What is a nominee and how does it affect my investment?
What is a nominee?
Republic introduced the nominee model to ease the burden for both companies and investors. A nominee is, in essence, an agent that is appointed to act on behalf of all investors and streamline certain processes that are logistically complex and time consuming. These rights include voting and the ability to agree to convert the security into the custodial account on behalf of investors at a predetermined third-party’s instruction. Learn more about custodial accounts here.
For offerings using a nominee through Republic, the nominee is Republic Investment Services LLC.* A nominee rider is attached to each company’s Crowd SAFE or relevant security instrument.
Note: The nominee is typically only used in Regulation Crowdfunding Offerings.
What does this mean for investors?
Generally, you won’t need to read, interpret, or sign complicated legal documents on short notice. This structure also makes it easier for companies to take in more investment from institutional investors to continue growing the company (and your investment).
In more detail, this nominee structure simplifies the process of approving voting decisions for both the company and for you, the investor. When a Crowd SAFE is converted into equity (or shares)—or is affected by a change of control or liquidity event—the nominee handles certain paperwork to make the transaction as smooth and quick as possible for the issuer. The investor is the legal and “beneficial owner” of the security, while the nominee has “the franchise” over the security and can agree to convert or change the title of the security. The nominee is not a fiduciary and will look to a pre-disclosed third party (the company’s CEO, its board, a lead investor, or some other party known to all investors) for direction on matters of voting and economic decisions affecting the securities it is the nominee for.
* formerly known as NextSeed Services, LLC. Republic Investment Services LLC is a subsidiary of OpenDeal Inc. dba Republic.