Many entrepreneurs, when they decide to open companies in different countries, often see the terms “nominee director” and “nominee shareholder.” Not everyone understands these terms or how legal they are. In this article, we will focus on them in the context of the UAE. Interest in this jurisdiction is growing due to its strong reputation and many benefits for starting a business.
What is a ‘nominee service’ and why is it needed?
The terms “nominee director” and “nominee shareholder” are often combined under the umbrella “nominee service.” Formally, the appointment procedure for nominee directors or shareholders is the same as for real directors or shareholders.
However, nominee directors and shareholders do not usually take part in management decisions. Their main role is to represent the beneficial owner’s interests and act as the company’s official contact with third parties.
This practice has become common for several reasons:
| Reason | Explanation |
|---|---|
| Ensuring Confidentiality | The nominee service helps keep beneficial owners’ information private from the wider public, including external parties. |
| Compliance with Local Legislation | Some jurisdictions require directors or shareholders to be residents or citizens. Appointing a local nominee meets this requirement. |
| Streamlining Administrative Processes | Operating across borders often involves bureaucracy. A nominee director can handle formal tasks, such as signing documents and liaising with authorities. |
When you set up a company in the UAE, you must choose its corporate structure. This involves naming directors and shareholders. It is important to know if UAE law differentiates between nominal and actual directors and shareholders. The UAE applies separate laws for local companies and those registered in free zones. Let us look at each.
Most mainland UAE companies (with a few exceptions) are regulated by Federal Decree-Law No 32 of 20 September 2021 On Commercial Companies. It governs corporate matters, including the duties and liabilities of directors and shareholders. The law does not include the terms nominal director or nominal shareholder. It also does not show any difference in the standing of directors and shareholders who manage the business. By law, they have the same rights to manage and make decisions. They also share the same legal responsibilities.
Each free zone follows its own corporate rules. To illustrate, we will review the regulations of specific free zones regarding nominal services.
| Free Zone | Nominal Service Regulation |
|---|---|
| DMCC, Dubai |
The main legislative acts that regulate the appointment and duties of directors and shareholders are:
These acts do not indicate any option for nominal services. |
| DIFC, Dubai |
The main legislative act that regulates the appointment and duties of directors and shareholders is Law No 5 of 2018 on Companies, as amended in 2022. Paragraph 4(9) of Schedule 1 states that:
|
| ADGM, Abu Dhabi |
The main regulations governing companies are contained in the Companies Regulations 2020. Paragraph 5 of Schedule 6 provides similar clarifications regarding rights held by another person as a nominal owner:
|
Some free zone regulations in the UAE formally recognise nominal ownership. At the same time, there is no explicit prohibition on transferring rights into nominal ownership under the laws for local companies or in the free zones we have discussed.
History of Regulating Nominal Agreements in the UAE
Previously, Federal Decree-Law No 17 of 2004 on Commercial Concealment applied in the UAE. Concealment meant allowing a foreign individual or legal entity to carry out economic or professional activities prohibited under UAE law.
In essence, that law prohibited using a nominal shareholder arrangement. For instance, foreign business owners often registered companies under a UAE citizen’s name. This practice was common because earlier UAE regulations required at least 51 percent local ownership, meaning UAE nationals had to hold at least 51 percent of the company’s shares.
However, in 2021, the UAE significantly relaxed these legislative restrictions. Now, companies in the UAE can be fully foreign-owned, except those in strategic sectors. As a result, foreign investors no longer need local partners as nominal shareholders to meet regulatory requirements.
The next step towards easing foreign investor restrictions was the repeal of the “Commercial Concealment Law” in 2024. That change removed the ban on using nominal shareholders. At the same time, the need for them disappeared.
Beneficial Owner Register in the UAE
Nominal shareholders no longer serve a purpose, thanks to the UAE’s system for disclosing company beneficial owners. Every company licensed in the UAE, including free zone companies (with some exceptions), must collect key information on its beneficial owners.
This data includes:
- Full name, nationality, date, and place of birth
- Residential address and mailing address
- Identification document details
- Reason and date when the person became a beneficial owner
- Date when the person stopped being a beneficial owner
Information is submitted to the UAE registration authority within 60 days of the company’s registration and obtaining a licence. Access to these details is restricted and provided only to government bodies for the purpose of combating offences, as well as under international treaties involving the UAE.
Violations of the regulations regarding the maintenance of the beneficial owner register and provision of related information incur administrative sanctions. These may include large fines. Some of these sanctions are listed below:
| Violation | Sanction |
|---|---|
| Failure of a legal entity to establish and maintain a beneficial owner register |
|
| Failure of a legal entity to provide data from the beneficial owner register to the registering authority |
|
The complete list of violations and related fines is set out in the Appendix to Cabinet Decision No 132 of 2023.
Therefore, even when a nominal shareholder is appointed, companies must inform the government authority of the actual owners of the business.
Risks of Using Nominal Service
Although there is no explicit ban on nominal directors and shareholders in the UAE, their use can involve risks. These risks are especially important given today’s increasing scrutiny of business transparency requirements.
| Risks | Description |
|---|---|
| Control over the business |
Since UAE law does not formally distinguish directors and shareholders, nominees may bear significant legal responsibility. They might request numerous company documents to protect themselves from possible risks. If nominee directors or shareholders can make managerial decisions, the beneficial owner risks losing control of the company. |
| Challenges in operating a bank account |
When opening a foreign bank account, the company must disclose its ultimate beneficial owners due to banking compliance. Non-compliance can lead to refusal or blocking of existing accounts. |
| Reputational risks |
Using a nominee service can appear as an attempt to hide the true owners, harming relationships with partners or investors. |
Conclusion
Although the use of a nominal shareholder and nominal director in the UAE is not formally prohibited, the need for nominal services has effectively disappeared. This is due to the following factors:
- The requirement to have a local shareholder is no longer in force in the UAE
- UAE companies must keep a register of beneficial owners and submit that information to the government
- Using nominal services can create extra risks for business owners, including issues involving partners and banks
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