never know the whole picture or even that an invoice they are asked to mail for the company they represent and the bank account details appearing on the invoice are totally unrelated. This route has numerous benefits for privacy and protection from litigation.

Option 1 - Using a mixture of nominee directors and yourself. 
 
Since many jurisdictions require that two or more people be named as directors, you can utilise two nominees for the positions of marketing director and secretary.  Our suggestion is for the client to take the position of Managing Director.  The articles of incorporation should clearly state that the Managing Director is the only person who is authorized to; either open and control bank accounts, sign contracts on behalf of the company, purchase goods, and transact any other business activities relating to the company.  While this method does not always address every tax or reporting issue, it certainly solves the problem of having someone else control the corporation’s assets and is fine for over 80% of non US clients.                           
  
Option  2 – Integrating a Foundation or Trust into the Structure   

A  Foundation or Trust structure is basically an estate planning and asset protection device.  It is often not meant or permitted to engage in business activities unless it is created with this in mind from the outset. We deal with a trust company who can draft a trust that is every bit as flexible as an offshore company. Keep in mind that generally, corporations are used for profit ventures involving business activity such as securities trading, banking, international trade, ownership of assets etc. Most of our clients establish corporations to achieve this objective. Foundations are generally used for non-profit activities such as charities, receiving or giving donations, grants, etc., but they can also be used for holding purposes such as holding ownership of corporations or any other type of asset. Most of our clients use Foundations or Trusts to hold ownership of their corporations for additional confidentiality and asset protection. Trusts are generally used for holding purposes such as owning corporations, or holding assets such as real estate. These are simply general guidelines for what each type of entity was initially created for and do not have to be strictly adhered to. Keep in mind that the trust or foundation can act as a board member of the company as well which can be very helpful especially in the case of a trust because it is impossible to determine who controls it without a copy of the actual Trust Deed.         
When setting up an Offshore Structure the priority is common sense. Some clients get so obsessed with confidentiality and related complications that they never manage to get the thing up and running! Rule one is never turn control of your money over to anyone.  However, that does not mean that you cannot use nominee directors, representatives or front men for certain things such as arranging facilities, making phone calls, receiving mail, setting up phone lines or registering domains etc.  The right combination of careful planning and safeguards can make sure you are completely financially protected and at the same time discreetly in control of the entire structure itself.    

Nominees in Countries where directors and officers appear on public record

The names, addresses, occupations and birth dates of Company Directors are often on public record in many jurisdictions such as the UK, some EU Countries and many American States. In the UK it takes seconds to go to the Companies House website where information about company directors can be obtained online within minutes for just £1 ($2 / EUR1.25) or alternatively from a specialised credit search agency such as Snoop4Directors where you can search for more detailed information. Other countries are often similar to the UK so the issue of privacy is a major area of concern. This ease of searching is the principal reason why some people appoint nominee directors and shareholders. It can also be a useful way to prepare a company for a future deal if your name would affect the likely cost or success of the deal. There is nothing improper about wanting to protect your privacy. The dictionary defines PRIVACY as “The condition of being left alone and in control of information that is known about you, the quality of being secluded from the presence or view of others. Privacy is also the ability of an individual or group to keep their lives and personal affairs out of public view, or to control the flow of information about themselves.”

The cost of a nominee in the UK or US is $295 / £150 / EUR189 per annum.