Appointing Company Directors in Singapore: Eligibility, Process etc.
The Companies Act requires companies to have at least 1 director who is ordinarily resident in Singapore. Therefore, it is important for business owners to be acquainted with the requirements and process to be appointed as a director of a Singapore-incorporated company.
Who Can be a Director?
To qualify for appointment as a Director, an individual must be:
- A natural person (i.e. a company cannot be appointed as a Director);
- At least 18 years old; and
- Has full legal capacity (A person lacks capacity if he is unable to make a decision because his mind or brain is impaired.)
- Convicted of any offence involving fraud or dishonesty punishable with imprisonment for 3 months or more;
- Repeatedly fails to comply with the provisions of the Companies Act relating to the filing of returns, accounts or other documents with the Accounting and Corporate Regulatory Authority (ACRA); or
- A director of at least 3 defunct companies who had their names struck off the register within a 5-year period
Types of Directors and Their Roles
- An Executive Director is usually an employee of the company and holds a full-time position that may involve the management of the day-to-day operations of the company
- A Non-Executive Director is not an employee of the company and does not take part in daily affairs of the company. He or she normally sits on the board to offer objectivity, prestige, outside experience or independent judgement of the company’s management
- An Independent Director is one who has no relationship with the company, its related corporations, its substantial shareholders or its officers that could interfere with the exercise of the Director’s independent judgement. Executive Directors cannot be considered an Independent Director as they are usually also employees of the company, and that employment relationship represents a conflict of interest that would likely impair their independent judgement.
- A Nominee Director is an individual who is nominated by a major stakeholder (such as a major shareholder) to act as a director on behalf of him/her. A nominee director has the same obligations under the Companies Act, as imposed to the regular director.
- A De Facto Director refers to individuals who openly act as if they are directors without being formally appointed as one. Like formally appointed directors, de facto directors have to comply with all of the rules and regulations under the Companies Act pertaining to a director and are responsible for the full range of directors’ duties.
- A Shadow Director is someone who habitually instructs or directs directors who have been formally appointed on matters which are to be decided by the Board of Directors, such as company strategy. This includes individuals who have not been formally appointed and do not openly act as a director, but who instructs the Board of Directors on the company’s affairs. Like de facto directors, a shadow director would have to fulfil all directors’ duties under the Companies Act.
How are Directors Appointed?
The constitution of the company will usually prescribe the procedure for the appointment of directors. The directors of a company may be appointed by an ordinary resolution passed by the company’s shareholders in a general meeting.
An ordinary resolution is a formal decision passed by at least 50% majority of the votes cast at a meeting. The resolution would typically state the appointment (e.g. Independent Non-Executive Director) and date on which the new appointee is to commence his duties as a director.
The company’s constitution may provide for alternative methods to appoint directors. For example, the company’s constitution may state that only the Board of Directors, or specific shareholders, have the power to appoint directors.
The company will also need to acquire the individual’s written consent and statement of non-disqualification to act as a director.
Once the director has been appointed in accordance with the procedure provided for in the company’s constitution, the ACRA has to be notified by the company within 14 days from the date of appointment through the BizFile+ website.
To do so, log into BizFile+ with your SingPass or CorpPass account, then navigate to the e-service called “Changes in Company Information including Appointment/Cessation of Company Officers/Auditors”.
The following information relating to the new appointee will have to be provided to ACRA:
- Identification number
- Residential address
- Contact number/email address
- Appointment date
Once the appointment has been successfully filed with ACRA and the change has been updated, the director’s appointment would take effect.
What Functions and Powers do Directors Have?
The typical functions of a Board of Directors would be to govern the organisation by establishing broad policies and setting out strategic objectives, approving annual budgets, and selecting and appointing key executive officers, such as the Chief Executive Officer.
Under the Companies Act, the Board of Directors may exercise all the powers of a company, unless the Companies Act or the constitution of the company provides that a particular act cannot be done without shareholder approval.
For example, the Companies Act provides that the following acts cannot be done without shareholder approval:
- The disposal of the company’s business assets
- Issuing shares
- Payments made to any Director as compensation for losing his position with the company (e.g. because he has been removed)
- Providing or increasing “emoluments” (e.g. fees and allowances for expenses) for any Director
Directors have to make business decisions and exercise their powers in accordance with their duties under the law. Otherwise, they may face civil liability in a lawsuit, criminal penalties and/or be subject to removal from the company.
Read our other article for more information on director’s duties in Singapore.
How Much Can Directors be Paid?
The company may pay fees to its directors for the directorial services they perform for the company.
The Companies Act does not provide for a specific cap on the amount of fees that a director can be paid. However, as mentioned above, directors’ fees must be approved by the shareholders of the company.
Additionally, executive directors who are also employees of the firm would be paid a salary according to the terms of their contract of service (i.e. employment contract) with the company.
Removal of Directors
A director may be removed from his position by an ordinary resolution of shareholders.
In the case of public companies, shareholders’ approval is required for the removal of directors.
For private companies, however, the constitution can provide for alternative methods to remove directors. For example, the constitution may provide that shareholders do not have the right to remove directors.
The constitution may also state that the right to remove directors is vested in one person alone, such as a majority shareholder.
While it is useful to have a general understanding of the appointment of directors, you may wish to seek legal advice to ensure that all applicable laws and rules, including the procedure laid out in your company’s constitution, have been duly complied with.
Feel free to get in touch with one of our corporate lawyers should you need any assistance in this regard.
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