Seedrs Blog

How investment structure impacts the viability of a secondary market 4 of 4

How investment structure impacts the viability of a secondary market 4 of 4

5th June 2017 by Thomas Davies

In the final video in our series explaining key aspects of the Seedrs Secondary Market we are going to look at the importance of the Seedrs nominee structure.

What is a nominee?

A nominee arrangement is a structure whereby the nominee entity holds legal title to the shares for the benefit of another person.

However not all nominees are the same. The Seedrs nominee is unique, in that we are able to enter into legal contracts on behalf of the investors (for example a shareholder agreement with the company) and make decisions on their behalf. Nominee structures used by other platforms simply hold the legal title to the shares but can’t act on behalf of investors, can’t sign documents on behalf of investors and have to go back to each individual shareholder before any decision can be made. This is not good for either the investors or the company and usually results in huge delays.

When an investor on Seedrs invests in a campaign, Seedrs will subscribe for the shares on their behalf and enter into a shareholder agreement with the company. The legal title to the shares is held by the Seedrs nominee, and the economic interest is held by the investor. This means that Seedrs nominee is the only investor on the cap table of the company (for that round) rather than several hundred or thousands of individuals. And the company only has to issue one share certificate.

This structure is vital for a secondary market to work properly. When an investor who has their shares held by the Seedrs nominee sells their shares on the market, Seedrs facilitates the entire transaction and simply holds the shares on behalf of the new investor. The company has not had to be involved in any of the process, does not have to cancel or issue any new share certificates and does not have to amend its cap table.

As a result of this, we will be looking to finalise all transactions and register the transfer of shares within days of the market closing each month. And the company will not have to be involved at all, which means it quicker and simpler for everyone involved.

We look forward to seeing you for our next Trading Tuesday.

Thomas Davies

Thomas Davies

I'm the Chief Investment Officer for Seedrs.

Digital Agency Kent