A shareholder is someone who is listed as the owner of shares in the company’s share register. The holders of the shares, i.e. the legal owners of the shares, are also expected to be the beneficial owners of the shares i.e. the people who receive dividends and other benefits from the shares, and who ultimately control the company based on their rights to appoint or remove directors, or approve changes to the company’s constitutional documents.
However, it is possible to separate legal ownership from beneficial ownership so that the official holder of the shares do not actually benefit from the shares. Someone else called the “beneficial owner” ultimately receives the dividends and has control through the nominee shareholder.
The nominee shareholder is appointed by the beneficial owner and is required by prior agreement to act in accordance with the beneficial owners instructions and wishes. A written agreement is usually signed by both parties to protect the beneficial owner, to ensure that the nominee follows the beneficial owner’s instructions at all times.
Effectively the nominee shareholder works for the beneficial owner and performs the shareholder duties and exercises the shareholder rights for the beneficial owner. A nominee shareholder can save the beneficial owner some time from such activities, and also serves to protect the beneficial owner’s privacy.