Nominee mechanism (“prête-nom”): legal or illegal in France? A complete guide for SME managers

Introduction to the Nominee Mechanism

Many SME managers are wondering: is the nominee legal or illegal? The use of this mechanism, far from being anecdotal, raises important legal and practical questions.
This guide aims to provide a clear answer, with concrete examples and a technical perspective: what is the nominee for, who is exposed to what risks, and what strategies to secure your business.

What is a nominee?

Legal definition of nominee

A nominee refers to a person who is officially included in a legal act, but acts on behalf of a third party, the “sponsor.”
Concretely, the nominee agrees to assume the legal appearance of a party to a contract, while the rights and obligations actually benefit another person.
Example: a business owner wants to acquire a property but avoids appearing publicly, he asks a relative to buy on his behalf.

Origin and legal framework of the nominee

In France, the nominee is not strictly governed by the Civil Code. Jurisprudence and doctrine recognize its effects under certain conditions, and the risks depend closely on the context of use.

Activating a nominee: how does it work?

The classical functioning of the mechanism

The typical pattern: a legal act is drawn up in the name of the nominee, but a private agreement between the nominee and the client provides for the return of the property or rights to the real beneficiary.
This parallel contract — known as the “nominee contract” — records the management and return procedures.

Concrete example

An entrepreneur wants to buy a commercial building without revealing his identity: he mandates a friend to sign the purchase on his behalf and provides for a written return agreement.

Risks in the absence of an agreement

Without a written agreement, the sponsor is exposed to the loss of control over the property, disputes, or even disputes in the event of bad faith on the part of the nominee.

Visual diagram “nominee”

Here is a summary table on the roles and risks of the nominee:

Nominee agreement: content, examples and clauses

The main clauses to be inserted

A solid nominee agreement should include:

• The designation of the property or right concerned
• Management and administration procedures (who decides, who pays)
• The conditions of return to the client
• The Commitments and Guarantees of the Nominee

Example of a typical clause

“The property (s) acquired in the name of the nominee are deemed to have been acquired on behalf of the sponsor, who retains the real ownership and bears all the risks and expenses.”

Writing procedures and risks

The agreement must be drafted accurately and confidentially.
Private writing does not guarantee enforceability against third parties, except in cases of recognition or irrefutable proof.

Nomination: legal or illegal in France?

Doctrinal and Jurisprudential Analysis

In principle, recourse to a nominee is Legal when it has legitimate objectives (confidentiality, asset organization, etc.).
It Becomes Unlawful In case of fraud: concealment of assets, money laundering, tax evasion, circumvement/abuse of law, violation of professional regulations.
Jurisprudence validates nominee agreements if they are not aimed at fraud or the circumvention of imperative norms.

Educational framework

• The law distinguishes the “lawful nominee” mechanism, which protects the discretion or legitimate organization of an operation, from the “fraudulent nominee”, which is punishable by nullity or criminal reclassification.

Jurisprudential examples

• A nominee having allowed the sponsor to acquire a business, the courts recognized the effect between parties when the purpose was legitimate (Conf. Cass. com., 1991).
• On the other hand, the use of a nominee to avoid a legal ban is systematically sanctioned (Conf. Crime case, 2017).

Penalties Insured in Case of Abuse

The consequences can be serious:

• Nullity of the Act
• Requalification as fiscal or criminal fraud
• Civil and Criminal Liability of the Nominee And From the sponsor
• Fines and Business Bans for Businesses

Serving as a Front Man for a Business: Best Practices and Mistakes to Avoid

Why do businesses use the mechanism?

• Discretion about the identity of the unitholder, shell company, confidentiality of a strategic project
• Protection of asset interests during restructuring or transfers

Points of Vigilance for the Manager

• Always require a written agreement, drawn up by a specialized lawyer
• Set Out the Methods of Return and Payment
• Ensure there is no tax evasion or concealment
• Inform and consult stakeholders transparently, as required

Educational framework

The use of a nominee by a company must be carefully considered, in consultation with specialist advice. Anticipate controls by tax authorities or regulatory authorities.

Nominees and taxation: what are the risks and controls?

Focus on tax evasion

Acting as a nominee in a context of tax fraud exposes you to serious sanctions:

• Adjustment and Fines of Up to Double the Amounts Concerned
• Undertaking the criminal responsibility of the nominee AND the sponsor

Administrative controls

Nominee mechanisms are particularly closely monitored when it comes to real estate, business transfers or financial investments.
In case of suspicion, the administration uses:

• The Procedures for Lifting the Anonymity of Securities
• The Exploitation of Occult or Written Conventions
• Information crossings (banks, commercial register, etc.)

Case law and concrete examples on nominee in companies

Recent cases illustrating risks

• 2019: Criminal requalification of an arrangement intended to conceal the real ownership of a real estate asset: nullity of the sale and confiscation of the property.
• 2021: Use of a nominated company to circumvent a ban on practising: conviction for abuse of corporate assets and complicity in illegal activities.
• Case of an SME that used an employee as a nominee to acquire a fund: dispute and loss of assets in favor of the nominee following a dispute.

FAQ on the nominee: all questions from managers

What is a nominee?

A nominee is a person who agrees to officially appear in a legal act (contract, purchase agreement, articles of association, etc.) but in reality acts on behalf of a third party, the sponsor, who maintains the real interest of the transaction.

How does the nominee mechanism work?

It involves signing an act on behalf of the nominee and then providing, through a separate and generally secret agreement, for the transfer of the property or rights to the benefit of the sponsor. This operation requires a great deal of trust, and even a legal guarantee.

What is a contract nominee?

It is a private agreement, written or oral, specifying the terms of use of the nominee: designation of the property, return, risk burden, confidentiality. It should be written by a professional to avoid disputes and ensure the safety of the parties.

Is the nominee legal or illegal?

The mechanism is legal when it meets a legitimate and transparent objective, but it becomes illegal when it aims to circumvent a ban or to evade (tax, justice, various regulations).

Can I serve as a nominee without risk?

Serving as a nominee always involves risks: civil, fiscal, and even criminal liability if the purpose is fraudulent. It is imperative to be well informed and advised.

Is the nominee suitable for businesses?

In some cases, the practice is appropriate (confidentiality, management of sensitive interests), but it must be legally regulated. SMEs are exposed to strengthened controls, especially in fiscal and social matters.

Practical advice for SME managers

• Consult a lawyer to draft and secure any transaction involving a nominee
• Never Sign a Nominee Agreement in the Absence of a Clearly Legitimate Objective
• Inform partners or stakeholders to limit risks
• Provide detailed warranty and return clauses

To Go Further: Alternatives to the Nominee Mechanism

• Use of trusts for complex wealth transactions
• Use of management companies or holding companies to promote transparency
• Statutory Organization Adapted to the Asset Strategy

Regulation and the Need for Advice

The nominee mechanism is based on a complex and regulated legal framework. Its use should only be considered with the support of a specialized lawyer, in order to anticipate all risks, aim for legal security and avoid reclassifying the operation as fraud or abuse of law.

Article written by Guillaume Leclerc, lawyer in commercial contracts and commercial litigation in Paris.

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