NOMINEE DIRECTORS

Non-working director of a firm who is not an executive director and, therefore, does not participate in the day-today management of the firm. He or she is usually involved in planning and policy making, and is sometimes included to lend prestige to the firm due to his or her standing in the community. Non-executive directors are expected to monitor and challenge the performance of the executive directors and the management, and to take a determined stand in the interests of the firm and its stakeholders. They are generally held equally liable as the executive directors under certain statutory requirements such as tax laws. Also called external director, independent director, or outside director

Companies have to borrow amounts sometimes even larger than the amount of paid--up share capital.

They have to depend for this purpose on lending institutions like Banks, Mutual Funds, Public Financial Corporations etc. All such providers of money stipulate for safeguarding their financial involvement in the company that the company should appoint as members of its Board of Directors one or two persons nominated by them.

According to Clause 49 of the Listing Agreement of the SEBI, the ND of the public financial institutions can be treated as independent directors (2004,2006) According to Kumar Mangalam Birla Committee the FIs should not have their representatives on the boards of assisted companies

Not allowed to sign any official forms or verify any information from the company to any government agency or department is correct. Has to face the media and the public glare regularly and in times of emergencies. Responsible for the company before law and the authorities. Certain taxes need to be paid by the Nominee Director on behalf of the beneficial owner. Vat and Corporate taxes are to be paid quarterly and annually respectively.

Financial performance of the company Payment of dues to the institutions Payment of Government dues, including excise and customs duty, and statutory dues Inter-corporate investments and loans to or from associated concerns in which the promoter group has significant interest All transactions in shares Expenditure being incurred by the company on management group Policies relating to the award of contracts and purchase and sale of raw materials, finished goods, machinery, etc

Not responsible for and will not make any decisions whatsoever in connection with the management of the entity. Neither be identified, nor can sign entity documents nor can sign returns on behalf of the entity. Not have any liabilities as he will neither be signing any contract on behalf of the entity nor signing up for obtaining a Bank Account. Cannot and will not enter into any business contract or financial or moral commitment.

IDBI, IFCI, ICICI and IRCI create a separate Department with official at the level of GM and Dy. GM, whose exclusive and whole-time function will be to represent the institutions on the Boards of Companies. In this way, the work of nominee Directors will become an integral part of the operations of the institutions. The proposed Department/Cell should function like any other department of the institution. Outsiders should be appointed as nominee directors only where the institution wishes to have more than one nominee director.

Liability of nominee directors: Nominee directors are in the same position and they owe same duties to the companies as any other director. Nominee directors right to corporate information: A nominee director , like any other directors is bound by the rules of confidentiality. He is not allowed to make unauthorized disclosures to his nominator. Liabilities under Companies Act, 1956: A nominee director like any other director is liable for the default committed in Companies Act.

New and existing entities can appoint a Nominee Director. For a new entity, there will be an agreement between the owner of the Company and the Nominee Director (or) the company which is rendering the Nominee service. The Agreement will also contain the responsibilities and the liabilities of the nominee director. For an existing entity, the nominee director will be appointed only after the approval by the Board of Directors. An agreement will then be signed by the entity and Nominee service provider, Nominee Director on its Board. The tenure of the nominee director will be fixed at the time of appointment. The nominee director so appointed will not have any voting rights in the meetings held by the entity.

Section 252 has been amended to provide that a public company having paid-up capital of Rs. 5 crore or more and one thousand or more small shareholders can elect a director by small shareholders. "Small shareholders" means a shareholder holding shares of nominal value of Rs. 20,000 or less in a company.

Two types of nominee directors - Representing institutional investors - Representing the government

A person appointed as a Nominee Director cannot be a director of more than 15 companies except alternate directorships and directorships of private companies which are not subsidiaries or holding companies of public companies

Prevents the interests of lending institutions by having a ND on board as creditor Helps loan recovery as a part of overall follow up Secures the price sensitive information of companies

In case of international nominee directors there is flexibility of operating their business irrespective of their geographical location in the globe Most trusted names of the business become the face of the company

Place of management and control is usually determined for tax purposes as the place where the director resides Helps shield the real directors (beneficial owners) form heavy taxes Helps to shield from public and media scrutiny To prevent them from being attacked or kidnapped Protection of assets from litigation

SHADOW DIRECTOR: may find it difficult to prove that they are actually running the company and that they also have total ownership. COMPANIES HOUSE UK: has no provision for recording shadow directors or the deeds of indemnity or powers of attorney which support them. DIFFERENT RESPONSE: Different banks and indeed different branches of the same bank might respond to nominee directors in alternate ways. This may be due to differing interpretations of the relevant banking guidelines and their own internal money laundering procedures. Cost of the Service- A further drawback is the cost. The formation agent may sign an occasional document, but will not engage in the company in terms of its commercial business.

Signing Documents Even with a deed of indemnity, witnessed by a professional person, there might be some transactions which the company formation agent will not allow their nominees to enter in to.

Obtaining Assurances It is certainly worth checking with a particular agent that they are willing to undertake the transactions which you may require them to complete before you engage their nominee services. Any such assurances provided should be obtained in writing. charges of insider trading can be implicated when dealing in the companies

Directors nominated by financial institutions are now eligible for employee stock options (ESOPs'), provided the director and nominating institutions sign an agreement on this and a copy of it is given to the company.