As an investor, you will understand the difficulties sometimes, associated with contacting the start-up or early stage company you’re investing money into.
For the investor, there can be miscommunication, it can be hard to maintain voting rights, and there are often no investor protections.
Things are equally inconvenient for the business, which must communicate with hundreds of different investors, taking up an enormous amount of the company’s time and requiring advice to deal with the various legal and compliance issues associated with having many investors.
The nominee share structure is a method of dealing with all of this. In the nominee share structure, the investor’s shares are held and managed by a Nominee Company.
The nominee is responsible for communicating with the investors and the business, and is the legal shareholder on the business’s shareholder register; while the investor is the beneficial owner and maintains all the tax advantages of SEIS and/or EIS.
In Shadow Foundr’s case, our Custodian will act as the nominee, meaning they will negotiate with the businesses on the investor’s behalf, and act as a third-party between the two.
What are the benefits?
For the start-up business, the burden of administration is reduced, and everything that goes along with it. They only need to manage one shareholder and list just one shareholder on their books (the Nominee Company).
The nominee share structure has also many advantages for the investor.
The investor’s rights are protected, which is crucial for investors who are concerned about a lack of representation and not having their interests taken into consideration because of the many other investors.
The nature of the structure also enforces shareholder rights and ensures the company complies with the company’s Articles of Association on behalf of the investor.
In simplifying the process for the business, there are additional advantages for the investor.
The nominee share structure makes it easier for the business to manage corporate activities such as a merger, selling out to a trade buyer/VC firm, or listing the firm on a stock exchange.
The nominee structure therefore helps to facilitate the investor’s all-important exit-strategy from the business; making the process of selling the investor’s shares, whether via a secondary market (something Shadow Foundr is keen to promote wherever possible) or by one of the other exits listed above.
Shadow Foundr is pleased to be able to offer the nominee share structure and intends to move entirely a share nominee structure, in common with all major Crowdfunding and Investment platforms. We are excited to see how the nominee structure will benefit both investors and entrepreneurs in the years ahead.
For those who are not familiar with the share nominee structure, it is important to stress that investors are still the beneficial owner of the shares, have their shareholder rights protected, and maintain all the SEIS and EIS tax advantages.