As a business owner, maintaining privacy and keeping personal information out of the public record is a priority. To achieve this, we recommend leveraging the services of a nominee to substitute their personal details on your business records instead of using your own. These records, including articles of incorporation and annual financial reports, designate the nominee as a company officer, member, director, or manager. Nominee services offer a practical solution for individuals who appreciate the independence of running their own business but prefer avoiding the associated attention.
What Is a Nominee?
Defined by the Stolen Asset Recovery Initiative (StAR) of The World Bank, a nominee is an individual or corporate entity that lends its name to someone else to safeguard their identity. Nominees can be anyone, including friends, family members, or professionals like accountants or lawyers. Businesses often seek companies providing nominee services rather than individuals.
The primary motivation for business owners using nominees is to legally protect their privacy. However, it’s important to note that when applying for an employer information number (EIN) from the Internal Revenue Service (IRS), the actual business owner’s information is required. While the genuine business details aren’t publicly accessible, the IRS maintains records of the true business ownership.
Types of Nominees
There are two main types of nominees available to business owners, both remaining effective for one year, with the option for the true owner to revoke or renew the nominee service:
- Nominee Directors: Nominee directors act as company directors, and business owners may appoint them to serve as treasurers, presidents, or secretaries. By listing the nominee’s personal information on records instead of their own, business owners maintain privacy. To appoint these individuals, the true business owner issues a power of attorney (POA) document.
- Nominee Shareholders: Nominee shareholders protect the true owner’s identity by holding company shares on their behalf. The true business owner appoints these nominees by issuing a declaration of trust, outlining instructions for shares, dividends, and transfers.
Understanding Nominee Services
Before opting for nominee services, business owners should grasp what they can and cannot achieve with these services, focusing on crucial aspects:
- Gaining Privacy from Non-Governmental Institutions: Nominee services can shield business owners’ identities from non-governmental institutions, safeguarding asset allocations and investment strategies from competitors and creditors. However, these services cannot be used to conceal assets from federal and state authorities due to laws preventing money laundering and tax evasion.
- Revealing the Owner’s True Identity: Nominee services are often utilized to prevent competitors, the media, and the public from discovering the true business owner’s identity. While selecting a nominee, business owners retain the flexibility to reveal their identity later if it proves beneficial for the company’s reputation.
- Remaining Involved in Business Activities: Nominees, as per public records, are only recognized as company shareholders or directors. The true business owner continues to control the company, actively participating in daily activities and reaping associated benefits.
Drawbacks Associated with Using Nominees
Despite the advantages, using nominees comes with certain risks, including:
- Nominee Acts Contrary to the Agreement: Despite contracts outlining the nominee’s responsibilities, there’s a risk they may act contrary to the agreement. Legal disputes can be costly and time-consuming, with the added risk of public disclosure if the business owner takes the nominee to court.
- Nominee Becomes Incapacitated or Dies: In the event of the nominee’s incapacitation or death, complications may arise. While heirs may fulfill the role, the business owner may prefer revoking the trust or POA if heirs lack willingness or competence.
- Potential for Fraud: Even trusted nominees may inadvertently commit fraud due to a lack of understanding of state and federal laws. Thoroughly researching potential nominee services is crucial to ensure credibility, knowledge, and trustworthiness.
Alternative Privacy Measures
Business owners have other legal options to maintain privacy:
- Use of Specific Business Address: Listing a specific business address on public documents doesn’t protect the business owner’s identity but prevents others from obtaining their personal address.
- Establishment in Privacy-Friendly States: Choosing to establish a business in a state that doesn’t require declaring owner information in public records can enhance privacy.
- Creation of Multiple LLCs: Establishing multiple Limited Liability Companies (LLCs) can further contribute to maintaining privacy.
If you’re in search of privacy solutions, our team is ready to help. Get in touch with us, your Family Wealth and Estate Attorney with business planning expertise, to delve into comprehensive strategies that uphold the safeguarding of your privacy in both personal and business realms.
This article is presented by Michelle Bell, an expert in estate planning and business succession services. Our office provides comprehensive legal support for businesses, assisting you in making informed decisions throughout your entrepreneurial journey and in planning for future contingencies. We also offer a specialized session where we review your business’s legal structures. To arrange this consultation, please click the following link: https://calendly.com/mcblawpllc/30min.
The information in this article is intended purely for educational and informational use and should not be considered as advice on ERISA, tax, legal, or investment matters. For advice specifically tailored to your unique situation, such advice should be sought independently from this educational content.