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Can the nominee Director of your Company Create issues in your Company?

Can the nominee Director of your Company Create issues in your Company?

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Can a Singapore Nominee Director create Problems? Can Nominee director take over Company?

Singapore’s environment, which is conducive to business growth and success, never fails to attract business owners all over the world to establish their enterprise in the country. One of the requirements that Singapore asks from business owners at the time of registering their companies is the appointment of their company resident directors.

The Singapore Companies Act states that for every company, at least one appointed director must be a Singapore resident or citizen or, in some specific cases, holds an Employment Pass (EP) or Entrepreneur Pass (EntrePass). For foreign business owners who cannot meet such requirements, appointing a nominee director would be the best thing to do.

Many corporate secretarial firms in Singapore provide nominee director service, whereby a Singapore citizen or permanent resident will offer his or her name to act as the director of a company. However, foreign promoters often are concerned as to what a nominee director can or cannot do in a company. Can he or she pose risks to company operations? Can he create issues in company operations?

What the Nominee Director of a Singapore Company Does

The nominee director represents a person (a local resident of Singapore) and lends his or her name to act as the local director of your company. This role enables foreign promoters intending to incorporate their companies in Singapore to meet the requirements of having at least one resident directors for their companies.

The general understanding is that the nominee Director will:

  • Not get involved in company operations
  • Not get access to the bank account of a company
  • Not give any personal guarantees for company operations

However, in rare cases when a company may get involved in legal issues or its foreign promoter may not attend to compliance matters, the nominee director may need to take charge. Non-attendance to these matters can create problems for the nominee director as he or she may get fined for noncompliance.

Why Does Singapore Ask Shareholders to Have Local Directors When Other Countries Do Not?

Created issue by nominee - Shareholders have local director

Singapore requires businesses to have atleast one locally resident director who can act as contact persons when needed. In some other countries there is no such requirement to have a local director for the company. As a result, foreigners can incorporate their companies in these countries and then go back to their home countries right away. In such jurisdictions, incidents of neglected companies are high as foreign promoters have typically no responsibilities to attend to company matters. Thus, if their companies do not work well, they may completely ignore all their responsibilities toward them and their companies will remain in a noncompliant state for a long time.

Singapore’s approach of having resident directors addresses those problems. As mentioned above, the nominee director guarantees that the company is in a compliant state or alternatively, closed properly.

In case the foreign promoters are non responsive, the nominee Directors are asked to take charge of the affairs of the company, and proceed for closure.

Can the Nominee Director Pose Serious or Long-Term Risks to a Singapore Company?

Having understood the rationale behind the need to have atleast one locally resident Director, lets now understand if the nominee director can pose any risk to the company.Foreign promoters often have questions like ;

Created issue by nominee - Long term risk
  • Can the nominee Director stop operations of the company?
  • Can nominee Director ask more money to be paid if he sees my business is doing good?
  • Can nominee try to act as a show stopper everywhere possible?

The simple answer to this is ; the nominee director cannot pose serious or long-term risks to a Singapore company. Technically, the nominee director only acts as an appointed officer on ACRA records, while the shareholder acts as the owner and ultimate decision-maker of a company. This means that the shareholder can appoint or remove anyone from his or her current position, including the nominee director.

Created issue by nominee - Gaining access

Does the Shareholder Need to Give Any Shares to the Nominee Director of a Singapore Company?

Unlike other countries, Singapore allows 100% shareholding from foreigners and does not require the shareholder to give even a single share to the nominee director of a company. Because of this the nominee director does not have any control over your company decision making.

Created issue by nominee - Gaining access

Can the Nominee Director Gain Access to the Bank Account of a Singapore Company?

Although the nominee director has the right to periodically review the bank statements of a company to confirm legalities, he or she cannot access the bank account of a Singapore company, or carry out bank transactions. Nominee directors typically do not take any part in the affairs of the company. They will not take any login access to your bank account.

Created issue by nominee - Changing nominee

Changing the Nominee Director or Corporate Service Provider of a Singapore Company

If an unfortunate scenario, if a dispute arises regarding any matter or conducts related to the nominee director, occurs, the shareholder can pass a resolution to replace the nominee director of a Singapore company. You only need to contact a corporate secretarial firm to ask for a new nominee director and secretary. Since you are the owner of the Singapore company, nominee has no way to stop your decision.

Created issue by nominee - Nominee director

Other Things That the Nominee Director Cannot Do on Behalf of a Singapore Company

The nominee director:

  • Is forbidden from performing functions within a company
  • Generally does not attend company meetings
  • Cannot participate in business transactions

Suffice to say, the nominee director does not hold much authority within an entire company.

A Nominee Director Indemnity Agreement

Created issue by nominee - Indemnity agreement

The roles and responsibilities of the nominee director and the promoter of a company are clarified in a document known as Nominee Director Indemnity Agreement. This document is signed at the time of incorporating a company. In principle, it states that:

  • The nominee director does not have any role in your company.
  • The nominee director will not give any personal guarantees or sign any business documents, unless they were already signed by the shareholder.
  • The shareholder, not the nominee director, is accountable for managing his or her company.

To Sum It Up

Appointing a nominee director is a very common practice in Singapore. Every year, many companies in Singapore are incorporated with this arrangement. Nominee directors, or the risks or problems that they may bring about, should not be perceived as cause for concerns as there are adequate measures to fully protect the welfare of companies and foreign promoters in Singapore.

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