To have and to hold

Monday, 01 July 2013
John Harper explains some of the issues arising from the use of nominee shareholder declarations.

Anyone who has ever administered an offshore company will know that it is most likely that the issued share or shares will not be registered in the name of the ultimate beneficial owner (UBO). This is probably for one of two reasons. The UBO may simply prefer not to have their name on the share register, which in turn may, depending on the jurisdiction, avoid having personal details also held at the local company registry as a matter of public record. The second reason is that to make alternative arrangements may be far more practical and efficient. Set out below is the typical wording of this kind of arrangement.

Nominee shareholder declaration

(also known as ‘declaration of trust’)

We, OFC Nominees Ltd of 100 Paget Street, Hamilford, Bertigua, HEREBY DECLARE that we own the one fully paid share of uSD1 in the company OMG Ltd registered in our name as nominee for and on behalf of Mr Colvin Lever of [address] (hereinafter called the ‘Beneficial Owner’), and further undertake:

  • to vote in such manner and for such purposes as the Beneficial Owner directs;
  • to assign the right to receive any dividends or other distributions to the Beneficial Owner, together with the right to any surplus upon a winding up or otherwise; and
  • not to transfer, trade, dispose or deal with the share save as the Beneficial Owner may from time to time direct.

Signed, sealed and delivered by OFC Nominees Ltd this [date].

This is a bare trust. It is not in any way discretionary. The nominees are saying that they will vote and carry out acts only as they are instructed to by the beneficial owner. Mr Lever walks away from your office with the original of this document, happy in the knowledge that you have committed to writing the fact that your in-house company is merely holding the shares as his nominee and will only do what he tells you to do.

It is not for you or your in-house company to unilaterally decide who should inherit an asset

Perhaps some years later, however, a distraught Mrs Lever visits you with the same document and tells you that her husband suffered a fatal heart attack last week and wishes to ‘collect’ the funds in OMG Ltd, thought to be about USD5 million. Well, unless your company wants to face claims from genuine heirs (under a will) you ought not to go down that road. It is not for you or your in-house company to unilaterally decide that Mrs Lever should inherit the asset. Mr Lever’s will (if he has one) may indicate quite contrary wishes. The only person you can hand those shares over to is the named executor in his will. To do anything else is called ‘intermeddling in the estate of a deceased person’.

When Mr Lever first set up the company you should have discussed this eventuality with him. If he did desire that, on his death, the company should be owned by his surviving spouse then he should have told you so. The declaration could, for example, then have been in favour of Mr and Mrs Lever, as joint tenants in equal shares (provided that Mr Lever was happy with the tax and legal consequences of a joint tenancy).

The advantage of a joint tenancy is that on the death of one of the parties their interest dies as well, and the survivor then owns everything (you can, of course, have more than two joint tenants). There is no need for a will or, therefore, a probate application on the first death, either. Note, however, that in some jurisdictions it is possible (or even obligatory) to have ‘tenancies in common’. This is a very different scenario. Here each tenant in common can bequeath their 50 per cent share to whomsoever they wish.

In the offshore world, a savvy UBO will often have a will drawn up (in this case in that idyllic island of Bertigua) in respect only of his assets in that jurisdiction. If the UBO dies, grant of probate is obtained in Bertigua and, in a simple, inexpensive and relatively confidential manner, the shares are now transferred to precisely those the UBO wished.

Should the client’s affairs be more complicated or if they have assets in many jurisdictions, we should of course recommend that a trust or a foundation hold the assets. But that is another story, for another time.

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John Harper

John Harper TEP is a part-time lecturer, delivering face-to-face courses for the STEP international diploma examinations all around the world.

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