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Epica Learn Series

Can Appointing a Nominee Director be Risky for Your Singapore Company?

Can Appointing a Nominee Director be Risky for Your Singapore Company?

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Are nominee Directors interested in taking undue advantage of their director position in Singapore?

Under the Singapore Companies Act, any company incorporated in Singapore is expected to have minimum one director who is a resident of the state. Such a director, if not available in the company, is usually provided by a corporate services provider in Singapore, as a nominee Director.

While incorporating a company, one may ask "Is it safe to have a Nominee director? After all, isn't there a chance that a nominee director tries to take undue benefit of his position?"

This question forms the very basis of this article, which will answer and elaborate upon the facts whether or not there is risk involved in using Nominee director besides highlighting the important legalities related to it.

So, let's begin with the basics.

What is a Nominee Director?

If a foreigner incorporates a business in Singapore which does not have a local person who can act as a resident director, the company may "hire a person to act as resident director for a fee. Such director is referred to as the Nominee Director or ND; often the term "local director" is used.

Why Does Your Company Need a Nominee Director?

The Nominee Director does not play any part in the management of the company but is merely assigned to comply with Singapore's regulatory requirements.

Can appointing director is risky - Why does nominee need

The Singapore government needs to have access to a person who can be held accountable in case the company breaks the law. For instance, the company does not pay its taxes, ignores certain rules, or exploits it's consumers, etc. In the absence of a Nominee Director, the foreign owners of the company could actually abscond and abandon the company.

Therefore, in order to avoid this issue, Singapore government has established the requirement of a Local Director assuming that the individual working as Local / Nominee Director for the company is more likely to make sure that the company continues to comply with the country's business-related laws.

The Singapore Companies Act and its common law thus entitle the Nominee Director with the same duties and liabilities as of a regular director. Therefore, this arrangement is a win-win for both the foreigner owned Singapore company and the host Government.

Does Hiring a Nominee Director Entail Any Risks for Your Company?

According to one estimates, more than 35,000 companies in Singapore are using the services of the Nominee director successfully and without any issue. Merely the number is a testament to the fact that appointing a Nominee director is safe; rather it eases out the business in Singapore.

However, the point to note is that there is no distinction between a normal director and a nominee director in the light of the companies act Singapore. The Companies Act says, "The operations of a company shall be managed by, or under the supervision of the directors and the directors may execute all the powers of a company except any authority that the Company Act or the company's constitution requires the company to exercise in a general meeting."

Can appointing director is risky - Does hiring director risky

In general, this ensures that the directors have the right to make all decisions on behalf of the Singapore company. Thus, Nominee Director enjoys the same authority as of other directors, which in turn can result in malpractice.

To avoid such a situation, it becomes absolutely necessary to select a trustworthy corporate service provider like Epica to administer the activities of the Singapore company.

Epica does not only nominate a "professional local director (usually one of its senior staff members) but will also contractually restrict the powers of the nominee director through a service agreement. Besides, you will be asked to nominate one or more executive directors (who do not have to be Singapore residents and may live in any country) to handle the affairs of the company. This way, you will get professional services while having complete peace of mind that your Nominee Director is trustworthy and is not going get involved in any business affairs that you don't want.

What Risks Does a Nominee Director Take for the Company?

Can appointing director is risky - What risk

The Nominee Director undertakes substantial risk on behalf of your Singapore company. For instance, if the Singapore company or its "real" directors violate any law, the Nominee Director is also held responsible by the Singapore authorities. Although the Nominee Director's powers are severely limited, his/her responsibilities are not. Any serious violations of the law by the company may result in the indictment of the Nominee Director. Of course, in such situations, the Singapore authorities will also investigate foreign owners and directors as per the Singaporean law. However, the Nominee Director still remains on the hook. The Singapore rules are clear and transparent; therefore, the government takes a serious view of their enforcement in foreign company matters.

What if a Nominee Director Oversteps Authority?

Can appointing director is risky - oversteps of authority

Singapore law deals violations of law with stringent hand. If a nominee director oversteps his authority or does something wrong. It may result in:

  • Cancellation of professional number
  • Police case with detailed investigations
  • Indictment and the trial in the court of law

Why Use Trusted Corporate Services Provider like Epica for Nominee Director Services?

When you use the Nominee Director services from Epica, the Nominee Director (ND) authority will be curtailed to suit your business privacy while remaining compliant to the law. Nominee Directors provided by Epica will:

Can appointing director is risky - Why to use trusted corporate service
  • Be prohibited as per the contract from getting involved in the management of your business.
  • Not come to your office or access sensitive business data.
  • Not take part in any policy discussions/ meetings of the company.
  • Not take part in any talks on behalf of the organisation.
  • Merely be the director that fulfils the legal requirement of having a local director while the company is run by the non-local director(s) of your company.

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