A share nominee account (Nominee) is a structure where investors’ shares are held in safe custody by a nominee company, which acts as the legally registered owner of a company’s shares.
While the nominee company holds the shares, the full economic benefits of the shares are passed onto the underlying investor, including the benefits of individual tax reliefs such as SEIS and EIS (the nominee arrangement is very similar to a trustee relationship).
When it comes to corporate actions the Company and any potential institutional investor is in effect, dealing with only one shareholder.
What are the benefits of the Nominee Share Account for the Company or Entrepreneur?
- It reduces the administrative burden to the company as the nominee can send notices and solicit approvals for corporate actions to the individual investors, in accordance with the Articles of Association (and/or Share Subscription Agreement, if applicable) on behalf of the company – saving precious time.
- It facilitates follow-on funding as many institutional funders such as Venture Capitalists (VC’s) do not like dealing with busy Share Capital Tables and numerous investors, which tends to put them off investing. Instead they prefer to deal exclusively and directly with a nominee as the only legally registered shareholder.
- It also considerably aids liquidity for the company, as providing secondary markets or transferring shares is far easier within a share nominee account (because there is no change of the legally registered owner of the shares, but an internal transfer of beneficial owner within the Nominee); and indeed when it comes to that all-important Company exit (e.g. a trade sale or IPO).
If an entrepreneur truly believes their company will be successful and would, at the same time, like to demonstrate their company is serious about providing an eventual exit for its investors, the question should be… “Can my company actually afford not to hold the investors’ shares in the share nominee account?”
Frequently Asked Questions:
Do investors receive Share Certificates in the nominee account?
No. Only the nominee company receives a share certificate, as the sole legally registered owner of the shares. Furthermore, the name of the nominee company will appear in the company share register and on Companies House.
What sort of confirmation do investors receive from the Company?
Some companies send out a Confirmation of Beneficial Ownership to the investor, but that depends on the advice you receive from your company lawyers, as the confirmation should not be confused as a share certificate (which is a legal document).
What sort of confirmation will the investors of the Company get from the nominee?
If the investment is made through Goji, then the investors will receive a Contract Note and an e-mail confirmation to the online portal of Goji, in order to be able to check their shareholding in the Company and receive a regular monthly online statement (more similar to that of a bank statement) as the beneficial owner of the Company’s shares. The investor should also have access to a copy of the up to date Company Articles of Association.
Does the nominee company send out regular Company updates?
No, the company is still obliged to keep its investors updated regularly on the progress of the company. If the nominee is notified by the company, it will send out corporate actions (such as consents or shareholder votes) to the investors as the beneficial owner of the company’s shares.
Does the nominee company arrange things like SEIS or EIS Tax Certificates for investors?
No, this must be organised by the Company accountants. Alternatively, Shadow Foundr can put you in touch with some accountants that can do that for you.
Who does Shadow Foundr use for its nominee account?
Shadow Foundr is unusual in that we offer a completely independent custodian to administer the nominee company, Goji Financial Services Limited (Company Registration No: 10234133) which is fully authorised and regulated by the FCA (FRN: 805323). Company shares are held in Goji Nominee 2 Limited (or similar), which is an independent non-operating holding company; in order to ring-fence the Company’s shares from normal operating activities.
What is the advantage of not operating your own Nominee Company?
Shadow Foundr does not work on an exclusive basis funding companies, and with a completely independent Nominee, the entrepreneur or Company can introduce other investors into the Nominee from other fund-raising activities, which are not related to Shadow Foundr.
What does the Company do if it is raising funds and would like to hold the shares in a Nominee?
The Company needs to make investors aware from the outset in the Investment Memorandum that it intends to hold their shares in a share nominee account. The investors will need to have completed the full KYC/AML procedures of Goji and Shadow Foundr prior to investing. Once the fund raise is completed and when instructed by Goji, the Company will be required to issue or transfer the shares in the Company to the Nominee and issue the share certificate to Goji Nominees 2 Limited (or similar).
Can the Company transfer existing shareholders into the nominee?
If the Company decides retrospectively (after investing) to adopt the nominee share account, especially if shares have already been issued in the name of the investor and share certificates issued; then full KYC/AML checks have to be conducted, share certificates need to be sent back to the nominee and “dematerialised”, shares transferred by stock transfer forms signed by the individual shareholder, and stamp duty potentially paid. It is a very administratively complicated procedure, which is why the majority of platforms are insisting that all companies adopt the nominee account from the outset.
Shadow Foundr is pleased to be able to offer the share nominee account to investee companies, which significantly reduces a company’s administrative burden, simplifies its cap-table and saves time for founders.