What is a Nominee Director in Singapore?

When incorporating a company in Singapore as a foreigner, you will most likely hear you must appoint a nominee director. The appointment of a nominee director is to ensure compliance with local laws and establish a local presence. Appointing a nominee director is a requirement, and it could be daunting for a foreign business owner looking to start a business in Singapore. This article will guide you through what a nominee director is, their responsibilities, eligibility criteria, the appointment process, and the legal requirements.

What is a Nominee Director?

Unlike executive directors, nominee directors usually don't have direct authority in managing the company or making decisions. Their key role is to be a local presence for a Singapore company set up by a foreign person. This helps the company navigate Singapore's laws and regulations more efficiently, especially when the foreign business owner doesn't have an Employment Pass.

Think of a nominee director as the person on the ground handling all local compliance matters according to the laws, while the business owner focuses on running and expanding their company in Singapore without getting bogged down by administrative tasks. Including nominee director services in the plans is crucial for every foreign business aiming to succeed in the Singaporean market and during the company incorporation process.

🔎 Tip: Here are 9 basic requirements for company incorporation in Singapore.

Do You Need a Nominee Director in Your Company?

For foreign businesses looking to expand into Singapore, having a nominee director is often necessary to comply with local rules and establish a local presence. The Singapore government mandates a local director to ensure accountability in case the company breaches any laws, preventing foreign owners from escaping responsibility for legal issues. According to the Companies Act 1967, every Singapore company must have at least one resident director on its board all the time. A nominee director can fulfill this requirement if they are a citizen or permanent resident of Singapore with a permanent address there.

Here's how appointing a nominee director can benefit your Singapore company:

Legal Requirements

A nominee director helps your company understand and comply with the local legal and regulatory requirements, ensuring smooth operations within the Singaporean business environment.

Establish a Local Presence

Having a nominee director gives your company a local face, which can be crucial for building trust with local stakeholders, customers, and authorities.

Access to Local Knowledge

Especially beneficial for foreign business owners without an Employment Pass, a nominee director brings invaluable local knowledge to understand the market and regulatory landscape.

 If you fail to appoint a local director for your potential Singapore Company, you will not be able to incorporate the Company at all.

Role and Responsibilities of a Nominee Director

The role of a nominee director primarily revolves around regulatory and statutory compliance. While they may not be extensively involved in the day-to-day decision-making processes, nominee directors are crucial in ensuring that you adhere to the legal requirements set forth by the Accounting and Corporate Regulatory Authority (ACRA) and other relevant authorities.

Nominee directors bear a responsibility to act in the best interests of the company. This includes exercising due diligence in their roles, ensuring compliance with Singapore law, and upholding the principles of corporate governance. Their responsibilities span signing on behalf of the company, maintaining accurate accounting records, and active participation in annual general meetings.

Navigating Conflicts of Interest and Regulatory Compliance

A critical aspect of a nominee director's role is the adept handling of potential conflicts of interest. Despite their non-executive role, nominee directors are expected to commit to the company's best interests, avoiding any personal gain that might conflict with its objectives. This commitment aligns with broader principles of corporate governance and regulatory compliance.

Additionally, nominee directors must disclose their residential address for inclusion in the register of nominee directors. This transparency serves as a safeguard, ensuring accountability and regulatory compliance, as authorities can readily access this information when necessary.

Nominee Directors Eligibility Criteria in Singapore

Before appointing and assigning a nominee director, verify that they satisfy the eligibility criteria set by the government. Here’s the list of criteria:

1. A nominee director must be a Singapore citizen or permanent resident with a local address.
2. The nominee director(s) must be at least 18 years old.
3. In order to be eligible as a nominee director, he or she must have a clean criminal record. They should also not have been disqualified from holding director positions. This requirement is here to ensure a nominee director’s credibility and trustworthiness. A nominee director plays an important role in the company. Adhering to these criteria will ensure that your nominee director has not been involved in any fraudulent or dishonest activities and can be trusted to manage the responsibilities as a nominee director. 

Nominee Director vs Nominee Shareholder

Do not be confused between a nominee director and a nominee shareholder. A nominee shareholder holds shares on behalf of the actual owner but does not have any real ownership rights. This practice is often employed to maintain privacy and confidentiality.

Nominee directors typically interact with the board of directors, which is the governing body responsible for overseeing the company's operations. While nominee directors may not engage in daily decision-making, their presence on the board is important for compliance and representation.

Appointing a Nominee Director

After understanding the nominee director’s eligibility criteria and responsibilities, it is time to appoint one. Here are the steps to appoint a nominee director:

Step 1: Look and identify a suitable nominee director

To start, pick someone suitable or a professional service provider to be the nominee director of your company. It could be someone you know well, a reliable business partner, or a company that offers services, as long as they are a citizen of Singapore or a permanent resident with a local address. No matter your choice, it's crucial to thoroughly check to ensure the nominee director is good at their job, dependable, has the right qualifications, and meets all the requirements. This way, you can feel at ease knowing you have a trusted and knowledgeable local director, especially when managing things from overseas.

Step 2: Executing a service agreement with the potential nominee director candidate

Once you've found the right person, the next step is to create a Nominee Director Service Agreement. This document will lay out the nominee director's terms, conditions, and responsibilities. It's crucial for the agreement to spell out the duties of the nominee director, any restrictions on their authority, and the preferred way to handle conflicts.

Before signing the agreement, it's essential to review it thoroughly. This step is important because it provides legal protection for the nominee director and the client, defines the roles and responsibilities, and ensures compliance with regulations. Taking the time to review the agreement ensures that both parties are on the same page and helps prevent potential issues in the future.

Step 3: Required documents

You will need to obtain the required documents before applying. You will need to ensure that you have:

1. Identification document and proof of address of the nominee director; and
2. Board Resolution by way of written means to appoint the nominee director. 

Step 4: Submitting the application

Finally, to complete the appointment of a nominee director, file the necessary lodgement with ACRA. Lodgement with ACRA must be done within 14 days from the date of the signed resolutions. If anything later, a penalty fee for late filing will be imposed by ACRA.

Using a Company Incorporation Service in Singapore

Many businesses, especially foreign companies, engage the services of incorporation service providers. These providers often offer nominee director services as part of their comprehensive package. When selecting a nominee director, it is crucial to ensure their eligibility as per the legal requirements, ensuring a smooth and compliant incorporation process.

🔎 Tip: Here are the 5 best company incorporation services in Singapore.

Potential Risks of Appointing a Nominee Director in Singapore

While having a local director in Singapore can bring advantages to your company, it's crucial to be aware of potential risks. These risks include:

Legal and Regulatory Risks

Breaching any laws or regulations can lead to legal troubles for the company. This might result in fines, penalties, or even imprisonment of the nominee director – a situation you want to avoid.

Reputational Risks

If the company is involved in unethical or illegal activities, it could harm the nominee director's professional reputation. This damage to reputation may have wider implications for the company.

Financial Risks

The nominee director's failure to meet their responsibilities could lead to financial losses for the company. To prevent such scenarios, it is crucial to clearly outline expectations before signing any contracts.

Before bringing a nominee director on board, carefully weighing these risks is essential. Selecting a competent and reliable nominee director who understands Singapore's Companies Act 1967, local laws, and regulations can significantly reduce these risks. Moreover, maintaining clear communication between the company and the nominee director ensures they fulfill their duties and act in the company's best interests. This proactive approach is key to mitigating potential challenges and fostering a successful partnership.

Replacing or Removing a Nominee Director

When it comes to replacing or removing a nominee director in Singapore, it's important to remember that a Singaporean company must always have at least one local or nominee director. If you need to replace or remove a nominee director, you can follow the steps in the company's constitution, shareholders agreement, and other legal documents. This process may involve submitting a resignation letter or filing a notification of cessation. If you prefer assistance, a company incorporation service provider might be able to offer you some help.

Crucially, when replacing or removing a nominee director, securing a suitable replacement is important before the current one steps down or is removed. Failing to do so could lead to non-compliance with local laws and potential legal repercussions. Opting for professional nominee director services during this transition ensures that the process is carried out accurately and in accordance with local laws and regulations. This proactive approach helps avoid any complications and ensures that your company complies with the necessary legal requirements.

Conclusion

In conclusion, a good understanding of the role of a nominee director is important for foreign entrepreneurs navigating the Singaporean business landscape.  Even though they have non-executive roles, nominee directors are vital in maintaining compliance with regulations, meeting corporate governance standards, and protecting the company's best interests. Understanding the legal requirements, responsibilities, and potential risks associated with nominee directorship empowers business owners to make well-informed decisions, ultimately contributing to the success and longevity of their ventures.