When it comes to investing and holding shares within a company, who owns what can get complicated.
There are plenty of reasons to want to simplify things.
Whether you are overseeing your organisation’s cap table and trying to make strategic decisions for your company, or you are a shareholder yourself trying to keep on top of selling and transferring shares across a number of businesses – this is where creating a separate legal owner, or using a nominee can really come in handy.
But before we get on to what a legal owner is, what a nominee is, if they differ, and why they are useful, let’s start at the top with what is known as the beneficial owner.
The beneficial owner refers to the owner of the benefits, or “rights”, of a share.
They are the person who would ultimately receive a dividend from the sale of that share.
They would also have the right to vote on company decisions and it would be up to them if they wanted to sell their shares.
The legal owner is a person or entity named as the owner of the shares on the share register and Companies House.
Technically, a legal owner could simply be the beneficial owner. But usually, a legal owner is used to discern a different entity that wouldn’t itself have any voting rights or benefit from the sale of the shares in question.
They could be an individual, or a company, and are known as a nominee. But while a legal owner might have control over the decision to exercise a share, a nominee would only do this after instruction from the beneficial owner.
A nominee has no real ownership of a share insofar as if it is sold, for example, they would not receive dividends from its sale.
They are, however, the registered owner of the shares. As we have seen with legal ownership, when a nominee is created, it is the name of the nominee that appears on the public register.
A nominee could be:
Ultimately, a nominee acts as a representative. They exercise the rights and obligations of share ownership as instructed by the beneficial owner.
One reason to establish a nominee is to provide a level of privacy to the shareholder.
Some shareholders understandably see it as best practice, or better business sense, to keep information about the shares they own out of view of their competitors and the media.
Having a nominee can also help to simplify things. By including a single name, rather than names of many separate individuals, this will keep your cap table tidy and easier to manage.
Additionally, nominees can also minimise admin for shareholders. Selling and transferring shares can be time-consuming and sometimes complex, particularly if you are dealing with multiple businesses and/or stakeholders.
Having a nominee means this responsibility can be delegated to them, making all the business of transferring ownership of shares to others that bit easier for the beneficial owner.
Hopefully, this primer on legal ownership has simplified things for you.
While the nuances between the different types of shareholders can be a little complex, establishing a legal owner or a nominee is relatively simple.
Vestd allows customers on any plan to set up a nominee structure.
Whether you are an individual seeking to create a nominee for privacy reasons, or you want to name a nominee company to represent a group of shareholders to simplify your cap table, our platform allows you to do that.
Ultimately, nominees make the whole business of managing shareholders, as well as the selling and transfer of shares to others, more efficient for your organisation. This leaves you and your staff with more time to focus on growing your business and benefiting from its growth.
Vestd helps founders and leaders design employee share schemes that align people, boost loyalty, and build long-term value. Find out more here.