What you should Know when working with an offshore firm or attorney with regards to your incorporation.....What is a Nominee ? 

A nominee director is someone who in fact is renting his or her name to you.  In other words, the name of this person is used and not yours for the incorporation documents.  They are also taking the positions on paper of the company directors.  The term of straw man or front man has been used to describe someone who is acting as the nominee.  Legally, according to the incorporation documents, the nominee is responsible for the company or entity.  In addition, if it is the case of a nominee that is also listed as the shareholder(s), then they in effect also have the related ownership responsibilities as well. 

For this reason, I know of some law firms that will not provide nominee services, or in the least, ask for a detailed application form that asks for so much personal information it is at the point of being ridiculous. Why do some lawyers feel this way?  Well, remember what I have just mentioned about responsibility.  Not many people want to be responsible for something that could potentially be involved in something that will bite them later on.  The extreme majority of clients setting up an offshore structure are doing so for tax advantages, privacy, or other very legitimate reasons. But, 
there are of course some people with some other ideas in mind.  For this reason, most of the law firms we know of, are certainly concerned about what the client may be doing with the company. 
In contrast to this, many so-called offshore firms have a more relaxed attitude, but there are some dangers with this as well.   

The problem with any nominee comes down to trust.  With that, there are really two issues here. One involves control or responsibility of the company or entity.  The other, which is really the primary concern of all our clients, concerns their money.  For a nominee to be listed as a director does not in and of itself mean that they necessarily control the related bank or investment accounts (if set up properly ~ with safeguards in place).  For most of the Offshore Firms however, their agenda is to control both the entity or company, and the client's money as well.  This is the problem, and the reason why many of these firms work very differently than we do.  The incentive for many firms, is to take control of a clients assets so they can earn annual or residual fees for money management or investment services.  I am sure that there are some firms which are honest and ethical, but the real problem is: How do you know who is honest and ethical?  Also, if the person is honest and ethical now, how do you know that some personal problem down the road will not tempt them to abuse the powers you have given to them?  No one starts out wanting to have marital, gambling or other types of problems, but the frailties of human nature can get the best of everyone sometimes.  To see someone have a problem is unfortunate, but someone else's need for cash should not become your problem by default. Protect yourself first.  Never give control of your money to someone else.  Here is how.    
  

People use Nominee Directors because they want to maintain their privacy and keep their name out of the public record.  A legitimate and fair enough goal.  In reality though, if your Foundation or Company is domiciled in a jurisdiction governed by Civil law and privacy statues, it can be your benefit to set things up in such a way that the no nominees are used, or are only used for some things.  In addition, it is very important to compartmentalize your business.  You can use nominees in such a way that they have absolutely nothing to do with investments or financial matters.  In addition, it is also a good idea to keep your business affairs separate.  As an example of this, a Dominican Company can own your Caribbean Real Estate Holdings, while your Panamanian Foundation can own your mutual fund or bank accounts.  If you arrange things properly, the nominees do not even have to know what your investments are, let alone have access.     

Strategy # 1 - Using a mixture of nominee directors and yourself.  

Since most jurisdictions require that three people be named as directors, you can certainly use two nominees for the positions of vice-president and secretary.  This may be out of practicality, especially if the client is acting alone in setting up an offshore structure.  My suggestion then is for the client to take the position of president.  The articles of incorporation should clearly state that the president is the only director who is authorized to; open and control bank accounts, enter into contracts on behalf of the company, purchase property or goods, and any other activities relating to the company.  While this method does address any tax or reporting issues, it certainly solves the problem of having someone else control the corporations assets.                             

Strategy # 2 – Using a Foundation or Trust Structure   

Because of recent legislation aimed at addressing the large number of people that have taken their assets and themselves offshore, some firms have developed some exotic plans with regards to cross ownership of companies and a number of other strategies as well.  I do not want to try and explain them all, but just keep in mind that a juridical person can certainly form or act as the board of directors for a company.  With that in mind, there are some general strategies that allow one entity to own the stock of another or allow one entity to control the board of another.  Some of these strategies can become quite confusing, and expensive.  

As mentioned in other articles, the Foundation or Trust structure is basically an estate planning and asset protection vehicle.  It is not an entity that is meant or permitted to engage in business activities.  That role is left to the Corporation structure.  It can however certainly own 100% of the stock of an offshore corporation, thus alleviating the problem of the client having to claim ownership of a foreign corporation.  In addition, the trust or foundation structure can certainly act in the capacity as a board member of the company as well.         

When setting up an Offshore Structure, the key to any initiative is using some common sense. You should never turn control of your money over to anyone.  However, that does not mean that you cannot use nominee directors for certain things or that you need to so something that will create a conflict with current tax legislation in your home country.  The right mix of planning and safeguards can make sure you are well protected and in control.