DEFINITION of 'Dummy Shareholder'

An entity that holds shares in a public company on behalf of an individual or firm, the latter being the real or true owner of these shares. A dummy shareholder will therefore have no beneficial interest in the account where these shares are being held. Decisions with regard to the disposition or tendering of these shares may also be made by the real owner, rather than the dummy shareholder.

BREAKING DOWN 'Dummy Shareholder'

The subject of dummy shareholders is a gray area in most jurisdictions, given the possibility that they may be used to circumvent securities legislation or perpetuate fraud. Dummy shareholders with large blocks of shares can also pose a particular problem when a company's management is trying to fend off a hostile takeover bid, since there is little indication of whether these shares are being held in friendly or hostile hands.

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