This agreement has elements of a trust transaction and is used in situations where shares are acquired from a company or entity but are registered in the name of a nominee on behalf of the beneficial shareholder.
This agreement enables the owner of the share to take care of his/her share through a nominee without his identity being revealed. In a share nominee agreement, the nominee has no benefit over the shares.
WHO ARE THE PARTIES INVOLVED IN A SHARE NOMINEE AGREEMENT
From the above definition, there are two parties involved in a share nominee agreement which are:
a. Nominal Shareholder.
b. Beneficial or Real Shareholder.
This is the person who in agreement with the beneficial owner holds the share in trust, in exchange for a fee. A nominee shareholder may be an individual or a company.
A nominal shareholder is appointed by the original owner of the shares to be the registered owner but holds no legal power over these shares, no rights and benefits, it all remains with the owner, He only bears name value. The nominee is made to sign a declaration of trust which states that He will adhere to all the instructions written therein.
Furthermore, it is the responsibility of the nominee to keep the owner of the share informed about their rights and also the risks associated with the class of share acquired.
Beneficial / Original Shareholder:
This is the person who has the legal right to the shares. The beneficial shareholder holds the rights and privileges accrued to the shares. The latter is charged with the responsibility of appointing a nominee for the sole purpose of keeping his identity hidden. He drafts the terms and obligations of the agreement through the help of a legal practitioner.
The Beneficial owner retains all interests or profits and also bears all the risks in the underlying business accrued to the class of share acquired.
WHAT IS THE PURPOSE OF A SHARE NOMINEE AGREEMENT?
The main and principal purpose of a Share Nominee Agreement is for anonymity and privacy of the Beneficial or Original Shareholder through the instrumentality of the nominee.
BENEFIT OF A SHARE NOMINEE AGREEMENT
A share nominee agreement allows the original shareholder or owner of shares to keep his identity hidden from other shareholders while reaping the profits of ownership.
POTENTIAL RISKS INVOLVED IN A SHARE NOMINEE AGREEMENT
While there are benefits of a share nominee agreement, there are also risks and pitfalls associated with it, such as:
1. Where the nominee shareholder refuses to return the share to the beneficial or original owner.
2. Share benefits meant for the owner may be converted by the nominee without prior consent
3. Outright sale of shares by nominee without consent.
4. The death of the nominee will make it difficult for the beneficial or original owner to claim his shares.
5. Laundering or misuse of funds by nominee shareholders.
A nominee corporation may run into financial distress and as a result, be unable to fulfill its obligations. There is a likelihood of losing those shares to liquidators in such cases.
From the foregoing, it is hereby advisable to take note of unforeseen risks in such agreements so as to avoid being caught unawares or held in a tight spot.
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