Nominee Service For LLC Or Corporation
Do Business the Right Way
In business terms, a nominee is a person hired to represent you on public documents. When you hire a nominee or use nominee services, the nominee will list their name and information on business filings (like articles of organization or incorporation) in place of your name and information—usually as a director, officer, member, or manager. The purpose of hiring a nominee is to keep the identity of the company’s owner more private.
A nominee could be anyone—a family member, a trusted friend, a lawyer—but often, nominees are little more to the business owner than a name provided by a nominee services company.
For most businesses, a nominee service isn’t the best way to protect personal information and privacy. Why?
- It’s risky business.
- Hiring a nominee doesn’t keep you completely anonymous.
- There are plenty of other way to protect your privacy that won’t keep you up at night.
How Nominee Services Work
When you form an LLC or corporation, you’ll have to fill out articles of organization or incorporation. Most states require you to list the names and addresses of members, managers, directors, or officers on these documents and others, like your annual report. The names you list here become part of the public record, readily available, typically on your local Secretary of State’s online business database.
When you hire a nominee, the nominee will provide their name and information in place of your own on these documents. Yes, this means actually naming another person as the owner of your company on legal, state documents.
Sound sketchy? Worst-case scenario, it can be. Nominees have no power over your business—in theory. The specifics of this arrangement are usually worked out in a contract between you and the nominee. Ideally, the nominee passes off profits to you and/or votes as you tell them to during board meetings. The nominee is someone you’ve hired to be your puppet while you hide behind a curtain, pulling the strings. Again—in theory.
If the thought of naming someone else as the owner of your company gives you pause, it’s probably not a bad idea to listen to your gut. Hiring a nominee can imperil your business in more ways than one.
The Risks of Using Nominee Services
Using a nominee’s name in place of your own on a legal document puts you in an inherently precarious situation. Essentially, you’re placing your power as a member, manager, director or shareholder entirely in another person. What’s to stop that person from acting against your interests?
Usually, a contract. But if a nominee goes rogue—voting against your wishes or refusing to pass on profits—you’ll have to go to court to enforce that contract. And as everyone knows, going to court requires time and money. In the meantime, your nominee can create a lot of chaos for your business. Plus, going to court will likely expose your identity to the public anyway, meaning all your trouble will be for naught.
What if your nominee is your ride-or-die best friend who would never do you wrong? That’s nice, but your nominee could get struck by lightning or vanish in the Bermuda Triangle. Hey, it happens. Then you may be left dealing with his or her heirs.
There’s also the pretty scary possibility that you and your nominee could inadvertently violate state statutes by committing fraud. State business statutes vary dramatically when it comes to what kind of information you’re required to keep up to date with the state—and the legalities of nominees in general. There are tons of websites out there offering nominee services, and some of them even have stock photos of young professionals in glasses for credibility. But do you trust them to know the ins and outs of local business regulations like we do?
Can Nominee Services Keep Me Completely Anonymous?
No, hiring a nominee for your LLC or corporation cannot keep you completely anonymous, thanks an IRS rule. The IRS does not allow business owners to use a nominee’s name on the EIN application. While an EIN application doesn’t become part of the public record, the IRS will know who owns your business, nominee or not.
Are Nominee Services Necessary to Protect My Privacy?
No. Using nominee services to protect your privacy might work, but it’s not necessary, and it will probably make you feel nervous all the time.
At Northwest Registered Agent, we’re all about privacy. We live and die by our Privacy by Default® manifesto. We’re all experts on how far we can go in each state—legally—to shield your information from the public record. For us, privacy is an asset to be guarded at all costs.
But privacy is not an all-or-nothing state. It’s a spectrum. Depending on what you need, you can move the needle towards more privacy by layering on protections.
For example, when you hire us, we provide a business address for you to list on public documents not only as your registered agent address, but also as the address for your members, managers, directors, and/or officers. That won’t keep the ownership of your company a secret, but it will protect your personal address. For even more protection, you can add our premium mail forwarding service or virtual office service in a growing list of states. For near-total anonymity, you can consider forming an LLC in a state that doesn’t require ownership information on public documents or setting up two LLCs. None of these options require signing away ownership of your company.
To learn more about our privacy options, read our guide on How to Live Privately with an LLC.