Sometimes referred to as a nominee stockholder, a nominee shareholder is an individual or entity that is granted the responsibility of holding shares of stock on the behalf of the actual owner. A shareholder of this type is accountable to the owner for how the assets are managed, with the terms of that accountability defined in a custodial agreement or other type of confidential document. As part of his or her responsibilities, the nominee shareholder is listed on the registry of the company that issues the shares and is presented in public settings as the registered owner of those shares.
One of the main benefits of contracting with a nominee shareholder is that the actual owner enjoys complete anonymity in relation to the ownership of stock in a given company. This means that the actual owner is not publicly associated with the shares or the company that issues those shares, a set of circumstances that is sometimes helpful when the owner does not wish to acknowledge the relationship in public. This may be simply a personal preference for not wanting others to be aware of the owner’s investment decisions or due to a desire to not influence the movement of the stock as the result of that ownership.
The scope of powers granted to a nominee shareholder is governed by the confidential agreement that is established between the two parties. Depending on the terms of that contract, the shareholder may have the ability to buy or sell a portion of the shares without consulting the owner. More often, the owner retains all rights to buying and selling shares, while granting the shareholder privileges related to managing any voting rights that are associated with the shares. Even then, the owner may choose to cast the vote on specific issues, typically by providing the shareholder with instructions on how to vote.
In many nations, there are regulations in place that make it possible to order the disclosure of the actual owner. This type of event may occur if there is some question regarding the legality of actions taken by the owner or the nominee shareholder, making it necessary for one or more government agencies to conduct an investigation. It is not unusual for a court order to be necessary to mandate the release of information regarding the actual owner. When so ordered by legal authorities, the nominee shareholder must reveal the name and contact information of the actual owner of the stocks, making it possible for those authorities to establish communication with the owner and resolve the issues at hand.