What is a Nominee Director, and Why is it Necessary to Appoint One in Singapore?

Singapore is a country with many opportunities and is a point of interest for many foreign investors.

However, based on the regulations from the Accounting & Corporate Regulatory Authority (ACRA), at least one resident director is needed on the company's board to incorporate a company in Singapore. A local resident director is someone who lives in Singapore (can be an EP Holder, Singapore citizen or Permanent Resident) with a local residential address.

With this reasoning, foreign companies looking to incorporate in Singapore will opt to appoint one local Singaporean as the nominee director of their business in Singapore.

There are also cases whereby business owners hire nominee directors or engage in nominee incorporation services to keep their identity as the owner of a company confidential.

Who is a Nominee Director?

You may be wondering, who is a nominee director to the business?

The nominee director is an individual that can act as the head of the company in Singapore when the owner is unreachable and also not a resident of Singapore (e.g., non-resident stakeholder). This nominee director must be a resident of Singapore following the regulations of the Accounting & Corporate Regulatory Authority (ACRA).

The nominee director's role is considered a resident director with a non-executive role in company law, and the main purpose is only to fulfil Singapore's legal and regulatory requirements.

Thus, the nominee director lacks the jurisdiction to make decisions over the business transactions, business operations or management. The nominee director must abide by their general duties to ensure that the companies they work with comply with Singapore laws.

Role and Responsibilities of a Nominee Director

It is important to understand the main roles and responsibilities of a nominee director in company law and the limits of authority given to them.

The essential duties and responsibilities of a nominee director are as follows:

1. To act in the best interest of the company they are working with.

2. To monitor and ensure the company's activities do not violate any laws.

3. To avoid conflicts of interest between their personal interests and company interests.

4. To provide their signature on general and routine notices.

5. To approve annual audited accounts.

6. To convene annual general meetings.

7. To carry out the annual returns (upon request).

In contrast, a nominee director in Singapore has limits to their authority and does not (Statutory Requirements):

1. Interfere with or make any business decisions for the company.

2. Need to come to the office or need to be present at negotiations.

3. Have any say at any internal company meetings.

In the Singaporean market, some companies provide professionally-managed nominee director services whereby the agreement on the rights and responsibilities of the Nominee Director and the Client are stipulated to protect their interests. The written agreement is a very important tool limiting a nominee's ability to influence your company as it clearly states their responsibilities and authority.

Requirements of being a Nominee Director in Singapore

The potential question is, can anyone be appointed as the nominee director?

Of course, there are certain requirements that a nominee director needs to fulfil and risks that follow as one accepts the role following the company law.

The first compulsory requirement is that the nominee director should be:

1. At least 18 years of age

2. Needs to be a Singaporean citizen, a permanent resident, or Employment Pass (EP) holder with a permanent Singapore address.

The second requirement, per the Singapore Companies Act, is that a nominee director should not be:

1. An undischarged bankrupt. This means they are legally bankrupt but still have to pay back particular debts and can't borrow again from financial institutions.

2. Convicted of any offence that involves fraud and dishonesty carries an imprisonment term of more than three months.

3. Convicted by the court of three or more ACRA filing offences.

4. Involved with three or more companies that ACRA struck off within five years.

5. Disqualified for Companies Winding Up on the grounds of National Security or Interest.

6. Disqualified for Unfit Directors of Insolvent Companies.

7. Disqualified for Failure to Make Returns.

Risks of being a Nominee Director in Singapore

It is also important to understand that the position of nominee director also comes with significant risks.

1. The first risk is if a company breaks the law, the nominee director is also held accountable by the Singaporean authorities.

2. The second risk is that a nominee director's powers may be severely curtailed due to the nominee director agreement, but his or her liability is not.

3. The final risk is that certain breaches of the law committed by the company may lead to the nominee director being prosecuted.

Benefits of Having a Good Nominee Director

A good nominee director can contribute to the success of your business. There are several benefits of having a nominee director who has a good reputation and is competent.

A capable nominee director would be:

1. Knowledgeable and clear on the compliance requirements of the Singapore Companies Act.

2. Proactive and timely in filing returns and obtaining important signatures for crucial documents.

3. Able to notify you of the goings-on of the company.

Differences Between a Regular Director and Nominee Director

You may refer to the following table on the differences between a regular director and a nominee director:

No	Details	Regular Director	Nominee Director
1	Local / foreign company	Local Company	Foreign Company
2	Requirements	- 18 years old and above - Singaporean citizen, Permanent Resident, or Employment Pass (EP) holder with a permanent Singapore address.	- 18 years old and above - Singaporean citizen, Permanent Resident, or Employment Pass (EP) holder with a permanent Singapore address.
3	Responsible for running the company?	Yes	No
4	Fulfill statutory obligations imposed on Directors by Companies Act?	Yes	Yes
5	Act as Bank Signatory?	Yes	No
6	Access To financial records/bank statements? (only read-only access to ND)	Yes	No
7	Has a fiduciary duty to the company?	Yes	Yes
8	Has ownership or shares in the company?	Yes	No

Replacing or Removing Your Nominee Director

The question commonly asked is whether a nominee director is indefinitely retained in a company in Singapore.

The answer is No. You may not have to indefinitely retain a local nominee director. Nominee directors can be replaced by non-local directors upon receiving the employment pass from the company, which will usually take around six months to process. Which then allows the non-local director to relocate to Singapore and will be considered a resident director.

Please note that while the six-month application for the employment pass is still in process, a nominee director is still required.

Why Should You Engage With a Nominee Director Service in Singapore?

Appointing a nominee director is a task of great importance. We highly recommend you engage with a nominee director services provider or company incorporation service if you are a start-up company in Singapore.

1. Minimise Risks

One of the main reasons is that hiring a nominee director on your own without professional assistance from a corporate service provider does pose some very detrimental risks.

For example, not properly declaring the authority limitation and nominee director agreement terms in the written contract may lead to individuals taking advantage of the loophole for their personal gain.

2. Ensures a Cohesive Registration Process

Another reason to hire a nominee director service is to ensure a cohesive registration process, as listed below:

1. Appointment of a nominee director with a well-prepared nominee director agreement which serves to protect both parties by ensuring that:

   1. The nominee cannot be held accountable for decisions made by the company's board

   2. The nominee cannot make any decisions that can impact the company.

2. Registration of your company, including your nominee's details in the Register of Nominee Directors, which includes the nominee's proof of residential address, Passport / NRIC, and the appointment date.

3. Ensure the details of the nominee are kept accurate and up to date. Any misrepresentation, if deemed a breach of local regulations, can result in a hefty fine.

3. Prepare a Nominee Director Agreement to Contractually Limit the Powers of a Nominee Director

Legally there's no difference between a traditional director and a nominee director. Based on Singapore's Companies Act under 157A (Powers of Directors), it states that: “The business of a company shall be managed by, or under the direction or supervision of, the directors” and that “The directors may exercise all the powers of a company except any power that [the Companies Act] or the constitution of the company requires the company to exercise in general meeting”. This part of Singapore's Companies Act needs to be handled with great care and importance as it may negatively impact the company if the nominee director agreement is not cohesive enough.

Given the statement above, we highly recommend that you appoint a reputable company service provider to assist in incorporating your business and appoint a nominee director for your company.

The nominee director agreement needs to be prepared properly with the company to contractually limit the powers of a nominee director.

We would also recommend, if possible, that you appoint one or more executive directors (who don't have to be residents of Singapore) to manage and oversee the affairs of your company to avoid or minimise the risk of any untoward incidents from happening.

Nominee Director Services in Singapore

Because of the importance of a nominee director in incorporating a company in Singapore, we still strongly recommend that you engage with a nominee director service provider to protect your company.

Getting a professional to handle the nominee director agreement ensures that your business stays in accordance with Singapore's laws, as nominee directors are tasked with ensuring that your company does not do anything illicit by checking the reports before submitting them to various agencies.

When it comes to something as important as your business, nothing short of excellence will do, so carefully consider all your options before hiring your preferred nominee director service in Singapore to ensure your business incorporation is in order and hassle-free. If you're in doubt or unsure where to look, Atriox is more than ready to assist you with all your outsourced incorporation needs.

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Email: info@atriox.sg

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