Control Tools for Nominee Shareholders and Directors in Hong Kong

However, the participation of nominees may entail certain risks:

• loss of actual control over assets
• complex legal consequences in the event of the death of the nominal owner
• disputes over inheritance or division of property
• unfair behavior of a nominee, etc.

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To protect the interests of ultimate beneficiaries and ensure stability of management, reliable legal control instruments are used in Hong Kong and in international practice, including:

• non-standard company charter
• stock call options
• pledges of shares
• pledges of company assets
• succession planning
• a set of documents confirming the nominal status

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There are other instruments, such as personal guarantees of nominees, pledges of personal assets of nominees, corporate agreements, etc., but in this article we will consider the most common ones. 

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Non-standard company charter

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When nominee shareholders are involved, it is important to correctly establish internal management rules. One of the key tools is a non-standard charter, which allows you to legally limit the powers of nominees and protect the interests of the ultimate owners.

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Such a charter may include provisions aimed at strengthening control, for example:

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• Requirements for кворуму for holding a meeting of shareholders in order to exclude the possibility of making decisions without the participation of beneficiaries.
• Decisions requiring a qualified majority голосов – for example, on key issues (sale of assets, change of director, distribution of profits, etc.).
• A list of issues referred to the exclusive competence of the general meeting of shareholders ( shareholder reserved matters ), which cannot be decided by the director or a minority of shareholders alone.
• Special procedures for convening and holding meetings , notification and formulation of the agenda – to avoid sudden or non-transparent decisions.
• Other restrictions depending on the goals and structure of the business.

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Such a charter helps not only to limit the actions of nominee directors, but also – if necessary – to limit the influence of nominee shareholders, minimizing the risks of losing control over the company.

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Stock call options

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A call option is a versatile and widely used tool in Hong Kong that allows you to protect control over a company in the event of a conflict with a nominee shareholder.

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This option gives the beneficiary the right to buy back shares at par value when predetermined conditions occur (e.g., breach of contract, failure to comply with instructions, or other risks). This allows for quick and legally sound restoration of control over a share in the company without the need for litigation.

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"The implementation of the option requires active actions - it is necessary to formalize the transfer of shares, make changes to the public register of shareholders and comply with the company's internal procedures (including updating corporate documents and notifying regulators)"

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Pledge of shares

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A share pledge is similar in essence to an option. It allows you to retain control over the company, even if the shares are temporarily held by a nominal shareholder.

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In the event of a conflict, breach of agreement or other unforeseen circumstances, the presence of collateral gives the right to reclaim shares through the foreclosure procedure. This is especially relevant when structuring with nominal shareholders in situations where it is necessary to legally support the possibility of returning the share.

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"In order to formalize a pledge, there must be a primary obligation that will be secured by it (for example, a loan, obligations under a nominal ownership agreement, or other conditions specified in the agreement)."

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Pledge of company assets

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If a company's core value lies not in its operating activities but in key assets – such as real estate, goods in circulation, intellectual property or shares in subsidiaries – a pledge of assets can be an effective control tool.

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This mechanism works in a similar way to a share pledge, but with one important difference: in the event of a breach of obligations, you have the opportunity to foreclose not on a share in the company, but directly on its assets, while keeping the company itself intact.

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Asset pledging allows:

• record the values on the company's balance sheet
• maintain a manageable legal structure, but at the same time have control over its material basis
• effectively protect the interests of the investor or beneficiary in the event of a conflict with nominal participants

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Succession planning

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Wills and their legal analogues are a mechanism not so much for protection from the actions of the nominee himself, but for preventing risks associated with his heirs in the event of the opening of an inheritance.

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In the event of an inheritance, the shares of the nominee shareholder may be included in the inheritance estate, which will lead to:

• an unpredictable circle of heirs not connected with your business
• delays in processes due to hereditary procedures
• potential disputes and claims for shares in the company

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The use of inheritance planning mechanisms (wills, powers of attorney, orders for the transfer of rights, etc.) allows:

• determine in advance the fate of shares in the event of the death of the par value
• exclude the inclusion of shares in the inheritance
• ensure that control is transferred back to the ultimate beneficiary or other pre-agreed person

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A set of documents confirming the nominal status

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A package of internal documents concluded between the nominee and the ultimate beneficiary allows for the formalization of agreements and the creation of a legal basis for control, including:

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• description of the functions of the nominee (director or shareholder)
• limitation of his powers and the obligation to act solely on the instructions of the beneficiary
• terms and amount of remuneration
• term of the nominal agreement
• dispute resolution and responsibility allocation procedure

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Availability of these documents:

• reduces legal and financial risks in case of disputes
• prevents unauthorized actions by a nominee
• serves as evidence of the nominal nature of participation in the event of legal or regulatory proceedings