What is a Nominee Director, How to Appoint and Other FAQs
Under Singapore law, all companies incorporated in Singapore must have at least one resident director on its board of directors at all times. Thus, for foreigners seeking to set up a Singapore-incorporated company, it may be necessary to engage a locally resident person to be appointed as a director of your company to comply with Singapore’s law and regulations.
Such an individual, who is appointed by a company’s nominator, is referred to as a nominee director. This article will explain the role of a nominee director and how they can help your business satisfy the nominee director requirement. It will cover:
- What is a nominee director
- Who can be a nominee director
- When do you need a nominee director
- The powers and obligations of a nominee director
- Whether there are any risks involved in engaging a nominee director
- Whether you need to pay a nominee director a director’s fee or salary
- How to appoint a nominee director
- Whether the nominee director can also be a shareholder of the company
- Whether you need to appoint other company directors if you already have a nominee director
- How to keep track of your company’s nominee directors
- How long is the nominee director arrangement
- How the nominee director can resign from the company
What is a Nominee Director?
The term “nominee” is indicative of the non-executive role held by nominee directors in companies. The role of a nominee director is only to satisfy the requirement to have at least one resident director on its board of directors at all times.
As a result, a nominee director is generally not involved in other forms of business operations such as:
- Voting during or attending board meetings; and
- Opening a company bank account.
This passive nature of a nominee director is distinguished from a “regular” director’s executive role, which involves making management decisions and running the business’ day-to-day operations.
Who Can be a Nominee Director?
Generally, Singapore citizens or Permanent Residents with a permanent address located within Singapore can be hired by a foreigner to act as a nominee director.
In the case of an Employment Pass (EP) holder with a local residential address, a nominator can appoint him or her as a director only after the company’s successful incorporation in Singapore. This is because the company must exist before it is able to sponsor any EP. Moreover, to be eligible to be a director in a Singapore company, an EP holder needs to receive the appropriate approvals from the Ministry of Manpower in accordance with its guidelines.
If you will be appointing an EP holder as your nominee director, be mindful to do it within 6 months of company incorporation. Companies have 6 months from incorporation to appoint a locally resident director, after which company members can be subject to legal penalties (more below) for non-compliance with this requirement.
If you do not have any suitable acquaintances who are willing to act as your company’s nominee director, corporate services firms typically offer a paid nominee director service. Under this service, they will provide an individual from the firm for appointment as your company’s nominee director (more below).
When Do You Need a Nominee Director?
If you are a foreigner seeking to register a company incorporated in Singapore, you may face difficulties in fulfilling the requirement to have at least one resident director on the board of directors. You may therefore wish to appoint a nominee director for the following reasons:
Incorporating a company in Singapore while residing overseas
Many foreigners seeking to incorporate a company in Singapore may not know any locals willing to take up a directorial position in their company.
While you can consider becoming a Singapore resident to satisfy the regulatory requirement, this would require you to relocate and establish a permanent residence in Singapore. To avoid relocating your home, you may therefore wish to fulfil the residency requirement by engaging someone to take up the position of a nominee director.
Privacy and tax considerations
Even if you are ordinarily resident in Singapore, you may not wish to be registered as a director in your company based on privacy or tax considerations. This is because when you are registered as a director, your name will be listed on the public register, which could raise business-sensitive issues or confidentiality concerns for some.
Relatedly, in the case of an overseas business owner looking to open a business in Singapore, keeping his or her name out of the public registry can reduce tax burdens.
Where you are personally unable or unwilling to fill the position of a locally resident director for your company, you would need to satisfy the requirement through alternative means. This could be through engaging a nominee director through a corporate services firm for example.
Consequences of non-compliance with the requirement to have at least one locally resident director
Compliance with the requirement to have at least one locally resident director (either through appointing a nominee director or otherwise) is important as non-compliance can result in various consequences.
Failing to have at least one director resident in Singapore for a duration of more than 6 months can lead to consequences for certain members of the company. Any member who knowingly continues to carry on business for the whole of, or any part of the duration after, those 6 months will be liable to pay all the debts contracted by the company during the period. That member can also be sued for such debts.
What are the Powers and Obligations of a Nominee Director?
While a nominee director is generally not a substantial shareholder of the company in question or involved in its day-to-day-operations, this does not change the fact that nominee directors are ultimately directors who owe director’s duties to the company. These duties include a duty to act honestly and use reasonable diligence in the discharge of their responsibilities.
Likewise, his or her primary responsibility is to fulfil the company’s needs in accordance with the business owner’s directions. Should a nominee director be expressly directed, pursuant to an arrangement with the company, to perform specific duties, they are responsible for such execution. These specific duties may include the opening of company bank accounts or the maintenance of internal company records. However, a nominee director cannot make any other decision or perform duties on behalf of the company at his sole discretion.
To facilitate a nominee director’s functions, you will need to execute a Power of Attorney (POA) between you and the nominee director. A POA is essentially an agreement to enable the nominee director to represent or act on behalf of you in your company.
Through the POA, the nominee director will have the power to carry out activities such as signing contracts and opening bank accounts on your behalf. This ensures that the nominee director is legally bound and can carry out only the actions stipulated within the POA.
Are There Any Risks Involved in Engaging a Nominee Director?
As a company director, a nominee director risks bearing responsibility for any serious breaches of the law by the company regardless of whether he or she was directly liable for them. Thus, a nominee director undertakes significant risk in taking up the position. This is despite the nominee director’s limited scope of their powers and lack of involvement with the company’s overall management and operation.
Should you engage a nominee director who is not informed of what is expected of them, or is incompetent in carrying out any responsibilities assigned to them, you run the risk of your company falling afoul of regulatory requirements. This could happen due to the nominee director’s improper or failed discharge of the duties imposed on them to fulfil the company’s needs.
The nominee director themselves could also face legal consequences. For example, the director of a corporate services company in Singapore was jailed for 6 weeks for failing to exercise reasonable diligence in discharging his director’s duties while acting as a nominee director for four companies.
The director had agreed to act as the nominee director for four companies without meeting or contacting any of their foreign directors or shareholders. Before becoming the companies’ nominee director, he also had not conducted any background checks into:
- The person who had approached him to be the companies’ nominee director
- Whether that person was authorised to represent the companies’ foreign directors
- The companies’ stakeholders
- The companies’ business activities
The nominee director subsequently sent important banking documents belonging to the four companies to a foreign address, allowing the companies’ bank accounts to receive over US$558,000 in criminal proceeds linked to scams.
This example highlights the importance of ensuring that your company’s nominee directors are qualified and well-apprised of the responsibilities they owe to the company, which require them to exercise reasonable diligence despite their limited managerial involvement.
To ensure that your company’s nominee director is well-versed with the discharge of their duties, it is important for nominators to appoint a competent individual to the position. Should you be appointing an acquaintance as your nominee director, it is important for you to ensure that he or she understands the responsibilities to be borne.
Alternatively, should you decide to seek nominee director services from a corporate services firm, it is advisable to seek a reputable individual from a reputable corporate services firm to take up the office. Adequate prior research is recommended to ensure a peace of mind and to minimise potential risks.
Do You Need to Pay a Nominee Director a Director’s Fee or Salary?
Generally, you will not need to pay a nominee director a director’s fee or salary for his role. This means that your company does not need to make Central Provident Fund contributions for your nominee director either.
However, should you engage a corporate services firm’s nominee director services, you will generally be required to pay an annual fee. For instance, our partner firm offers nominee director services at an annual fee of $1,800. While the fee may seem substantial, it reflects the various obligations and potential risks the nominee director will undertake when acting for your company.
How to Appoint a Nominee Director in Singapore
When setting up a nominee structure for your company in Singapore, you should have a properly written document signed by the nominee director, where the nominee director undertakes to act only on your instructions.
To protect both your company and the nominee director, it is important that this nominee director agreement is formally executed rather than relying on an informal or verbal agreement based on trust. This is because a written agreement can help clearly set out the expectations of the nominee director and what the nominee director is or is not permitted to do at the outset.
A formal agreement will also provide a basis to establish breach in the event that a nominee director fails to fulfil his or her duties to your company. This will in turn facilitate the process of holding the nominee director liable for any damages sustained by your company, should things come to this.
A nominee director agreement should generally address/include the following points:
- The terms of the arrangement with the nominee director.
- The nominee director’s powers and obligations.
- The nominee director does not have any management or operational role in your company unless otherwise specified.
- The nominee director is not accountable for managing the company.
- The nominee director cannot give any personal guarantees or make any business decisions, including signing contracts and opening bank accounts in the company’s name, unless specifically instructed to do so.
- The preferred dispute resolution method in the event that a dispute arises.
Should you wish for the nominee director to undertake different or other specific duties, it is recommended to include them in the agreement.
If you are engaging a nominee director through a corporate services firm, the firm may provide the agreement. You should review the agreement to ensure it will serve your company’s needs before signing it.
Can the Nominee Director Also be a Shareholder of the Company?
As the term “nominee” suggests, nominee directors have limited involvement and interest in the companies they are engaged by. Likewise, nominee directors often do not hold any shares in the company.
This is particularly sensible in the case of a nominee director appointed through a corporate services firm. Holding no shares, and in turn, maintaining their limited interest in the company, can help nominee directors avoid any potential conflicts of interests or complications that may arise. Such complications could be where a rogue nominee director chooses to exercise his or her powers as a shareholder in a manner contrary to your company’s wishes or interests.
Moreover, foreigners are allowed to hold 100% of the shares in a Singapore incorporated company, making it unnecessary for a locally resident nominee director to hold any company shares.
Do You Need to Appoint Other Company Directors If You Already Have a Nominee Director?
It is not a legal requirement for a company to appoint other company directors as long as the company has one locally resident director in Singapore. However, even if you choose to engage a nominee director because you are personally unable to fulfil the requirement of being ordinarily resident in Singapore, it is recommended that you appoint yourself as an executive director.
This is because appointing at least one executive director will ensure that there will be someone responsible for managing and running the day-to-day operations of the company, which is beyond the scope of a nominee director’s role.
Keeping Track of Your Company’s Nominee Directors
Under the Companies Act, all companies are required to maintain a register of directors, including nominee directors. The register includes the particulars of all of a given company’s nominee directors and the particulars of the nominators of the nominee directors. These particulars include their full names, addresses, nationality, identification details, date of appointment, and the date of cessation of appointment (if applicable).
You may refer to our other article for a more detailed overview of the process of setting up a register of nominee directors.
How Long is the Nominee Director Arrangement?
There is no legal end date to the duration of your company’s arrangement with a nominee director. However, it is possible to specify an end date in the agreement upon engaging the nominee director should you wish to consider it.
If you have engaged a nominee director from a corporate services firm, it is likely that the duration of such engagement may be specified in the contract of service. Further, you will have to continue with the annual fee payments in order to enjoy continued use of their services.
How Can the Nominee Director Resign From the Company?
A nominee director can resign from the company by submitting a letter of resignation. It is also common for an undated letter of resignation, signed by the nominee director, to be prepared beforehand.
Preparing a resignation letter in advance can allow the company to remove the nominee director at a time when the company deems it appropriate to relieve him or her of his duties. Where the nominee director causes harm to your company or fails to fulfil his duties, this measure can be helpful in protecting the company against future loss and potential claims by the nominee director.
However, if the resignation would leave your company with no resident directors, you will need to obtain a replacement director who is ordinarily resident in Singapore before the nominee director can resign.
Although it is common for foreign business owners to engage a nominee director for the purposes of meeting Singapore’s company incorporation requirements, it is important to understand the purpose of such appointment and the potential risks that come with the scope of a nominee director’s role. This in turn highlights the importance of using well-written documents to record nominee director arrangements.
Likewise, we recommend that you enquire with our experienced partner corporate services firm, which will be able to guide you through the process of engaging a nominee director, address any concerns you may have, and also offer their nominee director services should you need to appoint a nominee director. They will also be able to offer further insight on matters related to incorporating a company in Singapore.
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