Protecting Your Privacy: Understanding Nominee Services for Business Owners

By Pantea I. Fozouni

March 13, 2023


As a business owner, you may want to keep your personal information private and out of the public record. Luckily, if you want to run your own business but prefer to stay out of the spotlight, there's a solution to this problem that many business owners use - nominee services. Nominee services allow you to use the personal information of a nominee on your business's records, such as articles of incorporation and annual financial reports, instead of using your own personal information. By doing so, you can keep your identity confidential while still complying with legal requirements.

What Is a Nominee?

According to the Stolen Asset Recovery Initiative (StAR) of The World Bank, a nominee is an individual or corporate entity that rents its name to someone else to protect that person’s identity. Nominees can be any individual, including friends, family members, or professionals like accountants or lawyers. Business owners often look for companies that offer nominee services rather than individuals.

The primary reason company owners use nominees is to ensure the owner’s privacy legally. However, the Internal Revenue Service (IRS) notably requires the actual owner’s information when the business owner applies for an employer information number (EIN). This means that, while the actual business details are not publicly available, the IRS has records of who owns the business.

Types of Nominees

There are two main types of nominees that you may be able to install as a business owner. Both of the following types remain in effect for one year, and as the true owner, you may revoke or renew the nominee service at any time: 

  • Directors 
  • Shareholders

Nominee Directors

Nominee directors act as company directors, and some business owners may appoint them to function as a business’s treasurer, president, or secretary. Company directors must be listed on a business’s records. For this reason, business owners may hire nominee directors to list the nominee’s personal information on the records instead of their own. To appoint these individuals, the true business owner issues a power of attorney (POA) document.

Nominee Shareholders

Nominee shareholders protect the real owner’s identity by holding company shares on the true owner’s behalf. The true business owner can appoint these nominees by issuing a declaration of trust. This document outlines the real owner’s instructions regarding his or her shares, such as how to allocate dividends and transfer shares.

Understanding Nominee Services

Before deciding to utilize nominee services, it’s helpful to understand what you can and cannot do with these services, including the following important topics:

  • Gaining privacy from non-governmental institutions
  • Revealing the owner’s true identity
  • Remaining involved in business activities

Gaining Privacy from Non-Governmental Institutions

You may be able to use nominee services to prevent non-governmental institutions from learning your true identity. This can benefit your business because it shields your asset allocations and investment strategies from your competitors, creditors, and other non-governmental institutions. However, due to laws created to prevent money laundering and tax evasion, you cannot use these services to hide your assets from federal and state authorities.

Revealing the Owner’s True Identity

While you may typically use nominee services to prevent competitors, the media, and other public members from learning their true identities, selecting a nominee does not prevent you, the true business owner, from choosing to reveal your identity at a later date. Sometimes, revealing your identity might be beneficial for the company. If, for example, your business is under intense scrutiny, you may want to publicly reveal your identity to defend the business’s actions more effectively.

Remaining Involved in Business Activities

Nominees are only company shareholders or directors according to public records. You, as the true business owner, control the company and are still actively involved in daily business activities. Additionally, you would still reap the benefits associated with your involvement.

Drawbacks Associated with Using Nominees

There are some risks associated with using nominees, which include the following:

  • Nominee acts contrary to the agreement—Business owners usually have a contract with their chosen nominees to outline what the nominee can and cannot do. However, there is still a risk that the nominee may act contrary to the agreement. While you may be able to seek damages in court if this happens, the nominee might do considerable damage to the business before the issue can be resolved. Such legal disputes can be costly and time-consuming. Moreover, aif you take a nominee to court it will reveal your identity to the public, making the whole process a waste of time.
  • Nominee becomes incapacitated or dies—You might select a trustworthy and competent individual to act as your nominee. However, you may encounter issues if the nominee becomes incapacitated or dies. The nominee’s heirs might fulfill the role, but you may revoke the declaration of trust or POA if the heirs are not as willing or competent as the original nominee.
  • There is a potential for fraud—A trusted nominee might inadvertently commit fraud due to a lack of knowledge of state and federal laws. For instance, the nominee may not stay current with business regulations, which might pose a risk to you and the business. Due to this, you should thoroughly research potential nominee services before signing a contract to ensure that the nominee is credible, knowledgeable, and trustworthy.

Alternative Privacy Measures

There are other things that you can do to maintain your privacy legally. You can use a specific business address to list on the business’s public documents. While this does not protect your identity, it can prevent others from obtaining your personal address. Additionally, you may consider establishing the business in a state that does not require businesses to declare the owner’s information in public records. Alternatively, you can establish multiple LLCs to help maintain your privacy.

Contact us, your Personal Family Lawyer® with family business planning expertise To Learn More About How a Nominee Can Protect Your Privacy

When it comes to protecting your personal privacy as a business owner, it's crucial to have a reliable legal expert by your side. That's where a Personal Family Lawyer® with family business planning expertise can help make the process easier for you. With our knowledge and experience, we can guide you through the legal and financial aspects of protecting your privacy and ensure that your rights are protected. By working with us, you can have peace of mind knowing that your privacy is safeguarded while you focus on growing your business. Contact us today to learn how we can help.

This article is a service of a Personal Family Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.

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