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Beware of Nominee Services

Why the Small Business Owner Should Think Twice About Handing Their Company Over to Online Strangers.

Nominee Services are common in the legal and financial fields.  Basically, they allow companies to elect another party to do tasks for them.  Generally, this allows the company to remain anonymous in such transactions. They are quite common place in complex estate planning.  However, I am hearing a lot about Nominee Services these days regarding their association with the filling of anonymous LLCs and Registered Agents.  So much so, I am starting to become very concerned.   Here is what you should be aware of when it comes to Nominee Services:  You are essentially handing over control of your entire company to a total stranger. 

[Related Reading: Just How “Anonymous” are Anonymous LLC’s?]

If you “nominate” another company or individual to act on behalf of your company, you could very well be giving a third-party unlimited power over your company.  This means a stranger could make executive decisions, execute contracts and potentially take out credit in your business’s name without any discussion with you or without you even knowing about it until it is far too late! 

Know What and Who You Are Dealing With

Look, Nominee Services play an important a role in more sophisticated legal and financial transactions.  The problem I am seeing lately is Business Owners are being given incorrect or partially correct information about Nominee Services and the potential ramifications associated with them.   Most online Nominee Services fail to mention to unsuspecting business owners that appointing them as your nominee means you are handing someone control over your entire company and in most cases, there is no expiration date as to when this control will end. 

Another real area of concern, especially when dealing with internet companies offering Nominee Services, is that they offer no real information about their company, their owners, the owner’s education, experience, their background, etc.   I find it increasingly alarming that I have discussions with Business Owners that have assigned unlimited nomination services to a company that they know absolutely nothing about, owned by a person they do not know, whose experience, education and expertise are highly suspect, without the slightest clue of where this so-called “business” is even located.  The mere fact these internet companies offer to set you up with an anonymous business formation does not mean they are qualified to do so.   

Think of your business as your child, surely you would not take some unknown stranger’s word they were a good baby sitter without a little due diligence, right?  Obviously, you would ask a potential babysitter the important questions, such as:

Why’s behind an Online Nominee Service

If you are considering a “Nominee Service” to simply help you with a few specific tasks for your business, you should stop and think twice.   If someone out there over the internet is encouraging you to sign paperwork making them your company’s nominee, stop and ask yourself why?

 Is it because:

They are unsophisticated, non-lawyers who simply do not understand the importance and significant legal issues associated with Nominee Services?

OR

They are non-lawyers who completely understand requesting you to sign over Nominee Services to them or their company allows them to have potentially unchecked powers over your company?

The first scenario could be chalked up to simple ignorance. However, the other might very well have criminal motivations behind it.  So, beware because neither scenario is good for your business!

Here’s a short video about some things to consider when setting up an Anonymous LLC


The Limited Power of Attorney

A Limited Power of Attorney allows a third party to perform a specific function on behalf of your company and is a much better service to meet your needs.   It doesn’t give a third-party unlimited power to do as they please in the name of your business.  Limited Powers of Attorney generally have an expiration assigned to them or a specific set of circumstances that must occur for the Power of Attorney to go into effect.  They also list, in detail, specifically what the Limited Power of Attorney has the “power” over.  

Think of it this way, if you owed someone some money, would you take the time to pay them the correct amount or would you simply throw your check book at them and say, “You figure it out” and hope they don’t rip you off? 

If you are considering signing a Nominee Services Agreement for your business, give us a call at 505.715.5700 or contact us via email.  We will consult with you as to if a Nominee Services Agreement is the service you actually need.  We will help you to protect your business and its assets.

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