Nominee Shareholder – Declaration of Trust

What is a Nominee Shareholder – Declaration of Trust?

A Nominee Shareholder – Declaration of Trust is a document signed by a Nominee Shareholder to protect the right of the Beneficial Owner in terms of any dividend and income generated by the shares and the Nominee Shareholder has no legal claim over the shares.

A Nominee Shareholder – Declaration of Trust is an instrument by which a shareholder declares that he/she is holding the share on behalf of another person/entity.

A Nominee Shareholder – Declaration of Trust is executed as a deed by the shareholder under whose name the shares are registered. This person is referred to as the “Nominee”. The person/entity on behalf of whom the shares are held is referred to as the “Beneficial Owner”. Under a Nominee Shareholder – Declaration of Trust, the Nominee Shareholder promises to act as directed by the Beneficial Owner, e.g., to transfer the relevant shares to a person/entity as directed by the Beneficial Owner.

Are Nominee Shareholders Legal?

A Nominee Shareholder lets you use their name to act as the registered owner of the shares but in reality, they only hold the shares for your benefit. So, it will give you a legal advantage in case of any dispute in the future. But there are certain circumstances where the Nominee is done through verbal agreement, in such cases if the relation between Nominee and Beneficial Owner get worse then it won’t act as legal proof because a Nominee can claim themselves as the actual owner of the shares and there is no any written proof that can validate the Nominee as a valid owner. However, to overcome such circumstances a Nominee Shareholder is often a trusted person like close family members and friends.

What are the main differences between a Nominee Shareholder and a Beneficial Owner?

Nominee Shareholders is a person who appeared as owner in share certificate and public records but Beneficial Owner is the one who will receive all the dividends or income from the Share.

A Beneficial Owner has the privilege of remaining anonymous whereas a Nominee name is written in all the records. A Nominee has to sign a Declaration of Trust which states that they won’t get any benefit from the shares in the future and are not the legal owner of the shares. A Nominee Shareholder – Declaration of Trust helps to protect the legal right of the “Beneficial Owner”.

What happens if the Nominee dies before the Shareholder?

Nomination is automatically cancelled if a nominee happens to die before the shareholder / debenture holder. In such cases companies transmit the shares/ debentures to the shareholder/ debenture holders heirs when a succession certificate is provided. So, the heirs of nominees will not be entitled or receive shares/ debentrues if the nominee dies before the shareholder. 

Conclusion

There might be personal or business reasons to appoint a Nominee Shareholder. But it is very important to execute a “Nominee Shareholder – Declaration of Trust” to safeguard the right of the “Beneficial Owner”. Nominee Shareholders can be an individual or an organization and are appointed for protecting the identity of the beneficial owner.

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Along with this document, make sure you see these other templates in our library:

• SaaS Agreement
• Freelance Agreement
• Software Development Agreement
• Fast Agreement
• Declaration of Trust

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