Nominee and Trust Arrangements in Employee and Executive Share Option or Participation Schemes in Ireland

This practice note addresses the use of nominee and trust arrangements commonly implemented in connection with employee and executive share option or share participation schemes in Ireland.

In both types of schemes, it is common practice for the legal ownership of shares to be held by a nominee company on a bare trust for the benefit of participating employees, who are the beneficial owners. Under a share option scheme, shares are typically issued to the nominee company upon the exercise of the options and receipt of the exercise price by the employer company. In a share participation scheme, shares are ordinarily held by the nominee from the outset. These arrangements are formalised by a Nominee Agreement or Declaration of Trust.

Frequently, the nominee is a limited company established as a subsidiary of the employer. The employer company usually bears the costs associated with the nominee, including the preparation of financial statements and Companies Registration Office filings. Directors of the nominee company are typically members of the employer’s management team. The nominee company does not charge a fee for its services, holds no beneficial interest in the shares, and is not exposed to any associated liabilities. Its sole function is to facilitate the administration of the employee share scheme.

Regulatory Context

The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (the 2010 Act), which implements the Third EU Anti-Money Laundering Directive (2005/60/EC), provides that any person or entity wishing to carry on business as a trust or company service provider (TCSP) must obtain authorisation from the Minister for Justice. Under section 87 of the 2010 Act, it is an offence to operate as a TCSP without such authorisation.

Following receipt of a query from a colleague regarding whether a nominee company holding shares under an employee share scheme requires authorisation under the 2010 Act, the Committee sought the opinion of Senior Counsel. Senior Counsel advised that there is an arguable position that such nominee arrangements may fall outside the statutory definition of a TCSP. However, Senior Counsel acknowledged that, on a literal interpretation of the definition, there is a risk that the Department of Justice may take a contrary view.

To clarify the Department’s position, the Law Society sought guidance directly from the Department of Justice, which subsequently confirmed its view: nominee companies involved in the types of arrangements described above do fall within the definition of a TCSP under the 2010 Act and must therefore obtain the necessary authorisation from the Minister.

Conclusion

Practitioners should exercise caution and consider the specific facts of each case when advising clients on nominee arrangements in employee and executive share schemes. Compliance with the authorisation requirements under the 2010 Act must be carefully evaluated in light of the Department’s interpretation.”