What is a Nominee Director and why might you need to use one?

Running a successful business can be a daunting task, especially if you’re dealing with the complexities of company law, regulations, and compliance.

One of the critical requirements for any business in Australia is having a resident director, and failing to meet this requirement can have serious consequences.

However, what if you’re not a resident of the country in which you operate?

This is where a nominee director can help.

A nominee director provides a solution to the residency requirement by appointing a resident director to act on your behalf.

These services can also offer other benefits, including access to local expertise, reduced administrative burden, and increased credibility.

In this article, we’ll explore what a nominee director is, the benefits and potential drawbacks of using one, and the situations where using a nominee director can be advantageous.

Whether you’re a small business owner, a major shareholder, or a director looking to expand your board’s expertise, understanding the role and implications of a nominee director is critical to achieving your business goals in Australia.

What is a nominee director in Australia?

Let’s start at the top.

In Australia, a nominee director is a person appointed by a company to act as a director on its behalf, as authorised under the Corporations Act 2001.

The nominee director is appointed to the board of directors, but they act on behalf of the appointing party or parties and do not have any executive or decision-making authority.

Nominee directors in Australia, also called shadow directors, are typically used by foreign companies or investors who wish to establish a presence in Australia, but do not have a local director or do not wish to appoint a director with full decision-making powers.

The nominee director service provides the necessary legal presence in Australia and ensures compliance with local laws and regulations.

They are not involved in the day-to-day management of the company, but they do have legal responsibilities and obligations under the Corporations Act.

They are required to act in the best interests of the company, exercise care and diligence, and ensure that the company complies with all relevant laws and regulations.

Failure to fulfil these obligations can result in legal and financial consequences for both the nominee director and the appointing party.

What is an Australian resident director?

Now we know what a nominee director is, it helps to understand what an Australian resident director is.

Australian resident directors are company directors who is an Australian resident for taxation and legal purposes. According to the Corporations Act 2001, every Australian company must have at least one director who is either an Australian citizen, an Australian permanent resident, or a person who holds a special visa allowing them to act as a company director.

The role of an Australian resident director is to provide strategic guidance and oversight to the company, ensure compliance with legal and regulatory requirements, and act in the best interests of the company and its stakeholders. They are responsible for making decisions about the company’s operations, financial management corporate governance, and risk management, and they can be held personally liable for any breaches of the law.

Remember, that a resident director doesn’t have to be actively involved in the day-to-day operations of the company, but they must be available to fulfil their duties when required.

If a company is unable to meet the requirement for a resident director, it may need to engage the services of a professional director who can act in this capacity.

What’s the difference between resident director and nominee director?

Stay with us here, this section will clear this up for you.

Under the Corporations Act 2001, all Australian companies must have at least one director who is ordinarily resident in Australia. This requirement is intended to ensure that companies have at least one director who is readily available to oversee the company’s operations and ensure compliance with Australian laws and regulations.

If a company cannot satisfy the criteria for a resident director, it can appoint a nominee resident director to oversee the company’s operations and ensure compliance with Australian laws and regulations.

What are some situations where using a nominee director can be advantageous?

So in what situations would your business use a nominee director?

Appointing a nominee resident director can provide a level of flexibility and protection for your company in a variety of situations.

However, it is important to ensure that you appoint nominee directors is done in a transparent and legally compliant manner and that the nominee director’s role and responsibilities are clearly defined.

Using a nominee director can be advantageous in a variety of situations, including:

• Protecting anonymity

A nominee director can be used to protect the anonymity of the ultimate beneficial owner of a company. By using a nominee director, the actual owner of the company can remain anonymous while still retaining control over the company’s affairs.

• International business

If a company is operating in a foreign country, it may be required by law to have a local resident director. In such cases, a nominee director can be appointed by the company’s board to meet this requirement while ensuring that the parent company’s interests are still protected.

• Compliance

In some cases, a regulatory body may require a company to have a director with specific qualifications or expertise. In such cases, a nominee director with the necessary qualifications or expertise can be appointed to meet these requirements.

• Negotiations

A nominee director can be appointed to represent the interests of a specific group of shareholders or investors in negotiations with other parties. This can help to ensure that the interests of these stakeholders are protected and represented effectively.

• Smooth transition

In situations where a company is going through a merger or acquisition, a nominee director can be appointed to ensure a smooth transition. The nominee director’s appointment can help to maintain continuity and stability during the transition period, ensuring that the company continues to operate effectively.

What are nominee director services in Australia?

Foreign companies when setting up in Australia are required to appoint one resident director if they are a Pty Ltd company or two resident directors if they are a public company.

A resident director must be 18 years of age, must ‘ordinarily’ reside in Australia, and have signed consent before taking on the role and responsibilities of a director.

If your new Australian business is unable to meet the criteria, you can appoint a registered agent like Sleek (ASIC Registered Agent No. 47659) to look after your company’s matters and ensure compliance.

As an agent, Sleek does not participate in the management or financial affairs of your business.

These services are called non-resident directors, director services, or nominee director services.