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Epica Learn Series

Accepting the Local Directorship in Your Foreigner Friend’s Singapore Company

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Should you accept a Local Director Nominee position in your friends company in Singapore [Risks]

A company registered in Singapore is required to appoint a local director, while a foreign-owned companies often go for nominee Director arrangement. Apparently, some foreign business owners are appointing their Singaporean relatives or friends as the local directors of their companies in Singapore. Thus, many Singaporeans are now wondering if they should really accept the offer of local directorship in the companies of their foreigner friends in Singapore, in which they actually do not have any role but they are accepting this only to satisfy the legal requirement.

On Accepting the Local Directorship in Your Foreigner Friend’s Singapore Company: What Is Your Visa Status?

If you are a Singapore permanent resident or citizen, then you are legally allowed to accept the local directorship.

If you only have an Employment Pass (EP), Dependent Pass, any type of work permit, S Pass, or Long-Term Visit Pass, then you are not legally allowed to accept the directorship in a company which has not sponsored your employment pass or entrepass.

On Accepting the Local Directorship in Your Foreigner Friend’s Singapore Company: Are There Any Restrictions in Your Current Employment Contract?

If you are currently employed with any Singapore-based company, then you might want to review your existing employment contract and look for the part that looks like what is shown below.

To accept local directorship - Employment Contract

“You must not during your employment engagement, be concerned, undertake or be interested, whether directly or indirectly, in any business or occupation without the prior consent of the Company, or become an employee or director (save in a non-executive capacity) or agent or partner of any other person, firm, or company.”

This clause clearly shows that during your employment, you cannot be directly involved with any other person, firm, or company. This clause is usually included in most employment contracts in Singapore to ensure that an employee will not get involved in other types of work while he or she is in a full-time employment arrangement with a certain company.

However, if you cannot see the exact or a similar clause in your current employment contract, then that means you are consented to accept the local directorship.

On Accepting the Local Directorship in Your Foreigner Friend’s Singapore Company: Are You Prepared to Take the Risks?

Having known your friend very well can mean that you are already guaranteed of his or her good character and that he or she cannot engage in shady dealings within the company. Nevertheless, business is still a business. There are many things that can happen in a business, and nobody can predict whatever it may be.

For example, your friend was not able to pay for some outstandings acquired by the company. In this instance, the creditor representatives can send you letters or visit your house to inquire about the recovery of the payment.

There can also be times when company accounts may not be filed, and ACRA or IRAS may impose fines to the company. Moreover, government agencies may occasionally inquire the company activities.

To accept local directorship - Extreme Case

An Example of a Rare, Extreme Case

We would like to clarify that what you are about to read is a very rare yet extreme case on what can happen to a local director of a company.

A foreigner established his company in Singapore and appointed his friend as a local director. Everything went well in the first few years of the business. After some time, the foreigner encountered a problem and was badly in need of money. He then fraudulently procured some remittance from abroad into his company accounts and then asked his local director to transfer money from the company bank account to his own account. Clueless, the local director just did what he was told to.

The victim of this fraud reported the case to the police, and then the local director and his foreigner friend both faced money laundering offenses. The foreigner was sentenced to one-year imprisonment, while the verdict for the local director is yet to be finalized. It is still not sure if the local director will go to jail, but the mental trauma that he may be experiencing from all of these must not be disregarded.

On Accepting the Local Directorship in Your Foreigner Friend’s Singapore Company: What We Have to Say

Unless you are going to be directly involved in the business, do not accept the local directorship. There are many corporate secretarial firms in Singapore that provide nominee director services, which your foreigner friend can avail to finally establish his or her company here.

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