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Disadvantages of using a Nominee Director

 

One of the main disadvantages of using a nominee in this prominent role is that the shadow director may find it difficult to prove that they are actually running the company and that they also have total ownership.

UK Banks will typically perform a Companies House search during the course of an entity applying for banking facilities with them.

The results of course will show the company formation agent as director and not the person who actually engaged their services. Companies House has no provision for recording shadow directors or the deeds of indemnity or powers of attorney which support them.

In the past some banks have insisted that the nominee director resign and be replaced with the actual person who will run the company.

Different banks and indeed different branches of the same bank might respond to nominee directors in alternate ways. This may be due to differing interpretations of the relevant banking guidelines and their own internal money laundering procedures.

Cost of the Service

A further drawback to using a nominee director is the cost. The formation agent may sign an occasional document, but will not engage in the company in terms of its commercial business.

It is not uncommon for a person who uses this service to not contact them at all, particularly in cases where they are able to secure a business bank account on their own.

Signing Documents

Even with a deed of indemnity, witnessed by a professional person, there might be some transactions which the company formation agent will not allow their nominees to enter in to.

The agents will consider the merits of signing any document placed before them and weigh up the possible consequences before adding their signature.

It is perhaps ironic that some new companies, by their very nature, might be engaged in some highly speculative and risky ventures. Some might be planning some form of e-commerce using online payment facilities which in turn, will require merchant services of some description. The risk of impropriety and the resultant consequences increases the nominee’s exposure. 

There have been cases where the agent has refused to sign a particular document or make a particular representation to a third party purporting to be the director of the business in question.

The object of the person employing the nominee service has on some occasions been so that the registration agent can sign that specific document or make that specific representation.

Obtaining Assurances

It is certainly worth checking with a particular agent that they are willing to undertake the transactions which you may require them to complete before you engage their nominee services.

Any such assurances provided should be obtained in writing.

 
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