How a Nominee Director can be Utilized in your Global Expansion
Regardless of the country, you are expanding to and from, global expansion is a relatively complex endeavor, which is why Aadmi is a great partner to support your expansion process. Even when shared cultures and languages make expansion socially easier for your business, there is still a matter of adherence to regulatory compliance and government rules and regulations regarding foreign businesses. There are many requirements that come with certain exceptions, but there are also rules that you must follow. One such rule is associated with being a nominee director.
What is a Nominee Director?
A nominee director is an individual that represents the interest of an actual director, owner, executive, shareholder, or another authoritative person in a business. Based on the contract they negotiated with the individual who nominated them, they may wield none of the executive powers of a director. Still, their primary role is to represent the interests of the individual who nominated them.
A nominee director is a crucial piece of the global expansion puzzle for a business. Let’s say a business is expanding into another country where it’s a requirement that every business operating within that country have a local director. The idea is there should be someone at the highest level of a business’ hierarchy, a local resident, to ensure the business will not engage in any activity (legal or illegal) that may harm the country.
However, a business that’s just expanding into another country may not have adequate local resources (even if they have local employees) to elevate someone to the director’s level. So, in order to comply with the local government’s rule of having a director who is a resident, the business can hire a nominee director. The director will be considered an executive power in the local business entity, even if they don’t actually have discretionary power, i.e., the decisions they make are not their own but of the individual/entity that hired them.
Does Every Global Expansion Require a Nominee Director?
No, not every country requires a nominee director. Different countries may have different requirements for local representations (if there are any). The need to have a nominee director may also depend upon the scale and specifics of the global expansion. If a business is simply hiring a local workforce (through remote contracts), they may not need a formal presence in the company and might only have to comply with certain rules, like taxation and local labor laws.
However, when a company is establishing a local business entity and that country requires at least one director (also a resident of the country), the company may not be able to dispense with the need for a nominee director.
A Nominee Director’s Role in Global Expansion
A nominee director’s role in global expansion may vary based on how much decision-making power they have. This is determined through the contract between the company expanding into a new country and the nominee director hired from that country. But even if the contract ensures they have minimal power, a nominee director should ideally be a competent and qualified person since they will be the “management face” of the company in that country. They will have to sign off on all major company decisions made in the country, even if the decision is made elsewhere. It is in the best interest of the company and the nominee director to ensure that the two are a right fit.
This can also influence the role of the nominee director in global expansion.
The nominee director’s very presence is the company fulfilling a compliance requirement, i.e., having a local director. However, a qualified nominee director can offer more than that. They can actually help the company comply with local laws. This is especially important when a nominee director has a reasonable measure of decision-making power and directly controls/oversees part or all of the company’s operations in the country directly.
They can ensure everything is done according to the law and allow the company to build a healthy relationship with the local authorities and relevant departments. This can actually help the company expand its local operations and can get the most out of its local presence.
An individual that’s from the country the company is operating in and is (ideally) familiar with the business community and the market can be a powerful asset. They may become the catalyst that helps a company ease into a new country and help them build local partnerships with vendors, peers, contractors, and other stakeholders.
That’s because a foreign company led by a known individual may be received more positively in the local business community (and market) than a foreign company with foreign management. However, this requires that the nominee director is someone that the business community knows or trusts. If that’s a difficult benchmark to hit, the company should look for a nominee director with the right credentials (and personality) to build them.
Cultivating A Useful Resource
Even if a nominee’s power is simply representative of the individuals or entities that hired them, they can still be groomed as a useful resource that may actually be kept on board as a director or in a different capacity. That’s especially useful if their presence has yielded positive results and connections. When the company starts building a larger local team, the nominee director can be the centerpiece of that collection.
A nominee director, especially if they wield minimum power, can ensure that the company’s control in the region is complete and seamless, i.e., there are no decisions being made that they don’t approve of or know about. This is different from having a local independent (fully or partially) leadership with which executing decisions may require more red tape, convincing, and, most importantly, time. But a nominee director can help a company exert its will, quite literally, in its foreign presence without any friction.
A nominee director can do much more than just a way to get around the compliance regulation of having a local director, but only if they are qualified. Finding an individual like this can be tricky, especially if you are not familiar with the local talent pool and hiring practices. Aadmi can be your partner in providing a nominee director with the right qualifications to ensure a successful expansion process for your business. Aadmi has a network of partners all over the world to help with every step of your expansion, request a consultation today.