Nominee Directors and Shareholders

I. Nominee Directors & Shareholder

The Companies Act, 2015 of Kenya does not explicitly use the terms “nominee director” and “nominee shareholder”. However, the Act includes provisions that indirectly address the roles and responsibilities of individuals who might be acting as nominees. Here’s how the Act deals with these roles:

Who is a Nominee Director?

A nominee director is a natural person or a corporate person appointed by a company to serve in a non-executive capacity, primarily to fulfil legal requirements regarding directorship. Nominee directors do not actively engage in the day-to-day management of the company. Instead, they operate under the instructions of the beneficial or actual director, following a nominee director agreement or Power of Attorney (POA) that delineates their scope of authority. This arrangement offers flexibility to companies, ensuring compliance with regulatory mandates while preserving the anonymity of the beneficial owner.

What are the benefits of appointing nominee Directors?

The appointment of nominee directors offers several advantages for companies operating in a dynamic business environment:

• Compliance Expertise: Nominee directors are knowledgeable about company rules and make sure all regulations are followed.
• Integrity and Confidentiality: Nominee directors are chosen from reliable partners and always maintain high levels of honesty and privacy in their work.
• Anonymity: Keeping the real business owners, incognito.

What are some of the key documents for appointing a nominee director?

• An agreement containing full details about both parties
  The agreement should include the full details of both parties, the beneficiary owner and the nominee director. Included are ID copies, passport photos, email addresses, phone numbers, postal addresses, residential details, address, occupation details, etc.
• Nominee’s agreement:
  This agreement indicates that complete control over the company belongs to the beneficiary owner, not the nominee.
• Beneficiary owner’s agreement
  This serves as a protection for beneficiary owners, demonstrating that ownership of the company belongs to them. The authorities can use the document to prove who is the actual owner of a company when proof of ownership is required.
• Power of attorney
  The purpose of a general power of attorney is to carry out director duties, such as opening bank accounts, signing contracts, and collecting debts.This document is proof that the beneficiary owner can act on behalf of the company even though the beneficiary owner is not listed on the company register. A power transfer may also enable the nominee to accomplish the above tasks.
• Letter of resignation & affidavit of resignation
  The resignation letter and affidavit should be signed in advance but not dated so that the date of resignation can be filled in later, the signed letter should remain in control of the owners of the company. If a nominee director resigns or their services are terminated, all rights return to the owners of the company.
• Memorandum and Articles of Association (if amended)
  Where the appointment of the nominee director necessitates any changes to the company’s constitution, the Memorandum and Articles of Association should be amended and updated accordingly.
• Ordinary resolution
  Certain decisions, including the appointment of nominee directors, must be made through ordinary resolutions to ensure that the company’s operations are in line with statutory requirements and help avoid legal disputes or challenges regarding the legitimacy of the appointment.

What is expected of the nominee director?

1. Fiduciary Duties: Nominee directors are expected to carry out their duties by Section 150 of the Companies Act and in the company’s best interest, even though they are acting on behalf of someone else. They must adhere to the same standards of care and diligence as other directors.
2. Disclosure Requirements: The Companies Act, 2015, Section 149 requires that the identity of the persons who appoint nominee directors must be disclosed. This is part of ensuring transparency and accountability within company management.
3. Legal Responsibility: Despite acting on behalf of another party, nominee directors are legally responsible for their actions and decisions as directors. They cannot simply act according to the wishes of the person who appointed them; they must ensure compliance with all applicable laws and regulations.

II. Nominee Shareholder

Who is a nominee shareholder?

The Companies Act recognizes the concept of holding shares on behalf of another person or an entity. The Act requires that the identity of the beneficial owner of shares be disclosed to the company. This is part of the effort to ensure transparency in the ownership of shares (Section 119 and Section 121).

A nominee shareholder is an individual or entity who holds shares in a company on behalf of another person or entity, known as the beneficial owner.

Nominee shareholding is an arrangement where a nominee (an individual or entity) holds shares in a company on behalf of another person or entity, known as the beneficial owner. The nominee is the registered shareholder, but the actual ownership and control of the shares belong to the beneficial owner.

What are the benefits of nominee shareholding?

• Confidentiality: Nominee shareholding allows the true owner (beneficial owner) of the shares to remain confidential in public records. According to Kenyan law, the nominee’s name appears in the official company records, protecting the identity of the actual owner from public disclosure.
• Ease of management: By delegating the responsibility of shareholding to a nominee, the beneficial owner can simplify the management of their shares. The nominee can handle tasks such as attending board meetings, voting on resolutions, and receiving dividends, which is particularly useful for individuals who do not wish to be directly involved in these activities.
• Asset protection: From a legal perspective, nominee shareholding can provide a layer of asset protection. Although it does not absolve the beneficial owner from legal liabilities, it helps in managing and organizing assets in a way that might reduce exposure to certain risks.
• Succession planning: Nominee shareholding can facilitate smoother estate and succession planning. The legal framework allows for clear documentation of the nominee arrangement, which can aid in the transfer of shares according to the beneficial owner’s wishes upon their death or incapacity.
• Regulatory compliance: Nominee arrangements can help in meeting regulatory requirements for foreign investors. The Companies Act and related regulations require accurate record-keeping and disclosure, and using a nominee can ensure compliance while maintaining discretion in ownership.
• Corporate governance: Nominee shareholding can streamline corporate governance, especially in complex corporate structures.
• Facilitation of transactions: In transactions involving the sale or transfer of shares, nominee shareholding can provide confidentiality for the beneficial owner, which can be advantageous in sensitive deals.

What are the key documents to validate the appointment of a nominee shareholder?

• Board Resolution: A resolution passed by the company’s board of directors that formally authorizes the appointment of the nominee shareholder. This resolution should detail the terms of the appointment and any associated conditions.
• Share Transfer Form: The nominee shareholder, is required to have a completed and signed share transfer form. This form is necessary for updating the company’s register of members.
• Nominee Shareholder Agreement: A formal agreement between the nominee shareholder and the company. This agreement should outline the nominee’s role, rights, and obligations, as well as any limitations on their authority. This document should be assessed, franked and paid for stamp duty.
• Shareholder Agreement (if applicable): An agreement between the beneficial owner (the actual shareholder) and the nominee shareholder, detailing their arrangement. This agreement should define the relationship between the parties, including how the nominee will act on behalf of the beneficial owner. This document should be assessed, franked and paid for stamp duty.
• Letter of Appointment: A formal letter from the company confirming the appointment of the nominee shareholder, including details about the role and any specific terms of the appointment.
• Articles of Association: While not a legal requirement, it is essential to include provisions in the Articles of Association that address how nominee shareholders are managed. This helps in defining the roles, rights, and responsibilities of nominee shareholders and ensures that the company’s internal governance aligns with the actual shareholding structure.
• Identification Documents: Proof of identity and address for the nominee shareholder. This helps meet your customer requirements and ensures that the nominee’s identity is verified.