In some countries, there is a formal recognition in law of certain scenarios in which nominee arrangements are permitted. In line with the formal arrangements, there is a section, called company registrar, that has to monitor the compliance to certain regulations, for example, submitting the information about the Ultimate Beneficial Owner (UBO). In this article, we would like to outline the arrangements between the UBO and the nominee of the company.

In some cases, the director or the shareholder of the company may act in favor of its real beneficiary, such an appointment is also known as a nominee individual. This assumes that a person or a company that is entrusted to hold and administer shares or other property as the registered legal owner on behalf of the real owner. 

Engaging nominee shareholders and directors is a widespread practice, which is applied in many countries. In some of them, there is a formal recognition of arrangements associated with the nominee. Some of the key reasons to refer to the nominee are: the UBO does not meet the legal requirements of the company’s residing country, or he wishes to shield from public disclosure. One such example is the requirement for a director to reside domestically. The initiative to regulate the formal arrangements with a nominee is focused on incidents associated with money laundering. However, this is not yet on a Governmental level. The Ministry of Economy of the country has issued the document, which highlights the definition of nominees, and calls for transparency, disclosure, and enhanced due diligence. 

The main purpose of a nominee is that the identity of a UBO will be undisclosed for public registers. The reasons behind undisclosed identity might vary from relatively less to more sophisticated purposes. In the UAE, the basic company information (including the company’s manager) is provided in the National Economic Register. In this context, the use of nominees reduces the usefulness of such registers filed publicly for the purpose of identifying related individuals. While engaging nominees is lawful (or at least not explicitly unlawful) in most jurisdictions, the role of the nominee, in many cases, is to protect or conceal the identity of the beneficial owner and controlling party of a company or an asset. 

Formal and informal nominee arrangement

There are at least two forms of nominee arrangements: formal and informal. Formal nominee arrangement involves services that can be offered by a range of professionals: Corporate Services Providers, legal and accounting professionals, and trusts. 

Informal nominee shareholders/directors do not differ from formal nominees at the first glance, as they perform the same functions in the company. However, there might be several differences between formal and informal nominees, for instance, personal relation to a UBO. Normally these personal associate members are not engaged in UBO’s business interests.

Another difference between the formal and informal nominee arrangements is that there is no agreement in the case of informal nominee arrangements. Moreover, the formal nominee will most likely refrain from intervening in the company’s activities, informal nominees are more likely to declare to be the UBO of the company in an effort to maintain the fiction created by the true beneficial owner.

Enhanced due diligence in the UAE

UAE legislation empowers registrars to require a natural or legal person holding shares to disclose whether or not the person holds shares as trustee or nominee for or on behalf of another person and if so, to disclose the name of the person and any instructions in relation to the transaction.

Read our article about UBO Regulation in the UAE

In addition to requiring all entities to disclose the presence of nominee shareholders and directors in their structure, Registrars shall consider the following measures to limit their misuse: Review the nominee agreement, ensure that all UBOs are declared and verified. Thus, it is not recommended to involve the nominee in the UAE, as the Government, certainly, requires to know the UBOs of each company. 

If you would like to have advice or assistance with the UBO registration of your business, please contact us.

Marsel Shadmanov

Head of Corporate Services at Garant Business Consultancy DMCC

Phone +971 4 421 4335

Email info@garant.ae