Legal Definitions - dummy shareholder

A dummy shareholder is an individual or entity who is legally registered as the owner of shares in a company, but who holds those shares on behalf of another person or entity, known as the "beneficial owner." The dummy shareholder does not exercise independent control over the shares or the company's affairs; instead, they act solely on the instructions of the beneficial owner. This arrangement is often used for reasons such as maintaining privacy, meeting specific legal or regulatory requirements, or sometimes to obscure the true ownership of a company.

Here are some examples to illustrate the concept:

• Example 1: Maintaining Anonymity for Investment

  Imagine a prominent public figure, such as a well-known tech entrepreneur, who wishes to invest a significant sum in a new, cutting-edge startup. To avoid public scrutiny, media attention, or potential market speculation that might arise from their direct involvement, they might arrange for their personal holding company or a trusted legal firm to be registered as the shareholder. In this scenario, the holding company or legal firm acts as the dummy shareholder. While their name appears on the company's official share register, the entrepreneur is the true beneficial owner, making all decisions regarding the investment and ultimately receiving any profits or dividends.

• Example 2: Fulfilling Local Ownership Requirements

  Consider a foreign corporation that wants to establish a subsidiary in a country with strict laws requiring a certain percentage of local ownership for businesses operating in specific sectors, such as telecommunications. To comply with these regulations, the foreign corporation might appoint a local citizen to hold a portion of the shares. This local citizen would be the dummy shareholder. They would be legally registered as an owner, but their role would be purely nominal, with the foreign corporation retaining all effective control over the shares and the subsidiary's operations, often through a separate agreement with the dummy shareholder.

• Example 3: Concealing Assets (Potentially Illicit)

  In a less legitimate context, an individual facing significant personal debt or a lawsuit might attempt to hide their assets from creditors or legal judgments. They could transfer ownership of shares they hold in a private company to a trusted friend or family member. This friend or family member would then become the dummy shareholder. Although the shares are legally registered in the friend's name, the original individual secretly retains control over the shares, makes all decisions, and benefits from their value, attempting to shield them from being seized by creditors.