Dealing with Nominee Director Risks

Dealing with Nominee Director Risks can be daunting when you are starting out. This guide will give you our top tips for operating safely in 2022.
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There is a certain trepidation involved in internationalizing your personal and financial affairs. For me, probably the biggest concern was separating myself from my assets and the feeling that I was going to be ripped off by my nominee directors and advisors. Subsequently, I am going to give you some tips on Dealing with Nominee Director Risks.

Nominee Director Risks
Nominee Director Risks Are Real

Assessing Your Corporate Service Provider

Your first concern, whenever you are working towards setting up an offshore company, is the reliability of your corporate service provider (CSP). Probably the first thing you would want to do is run some due diligence on them and their company. Check whether they are registered (if required) in their local jurisdiction and search to see if there are any listed warnings or sanctions against them. You can often find this information on the financial regulator’s webpage.

Additionally, you want to review their feedback online and it’s amazing how much is actually available online as far as service reviews. Alternatively, they may be able to provide you with some professional references and or client references if you request them.

Depending on what jurisdiction they are located in, you might also be able to obtain a corporate extract on their company. This will likely provide you with the dates of incorporation, key principles, and shareholders so that you know who you are dealing with.

Ultimately, you want to make sure that they are trustworthy and responsive to your needs. Much of this business comes down to personal relationships so you want to make sure that you are comfortable with them and their mode of operation. Feel free to shop around and talk and/or meet with many CSP’s before making your final decision.

corporate service provider offshore company
It Pays To Run Due Diligence on Your CSP

Picking a Director and Dealing with Nominee Director Risks

Finally, you have picked your CSP and you are now ready to move ahead with forming your new offshore company. Typically, this is the point where you will need to decide on whether to utilize the services of a nominee director. Your CSP will often provide you a price list of their services along with options for the appointment of a nominee.

In most cases, you would be well advised to use a nominee director as this starts the process of legally distancing yourself from the management of the company. However, you want to be sure that you are picking the right person for the role and that you are both fully aware of what you expect from each other, and the costs involved.

I would normally advise on having a nominee directors agreement drafted that details the fiduciary relationship they have with you. Most reputable CSP’s will provide this for you so that you are all on the same page as to the operations of the company.

Additionally, it pays to ask if they have any Directors & Officers (D&O) insurance coverage for their role as a nominee director. Surprisingly, many do not have any coverage and little assets to cover any potential legal liability. The world of nominee directors has changed from the previous rubber stamp operations of the past. Today, you can expect plenty of compliance, business operation approval, and interest from your nominee.

Finally, it pays to check their name against the various sanctions lists like OFAC, etc. In some smaller offshore jurisdictions they may have dealt with hundreds of offshore companies and this can sometimes lead to problems in the case that one of their clients has been on a watchlist. I’ve never personally run across this but have heard it has happened on one occasion and it caused significant problems for the company founder.

An agreement for a nominee director is important
Make Sure You Have a Nominee Director Agreement

Banking and Dealing with Nominee Director Risks

The biggest concern that you are likely to have is the nominee having access to liquid funds in a company bank account. This is actually less of a problem than you might expect given that it will, typically, be you opening the account.

Normally, a nominee director will provide a pack with his certified ID and address proof, along with a power of attorney to you. This is a legal document that gives you limited rights to contract on his behalf to open and operate a bank account. In practice, this means that you are often the person involved in monitoring and executing transfers on the bank account and, in some cases, the nominee director may actually have no access at all.

Regardless, an offshore bank can be advised that, as the ultimate beneficial owner, you are the primary signatory on the account. In some cases, this may mean that you BOTH must approve transfer requests or may mean that you operate the account solely.

Ultimately, the operation of bank accounts is something that you should discuss with your nominee director and your CSP as it should be a critical part of your agreement with them.

Can the Nominee Director Steal my Assets?

Firstly, it’s important to point out that this can happen with a professional director in your own country just as easily as it can happen offshore. Unfortunately, in life, some people are untrustworthy criminals, and this doesn’t seem to matter whether you are talking about a Caribbean Island or a major U.S. city.

offshore banking risks
Director Theft is Relatively Uncommon in the Offshore World

However, I will say that this is exceedingly rare, and I have never run across a straightforward case of theft. Normally, it is simply a case of a nominee director refusing to sign documents due to, either a misunderstanding or a lack of coverage in your nominee agreement. Thankfully, this is typically solved by your CSP negotiating on your behalf.

Regardless, there remains a very small risk that you could engage a rogue nominee director who transfers your assets and effectively rips you off. Therefore, it is important to separate them from the business operations and the location of assets as much as possible. If they only have read-only access to a bank account, it becomes difficult to steal from you!

Ultimately, it is important to start the nominee directorship relationship correctly from day one with an appropriate agreement, insurance (depending on the jurisdiction), and the appropriate checks having been completed. This will set you up for a successful future with no more risk than you experience dealing with a domestic entity.

Feel free to reach out and discuss your needs for any future offshore structures or if you are currently experiencing any issues with your current corporate service provider.

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