What is a nominee structure, and how does it benefit angel investors?

Investing in startups can be exciting; you're supporting innovative ideas that come to life and potentially getting in early on the next big success story. However, for angel investors, especially those backing multiple startups or investing internationally, the administrative side can quickly become complex.

Between legal paperwork, and staying up to date with each company, the administrative side of investing can be a real drag. That’s why it helps to understand how the investment setup works, so you have clarity on what it means for both you and the founders, as well as the potential pros and cons.

In this article, we break down what a nominee structure is, how it works, and why it has become such a practical tool for angel investors. You’ll learn how a nominee helps facilitate ownership and reduce administrative challenges.

What is a nominee structure?

When we talk about a nominee structure, we’re referring to a legal arrangement where a third party holds shares in a company on behalf of the actual investors. This third party is referred to as a nominee. The nominee is listed as the shareholder in official company records (including in the cap table), but the real ownership and all the rights that come with it still belong to the underlying investors. 

A nominee setup is widespread in early-stage investing, where managing a growing list of individual shareholders can get messy quickly.

For angel investors, this setup simplifies the investment process by allowing multiple investors to be grouped under a single legal shareholder, the nominee, and providing the opportunity to invest in smaller tickets in interesting opportunities that would otherwise be out of reach. 

How does the nominee work?

When an angel investor participates in a funding round through a nominee structure, the process differs slightly from a direct investment. Instead of investing straight into the startup, the investor puts their funds into a nominee vehicle. The nominee then pools these funds and invests in the startup on behalf of all the underlying investors. It means the startup only sees the nominee entity on its cap table, even though there may be dozens of individual angel investors behind it.

While the nominee is the official shareholder on record, the actual investors retain what’s called beneficial ownership. It’s secured through a legal agreement that outlines each investor's ownership and rights. This agreement ensures that investors receive their share of returns, such as dividends or exit proceeds, and often includes provisions for voting rights or information rights. Even though their names aren't on the cap table, investors still maintain ownership.

Key benefits for investors from using a nominee structure  

A nominee acts as a helpful middle layer between the investor and the startup, simplifying the process while offering protection and access to better terms. Here's how:

Privacy

Investing through a nominee structure allows you to maintain confidentiality around your personal investment details. Your name doesn’t appear on the cap table of the startup; instead, the nominee (typically a licensed legal entity) appears on your behalf. The setup ensures discretion while fully complying with legal and regulatory obligations. It’s beneficial for high-net-worth individuals who prefer to keep their portfolio private or for those investing in multiple ventures across borders.

Easier exit opportunities

Nominee structures streamline the process of transferring or selling shares. When you're ready to exit, you don’t need to engage in complex negotiations or paperwork directly with the startup. The nominee handles the legalities on your behalf, reducing friction and speeding up the process. This flexibility is especially valuable in secondary market transactions within the vehicle or when a startup is acquired.

Simplified tax reporting

Cross-border investing often comes with a complex tax burden. A nominee structure can help by centralizing documentation, which may simplify your tax filings, particularly if you're investing in startups outside your home country. While it doesn't eliminate your tax obligations, it can make compliance more efficient.

Professional management

With a nominee, you're not navigating legal complexities alone. The nominee acts as an intermediary, handling regulatory filings, shareholder agreements, corporate actions, and voting rights in accordance with your instructions or best interests. This professional management ensures that your rights are protected, obligations are met, and everything remains compliant with local and international regulations, without requiring you to be involved in the legal minutiae. As an angel investor, you simply get notified by the nominee when action is needed, and the nominee keeps everything in order, freeing you up to focus on finding your next great investment.

Access to better deals and deal terms

This is a benefit associated with syndicated investments in general, but worth noting here as well. 

Some startups only offer favorable terms, like preferred shares or investor rights, including the right to follow-on, to those investing larger amounts. But if you’re investing just $5,000, you might not meet that threshold. By pooling your investment with others, the group can access better terms. For example, 20 investors each putting in $5,000 could gain access to the same protections that a single $100,000 investor would get.

One of the direct benefits of a nominee structure is that it can simplify the role of the lead investor. In most cases, there’s no need to appoint a separate legal lead investor, as the nominee acts on behalf of all participating investors, handling this role within the structure. However, if an angel wishes to take on the lead investor role in a business sense, that’s easily accommodated. The structure should allow the lead to negotiate terms such as a carry or access fee, or choose to waive them entirely. It’s a flexible setup that still supports active investor involvement when desired. 

Tips for angel investors on how to use a nominee structure

If you're thinking about investing through a nominee structure, or you already are, it’s worth taking a closer look at how it works in practice. While this setup can offer numerous advantages and stronger protections, it’s essential to understand the details and ensure that your interests are appropriately represented. 

Here are a few tips to help you use nominee investments:

Review the nominee agreement carefully

Before committing your money, always read the nominee agreement, as it outlines the legal relationship between you (the beneficial owner) and the nominee. It should include:

• That you are the beneficial owner of the shares
• What rights are you entitled to (like voting, information, or exit proceeds)
• How decisions are made on behalf of the investor group
• What fees or charges, if any, might the nominee apply? Which of those fees are one-off, based on specific events, or recurring?

If any part of the agreement is unclear or overly complex, it’s a good idea to ask questions or get legal advice from professionals with experience in startup investing.

Understand your tax obligations

Aside from the specific agreement, as an angel investor, you need to understand how the investment via the nominee would affect your tax obligations upon exit or otherwise. Take into account your fiscal residence as well as the country of incorporation of the nominee.

SeedBlink’s Nominee vehicle is tax-transparent. According to Austrian income tax principles, the income generated from selling the shares (e.g., during an exit or secondary transaction) is attributed directly to the investor, not to the Nominee Company. This means investors are taxed as the legal beneficiary, and not through the vehicle. Check out more details on SeedBlink’s investment syndicates offering here.

Ask the right questions before investing 

It’s easy to get caught up in the excitement of a new opportunity, but when investing through a nominee, take a moment to ask the following:

• Who is managing the nominee structure? Are they a reputable, experienced firm? For how long have they been on the market? 
• How are votes cast? If the nominee votes as a block, how is your opinion collected, and when?
• Will you receive regular updates? How often will you be informed about company performance, shareholder meetings, or changes in ownership?
• What happens in an exit scenario? Will your proceeds come directly to you, and how?

Stay committed to your investments

Even though the nominee handles all the paperwork, it’s still your investment, so don’t go completely hands-off. Make sure to read the updates the nominee sends you, like company performance reports or notices about shareholder votes. 

Staying informed helps you protect your interests and ensures your voice is heard when it counts.

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TechAngels members used SeedBlink’s Syndicates solution to support a startup looking to raise capital from a wider group of investors. The goal was to enable more angels to participate while keeping the startup’s cap table clean and manageable. SeedBlink provided a fully managed syndication structure that included investor onboarding, KYC/AML checks, a nominee setup with one cap table entry, and tools for ongoing reporting and secondaries. Read the full case study.

Create or join a syndicate with a nominee structure with SeedBlink 

Looking to create a syndicate deal via a nominee vehicle? Whether you are a lead investor or just participating in a deal, check out SeedBlink’s investment group offering.