Use of Nominee Directors: Hiding Investors’ Identities from Public Record

When banking privacy of your offshore companies is a major concern in Hong Hong, using a Hong Kong nominee director in a bundle of buying an “off-the-shelf” ready-made Hong Kong company is always advertised as a key to hide the identity of the beneficial owner from records.

It sounds logical: nominee director is a body double of the true owner whom person information remains unknown to the bank and government department, while the ready-made company is a separate legal entity from the beneficial owners. Especially in Hong Kong, the world freest financial hub with stable currency (Hong Kong dollar – HKD), you are not illegal to hire local nominee directors or to be hired as a nominee member of a Hong Kong company.

Firstly, we need to know what is legal conjuring trick behind the Hong Kong nominee system, three major pieces of document binding a nominee director and real owner:

1. Nominee director declaration (i.e. Nominee Service Indemnity Agreement)

A mutual agreement states that everything a nominee director has done on behalf of the company is completely following the order from the real director. A characteristic “nominee director declaration” reads like “I, [the name of the nominee director], Director [the company name] having agreed to the appointment as Director of a company duly incorporated under the Hong Kong companies laws, hereby declare that I shall only act upon instruction from the beneficial owners.”

2. Power of Attorney (PoA)

The rights of the real owner to his company is protected by this document because the nominee secretly hands back all control to that real owner. A typical “power of attorney” should state the rights clearly (depending on the deal between the nominee and the real owner) e.g. “To transact, manage and do all and every business matter”, “To open any bank account and to operate the same”, “To enter into all contracts”, “To collect debts, rents and other money due.”

Both the power of attorney and nominee director declaration are confidential documents designed to ensure the real owners’ privacy.

3. Director’s resignation letter

This letter is signed by a nominee director but deliberately undated. This document is supposedly enables a nominee to dodge any liability in the event of trouble or when the nominee director services is no longer needed.

Are the beneficial owners 100 percent shielded from privacy leak?

No, not 100 percent.

The nominee director can only help to prevent the personal information of real owner from being seen on the public record of the companies registrar in Hong Kong.

When the real owner makes trouble and thus leads the creditors, tax and legal authorities to the nominee, the nominee will definitely present the agreement and PoA to them for avoidance of liability. These document give clues to trace the true identity of the real owners.

Can a nominee director open bank accounts in Hong Kong for the real owner?

It is a more complicated matter when banks are involved.

Unlike the fast and easy company and business registration in Hong Kong, the banks in Hong Kong have developed the high standard “Know Your Customers (KYC)” policy which requires the bank to find out the identity of Ultimate Beneficial Owner (UBO).

In the event of corporate bank account opening as well as the amendment of authorized signatory afterward, the banks always require face-to-face interviews with the company responsible persons and presentation of proof of business and identity of these persons, and organization chart to show the relationship among shareholders (i.e. shareholding).

If nominee services is used in bank account opening or change of bank account signatory, the nominee must become a shareholder, it involves another document between the real owner and the nominee:

4. Declaration of Trust

The nominee would hold the shares of real owner’s company and thus a nominee shareholder of the real owner, this document serve the purpose of ensuring the identity Ultimate Beneficial Owners is not exposed to public record at Companies Registrar and preserve the rights of the owner’s rights to company properties and income distribution.

5. Share Transfer Form

Signed by the nominee but undated, the owner can have the security of being able to transfer the shares to others  and thus dismiss the nominee from office at any time.

At this point, you can figure out that the bank must be notified about the relationship between the nominee shareholders and the UBO in companies organization chart which must state “[the name of nominee] hold [a certain] percent of the company’s share in the trust of [the name of UBO]”

Whether the bank accept the use of nominee in bank account matters is purely the decision of the bank.

Conclusion

The use of nominee director (or nominee shareholder) can benefit to those investors who want to hide their identity from the public record.

However, it is not a solution for investors to duck any external liability of the company.