Nominees and Company Formation

Although not a common as it was in previous years, nominees are still used in some company formation services as the original appointees during a new business incorporation.

Where nominees are used, they are then removed once the company formation process has been completed and the new director appointments and shareholder transfers are initiated.

This method of registering a company is largely extinct and should usually be avoided as it can present problems verifying the actual directors and ownership of the company.

It should be pointed out that the use of nominees to set-up the company is different from situations where it is envisaged that nominees will be a medium to long term feature of the new incorporated business; where the facility is used to protect the identity of the directors and shareholders.

It is far more common and practical to provide a company formation system where the actually directors and shareholders (and company secretary if required) are the initial appointees at the time of the business set-up.

Thus for example, when a bank account is required, the statutory filing history viewed by an account manager would not include any nominees and thus would avoid any confusion as to who currently owns and runs the company.

These types of problems were in fact widespread in the period where all company formations used the registration agents’ nominees for the incorporation and then made the necessary transfers.

Particularly where the company started business soon after it was set-up, it was sometimes the case that the transfers had not had sufficient time to be processed by Companies House and the company filing records displayed the nominee’s information and not that of the new appointees.

It is always preferred that a company keep its filing history clean and avoid any unnecessary entries which do not really service a purpose. To that end, it would be recommended that when viewing different company formation options that enquires should include questions concerning whether nominees are used for the initially company officers or whether the actual incumbents can be elected from the outset.

This rule not only applies to trading entities but also dormant companies where the use of nominees can be used sometimes to prevent the purchaser from gaining actual ownership. The company, under such circumstances, is usually only transferred upon payment of an additional fee.