Nominee Shareholders and Stock Held in Another's Name

What is a nominee shareholder?

A nominee shareholder is a person whose name is on a company's shareholder register even though someone else supplied the money and enjoys the economic benefit of the shares. Korean law calls this arrangement 주식 명의신탁 (title trust of shares), and the shares are often called borrowed-name or 차명 shares. The person behind the nominee is the beneficial owner or, in Korean terms, the truster (신탁자).

The arrangement has ordinary uses and risky ones. Founders sometimes put shares in a relative's name when an old rule required several promoters, investors use custodians for convenience, and brokers hold shares for clients. But nominees are also used to hide control, avoid taxes, or dodge creditors, which overlaps with the abuse cases behind piercing the corporate veil. That's why the law has to answer a simple question: when the register says one thing and reality says another, who is the shareholder?

A shareholder register looks like dry paperwork. In practice it decides who votes, who gets dividends and who can sue the directors.

Korea's 2017 en banc ruling: the register decides

For years Korean courts favored the "substance" view: if someone else really paid for the shares, that person was the true shareholder, and the company could even refuse to recognize the registered holder. In Supreme Court Decision 2015Da248342 (en banc, March 23, 2017), the Court changed course. It held that, as a rule, only the person registered in the shareholder register can exercise shareholder rights against the company, and that the company can't deny the registered holder's rights or recognize an unregistered person instead, even if it knew the shares were held for someone else.

The reasoning is about certainty. Companies deal with thousands of shareholders and need one clear list for notices, votes and dividends. Commercial Act art. 337 says a transfer of registered shares can't be asserted against the company until the transferee's name is entered in the register. The Court extended that logic to nominee cases, leaving exceptions only for extraordinary situations, such as when registration was refused unfairly.

Who actually subscribed? The consent test

A separate question is who became the subscriber when shares were first issued. In Supreme Court Decision 2016Da265351 (December 5, 2017), the Court split the cases in two. If the shares were subscribed in a fictitious name or in a real person's name without consent, the person who actually signed up and paid is the subscriber. If the named person consented, the usual rules for identifying the parties to a contract apply, and normally the named person is treated as the subscriber, unless the company and the parties agreed that the real payer would be the shareholder.

Commercial Act art. 332 fills in the payment side. A person who subscribes in another's name without consent is liable to pay as a subscriber, and when the named person consented, both are jointly liable for payment. The statute deals with who must pay, not who owns, which is why the courts had to build the consent test.

A Korean case comment on Nominee Shareholders in Korean Corporate Law: Supreme Court Case 2016Da265351 on Subscribing for Shares in Another Person's Name walks through this decision using the facts of a residents' council that set up a company, and a paper on Piercing the Corporate Veil and Other Key Korean Corporate Law Cases: Deemed Merchants, Veil Piercing, Self-Dealing and One-Person Companies places nominee issues alongside veil piercing and self-dealing cases.

Between the real owner and the nominee

The 2017 ruling doesn't erase the beneficial owner. Between the truster and the nominee, the title trust agreement still governs. The truster can usually end the trust and demand that the nominee transfer the shares back, then ask the company to change the register. If the nominee refuses, the dispute goes through civil procedure, and a final judgment's effect is limited by the rules of res judicata.

Until the register changes, though, the nominee votes and receives dividends as far as the company is concerned. A nominee who sells the shares or pledges them can leave the real owner with only a damages claim. This is the practical risk of borrowed-name shares: the law protects the register, not the private understanding behind it.

Taxes and real-name rules

Korea treats nominee arrangements harshly in tax law. Under art. 45-2 of the Inheritance Tax and Gift Tax Act, when the real owner and the registered owner of property such as shares differ, the value is deemed a gift from the real owner, unless the arrangement had no tax avoidance purpose. The gift tax on deemed gifts is imposed on the real owner. Courts read the "no tax avoidance purpose" exception narrowly, so even old family arrangements can trigger large bills.

Real estate goes further. The Real Estate Real Name Act generally makes title trust agreements for land and buildings void and punishes them. Shares aren't covered by that act, which is why share nominee arrangements remain legally possible but expensive, and why commentators debate a real-name rule for stock similar to the one for bank accounts.

The register tells the company who to trust. The tax office asks a harder question: why did the real owner want to stay hidden?

Nominees in the United States

American law separates the record holder, the name on the corporation's stock ledger, from the beneficial owner, who has the economic interest or voting power. Most investors in public companies own shares in "street name": a broker or bank holds them through the Depository Trust Company, and the investor is the beneficial owner. Delaware General Corporation Law § 219 makes the stock ledger the only evidence of who may vote at a meeting, much like Korea's register rule.

Federal securities law looks through the names. SEC Rule 13d-3 treats anyone with voting or investment power as a beneficial owner, so a person who controls more than 5 percent through nominees must still disclose it. The Corporate Transparency Act of 2021 created beneficial ownership reporting for many companies, although a 2025 FinCEN rule narrowed it mainly to foreign companies registered to do business in the U.S.

What is a nominee shareholder in simple terms?

It's the person listed as the owner of shares while someone else paid for them and gets the benefit.

Who can vote the shares in Korea?

As a rule, the person in the shareholder register, after the 2017 en banc decision 2015Da248342.

Is holding shares in another person's name illegal in Korea?

It isn't void as it is for real estate, but it can be taxed as a deemed gift under the Inheritance Tax and Gift Tax Act art. 45-2.

References and official sources

1. 상법. 국가법령정보센터
2. 상속세 및 증여세법. 국가법령정보센터
3. 부동산 실권리자명의 등기에 관한 법률. 국가법령정보센터
4. Beneficial owner, Wex. Cornell LII
5. 17 CFR § 240.13d-3. Cornell LII