What is the Nominee Share Account?
A nominee company which acts as the only sole legally registered owner of the Company’s shares, holds investors’ shares in safe custody. 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).
Shadow Foundr is pleased to be able to offer the share nominee account (the “Nominee”), especially as the majority of platforms and fundraisers in the industry are either insisting on operating fully the share nominee account or are having to move towards it. 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 company 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 Capital (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).
- The question should be, can the Company actually afford not to hold the investors shares in the share nominee account, if the entrepreneur truly believes that their company will be successful and at the same time would like to also demonstrate that the Company is serious about providing an eventual exit to its investors?
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 (and it is the name that appears 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).
Does the nominee company send out regular Company updates?
No, the Company is still obliged to keep their 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 has to be organised by the Company accountants or Shadow Foundr can put you in touch with some accountants that can do that for you.
Who does Shadow Foundr use for their nominee account?
Shadow Foundr is unusual in that we offer a completely independent custodian to establish the nominee company, Logic Investments Limited (“LI” – the “Custodian”), a limited company with Company Registration Number: 07092136, having its registered office at 87 Moorgate, London EC2M 6SA, United Kingdom and which is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 516459).
The nominee company is Shadow (TT) Nominees Limited (the “Nominee“), however a different nominee company operated by TT may be designated. The general terms of the safe custody (custodial) and nominee arrangement are set out under SF’s Terms and Conditions – please see link: https://shadowfoundr.com/terms-and-conditions/, which is an independent non-operating holding company that ring-fences the Company’s shares from any normal operational 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 and also the share subscription agreement, where applicable. The investors will need to have completed the full KYC/AML procedures of the Custodian and Shadow Foundr prior to investing. Once the fund raise is completed and when instructed by the Custodian, the Company will be required to issue or transfer the shares in the Company to the Nominee and issue the share certificate to the Nominee, in this case Shadow (TT) Nominees Limited or similar.
Can the Company transfer existing individual shareholders into the nominee?
Yes, if the Company decides retrospectively to adopt the nominee share account, especially if shares have already been issued in the name of the investor and share certificates also issued, it is still in theory possible to transfer the Company’s shares to a nominee. It can be very administratively arduous procedure, which is why the majority of platforms and EIS funds now insist that all companies adopt the nominee account from the outset, however SF can arrange an onboarding to the Nominee and take care of the administration on the Company’s behalf.
What sort of confirmation will the investors of the Company get from the nominee?
The investors will be able to check their transactions and shareholdings online via the investor dashboard on SF’s platform and download their transactions and also Confirmations of Beneficial Ownership from their individual dashboard. SF and the Custodian will conduct an extensive reconciliation process to ensure that the independent Custodian’s records agree with those of SF and statements produced by the Custodian can also be provided to the investor, on request.
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.