Straw man

What it means

A straw man, in Slovak a white horse, is someone who lends their name for a fee: they are entered as director or shareholder of a company even though they know nothing about its business and decide nothing. The company is really run by someone else who wants to stay out of sight.

Legally, the straw man is a full statutory officer with all the duties that come with it. Neither the commercial register nor the authorities distinguish who actually runs the company: for them, the person entered in the register is responsible, and director’s liability for damage, taxes and a late insolvency filing falls on them.

Straw men appear mainly in companies set up for a one-off fraud, for example with VAT, in transfers of indebted companies ahead of bankruptcy, and to hide the real owner from creditors or from the register of beneficial owners.

How it works in practice

The Financial Administration responds to straw men. When a company registers for VAT it looks at who really runs it and may demand a VAT security deposit or refuse registration. A company whose director knows nothing about its invoices attracts attention at the first on-site inquiry.

When taking on a new client we therefore check who is registered as statutory officer, whether that matches the person we are dealing with, and whether the company has previously been sold on with debts. If the director does not know basic facts about their own company, we do not take on the bookkeeping.

Repeated transfers of indebted companies to new directors are a typical sign of carousel fraud. A business partner whose director changes every few months and who sits at a virtual address is a reason for caution even for a customer, who may be liable for the partner’s unpaid VAT.

What to watch out for

Anyone who agrees to act as a straw man risks prosecution for tax evasion, fraud or harming creditors, personal liability for the company’s debts, and an entry in the disqualification register. A fee of a few hundred euros can turn into years of paying someone else’s debts.

There is no escaping the office by claiming someone else ran the company. A court may treat the real controller as a de facto director with the same liability, but that does not relieve the registered director of their own. The resignation has to be made in writing and the entry removed from the commercial register.