Legal Definitions - straw man

In a legal context, a straw man refers to an individual or entity that temporarily holds legal title or ownership of property, assets, or an interest in a transaction. The straw man acts as an intermediary, with the sole purpose of immediately transferring that title or interest to another party, who is the true intended owner or beneficiary. This arrangement is often used to achieve specific objectives, such as concealing the identity of the ultimate owner, facilitating complex transfers, or navigating certain legal or contractual restrictions that might prevent a direct transaction between the principal parties.

Here are some examples illustrating the concept of a straw man:

• Concealing a Buyer's Identity in Real Estate: Imagine a celebrity who wants to purchase a secluded estate without attracting media attention or potentially driving up the property's price. They might arrange for a trusted assistant or a shell corporation to act as a straw man. This assistant or corporation would formally make the offer, sign the purchase agreement, and temporarily take legal title to the property. Shortly after the sale closes, the straw man would then transfer the property's title to the celebrity. In this scenario, the assistant or corporation serves as the straw man because they held legal ownership for a brief period, not as the ultimate intended owner, but solely to facilitate the transfer to the celebrity while keeping the celebrity's involvement private during the initial acquisition.

• Circumventing a Contractual Right of First Refusal: Consider a business owner who wants to sell their commercial building. Their existing lease agreement with a tenant includes a "right of first refusal," meaning the tenant must be offered the chance to buy the property before it can be sold to anyone else. The owner, however, has a specific buyer in mind who is willing to pay a higher price and wants to avoid offering it to the tenant. To bypass this clause, the owner might sell the property to a newly formed, unrelated holding company (the straw man) at a nominal price. Immediately afterward, this holding company would then sell the property to the intended buyer at the higher market price. The holding company acts as a straw man because its temporary ownership serves as an intermediate step, allowing the property to be transferred to the desired buyer without directly triggering or violating the tenant's right of first refusal.

• Facilitating Complex Property Re-titling: Suppose a group of siblings inherited a family farm as "tenants in common," meaning each sibling owns a distinct, undivided share. They now wish to change the ownership structure to a "joint tenancy with right of survivorship," where if one sibling passes away, their share automatically goes to the surviving siblings, avoiding probate. To properly establish this new joint tenancy, which often requires all parties to acquire their interests simultaneously and through the same legal instrument, the siblings might first convey the entire farm to a neutral third party, such as a family trust or a lawyer (the straw man). Immediately after receiving the property, the straw man would then convey the farm back to all the siblings as joint tenants with right of survivorship. The trust or lawyer acts as a straw man by temporarily holding full legal title to the property, serving as an intermediary to ensure the legal requirements for establishing a valid joint tenancy are met.