Why use a Declaration of Trust?
For various reasons, a beneficial owner of shares may not wish its name to appear on a company’s share register. This may be because a shareholder wishes to maintain a level of privacy, the shareholders may be minors or it may be required by the company’s articles of association in certain circumstances. Whatever the underlying reason, we have created a new basic Declaration of Trust agreement and updated our longer form agreement, where a nominee shareholder, who is the registered owner of the shares, holds the shares on trust for the benefit of another person (the beneficial owner). The brand new basic agreement covers only shares in a company and the updated longer form agreement covers both shares as well as other securities (options, warrants etc) that may be held on trust.
A company may not record details of any trust arrangement on its share register and so as far as the company (and the outside world) is concerned, the person named on the company’s share register is the registered owner of the shares. A declaration of trust is therefore a binding statement by the legal owner of the shares, declaring the underlying beneficial interests of the person or persons for whose benefit he or she holds the legal title. The agreement will state the terms upon which the nominee holds the shares (or other securities) for the beneficial owner, this could include anything from how the legal owner should vote at general meetings to how payment of dividends should be dealt with.
Whilst the whole area of corporate transparency is being considered at a governmental level currently, with the idea being to create a public register of beneficial ownership of companies, there is still no draft legislation in place following a public consultation last year and therefore for the time being, it still remains perfectly legal, and for many desirable, to have nominee shareholder arrangements in place.
The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.