Risks and Vulnerabilities of Nominee Shareholders and Directors in Dubai

Many new founders hear the words nominee shareholder and nominee director and feel lost. The idea is simple. A nominee is the person whose name appears on company papers, but someone else is the real owner or the real decision maker. This setup can be legal in certain cases, yet it carries real risks. The points below explain those risks in plain language so anyone can follow.

This article has been crafted with insights taken from the original working paper on nominee shareholding published by the Dubai Healthcare City Authority. You can read the full document here.

What a nominee is

A nominee shareholder holds shares in their own name for someone else. A nominee director sits on the board to represent the person who appointed them. Sometimes the nominee is a name only. The actual owner or controller gives the instructions in the background. These arrangements may be based on a trust deed or a private contract between the nominee and the real owner.

Why people use nominees

Nominees are used around the world for a few practical reasons. Some owners want privacy from public company searches. Some countries require a resident director. Firms such as lawyers, accountants, and corporate service providers offer nominee services. There are also professional nominees who only rent out their identity and do nothing else for the company. Using a nominee can be cheaper than building complex layers of holding companies for privacy.

What public records show in the UAE

In the UAE, the National Economic Register shows basic company data such as the name of a manager. The register of beneficial owners is not public. Company registries share that information with the Ministry of Economy. Because public users cannot see the true owner, using nominees reduces the value of public shareholder lists for finding who really controls a company. The use of corporate directors can also make it harder for authorities to see who is in charge.

Why nominees create risk

Even when legal, nominees are a key weak spot. They can be used to hide the true owner and the person in control. People can use nominees to get around bans on being a director, to dodge foreign ownership rules, or to disguise who runs a business. These problems grow when parts of the company sit in different countries. That split makes it hard for any one country to collect the full picture. Law enforcement can be delayed because records show the nominee and not the real owner. Sometimes nominees make false links between companies that share the same nominee person. These are real money laundering and terrorism financing risks.

Informal nominees are even riskier

Not all nominees are hired professionals. Informal nominees are friends, family members, business partners, or other personal contacts. There is often no written contract. In some cases foreign students or tourists were convinced to open companies in their own names for a small payment and were not involved again. Informal nominees may even claim they are the true owner to keep the story alive. This makes it very hard for registries to find the real owner through normal checks.

How the UAE improves transparency

To fight misuse, UAE laws require nominees to identify themselves to the company and to the regulator. Registrars are empowered to ask anyone holding shares whether they act as a trustee or nominee for someone else. If yes, the person must disclose who the real person is and any instructions linked to the shares. There are penalties for false or missing declarations. The goal is simple. Make it easier to find the real owner and reduce abuse.
What registrars and firms should do

Because nominee setups are higher risk, registrars are guided to treat them carefully. The paper suggests a few strong controls. Mark companies with nominee structures as high risk. Review why a nominee is being used and how the setup works. Apply enhanced due diligence using a risk based approach. Review any nominee agreement. Confirm and verify all ultimate beneficial owners. These controls should be adopted quickly and existing nominee cases should be reviewed as a clean up exercise.

Red flags that need extra checks

Here are warning signs that call for deeper questions and documents.

1. A company does not disclose a nominee even though records suggest one exists.
2. The named beneficial owner appears as the owner of many other companies or is a corporate service provider, which can suggest a professional nominee.
3. The purpose for using a nominee is unclear or the nominee agreement looks suspicious.
4. Family or close friends are listed as nominees without a good business reason.
5. The beneficial owners are politically exposed persons or have negative findings in checks.
6. The client cannot clearly explain their business, history, or refuses to share normal registration documents.
7. The company profile looks odd for the person’s age, including very young applicants.
8. The company name suggests activities the company does not actually carry out.

Simple example

A founder wants privacy and uses a nominee director so only the nominee’s name appears in filings. Later, a bank asks for the real owner. Because the setup is not transparent, the account is delayed. If the nominee cannot explain the business or the agreement looks weak, the bank may reject the account or ask for more proof. This shows how a privacy tool can slow down normal business if not handled with full and clear disclosure. The risks are higher if the nominee is a friend without a contract or if the story does not match the documents.

Plain takeaways you can use

Nominees can be legal. They also make it easier for bad actors to hide. Keep things simple and safe.

1. Use nominees only when there is a clear and lawful reason.
2. Put written agreements in place and keep records.
3. Always disclose the ultimate beneficial owner to the registrar and to banks.
4. Expect enhanced checks and answer them fully.
5. Review any nominee setup often to make sure it still makes sense.

How COFTT can help

If you are considering a nominee shareholder or director, speak to us first. We will map your structure, explain the risks, and help you stay fully compliant with UAE rules on beneficial ownership and disclosure. Our goal is to establish your business in dubai the right way while keeping banking and licensing smooth.