Holding Shares on Trust

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Holding shares on trust for someone else is a common practice in the realm of investments and estate planning. This arrangement occurs when one person, known as the trustee, legally holds and manages shares on behalf of another person, referred to as the beneficiary.

A simple trust, where the beneficiary has an immediate and absolute right to both the capital and income of the trust. The property is held in the name of thetrustee, but the trustee has no discretion over the assets held in trust. The trustee of a bare trust is a mere nominee, in whose name the property is held. Except in the case of bare trusts for minors, the trustee has no active duties to perform. The trustee must simply follow the lawful instructions of the beneficiary in relation to the assets held in trust.  

While there are advantages to holding shares on trust, there are also some drawbacks to consider.


  1. Fiduciary responsibility: Trustee has a legal obligation to act in the best interests of the beneficiary. This responsibility ensures that the shares are managed and used for the beneficiary’s benefit, providing a level of protection and peace of mind.
  1. Asset protection: Holding shares on trust safeguards the beneficiary’s interest in case of unexpected circumstances or personal financial difficulties.
  1. Estate planning: Trust arrangements can serve as useful tools in estate planning. By holding shares on trust, you can plan for the smooth transfer of assets to your desired beneficiaries upon your death, potentially minimizing the complications of probate.


  1. Loss of control: A trustee must act according to the beneficiary’s best interests, which may conflict with the trustee’s investment goals or strategies. A trustee’s decision-making power is limited, and the trustee must adhere to the terms of the trust agreement.
  1. Trustee liability: Trustees may be held personally liable for any breaches of fiduciary duty or improper management of trust assets. This could involve legal action, potential financial penalties, or damage to one’s personal reputation.
  1. Administrative burden: Holding shares on trust requires administrative efforts to manage the shares, such as record-keeping, reporting, and tax compliance. This additional workload may be time-consuming and potentially costly.
  1. Restrictions on beneficiary: Beneficiaries may have limited control over the shares held on trust. They may need to rely on the trustee for decision-making or approval of certain actions, which can restrict their flexibility and freedom to manage their own investments.


A declaration of trust is usually used to create and document a trust arrangement involving shares in a company incorporated in Hong Kong.  The declaration of trust would usually contain the following set out the rights and obligations of the nominee or trustee, and the beneficial owner.  In certain circumstances, a power of attorney would be granted by the nominee shareholder in favour of the beneficial owner in respect of the nominee shares.  However, subject to the nature of the relationship between the nominee and the beneficial owner, the nominee may be reluctant to grant an extensive power of attorney in respect of the nominee shares. 

It is also common for trustee and nominee to enter into an agreement to document and regulate their rights and obligations in respect of the nominee shares.

It is imperative to properly document any trust/nominee arrangement, otherwise one would need to go through an expensive and uncertain court process to clarify the position.   This can be demonstrated in a recent decision in Suen Ming Lam v Lau Hoi Chin ([2023] HKCFI 2739).  The action first commenced in 2016 and on 24 October 2023, the Court of First Instance held that there was a nominee arrangement between the plaintiff and the defendant after taking into account all the relevant evidence, witnesses’ statements and submissions made by the parties in the action. 

If you would like to find out more about the contents in this note or other issues pertaining to nominee shareholding structure, please contact us.

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Alfred Leung, Partner 

(E: alfredleung@hkytl.com   T: +852 3468 7202)

YTL LLP is a law firm headquartered in Hong Kong, China.  This article is general in nature is not intended to constitute legal advice.