Nominee Director in a Singapore Company
What is a Nominee Director
Every company that is registered in Singapore must have at least one director who is a resident of the country. This is a regulation of the country's Companies Act. If a foreigner incorporates a company in Singapore but does not have a local person who can act as a resident director of the new company, then the foreigner can "hire" a person to act as a director for a fee. Such a director is called a Nominee Director or ND; sometimes the term "local director" is used. The ND must be a citizen or Permanent Resident of Singapore and must have a permanent address that is located in Singapore.
The ND does not play any role in operating the company but is appointed simply to satisfy Singapore's regulatory requirements.
If you are a foreigner who is interested in forming a Singapore company, you may wonder, "Can I become a resident of Singapore and then appoint myself as a director to meet this regulation?" Yes, you can do that. You can apply for a work pass (an Employment Pass or an Entrepreneur Pass) and after you obtain the work pass, you can become a director of your company and then you will not need an ND. However, when approving your work pass, the Singapore government expects you to relocate and establish a residence in Singapore. Therefore, you should apply for a work pass only if you actually plan to relocate to Singapore.
But if you do not plan to relocate to Singapore then you will require the services of an ND on an on-going basis.
Does your company need a Nominee Director?
Why does Singapore require a local director for every company? That is a good question and the answer will help you understand this concept. The Singapore government wants to have someone who it can hold responsible in case the company breaks laws; for example, it does not pay its taxes, violates any laws, or steals money from customers, etc. If Singapore did not have the ND requirement then the foreign owners of the company could simply abscond and abandon the company. To prevent this situation, the Singapore government has imposed the local director requirement with the assumption that the person who acts as an ND for a company will undertake necessary due diligence to make sure that the company continues to comply with the law.
Therefore, Singapore's Companies Act and its common law impose the same obligations and responsibilities on an ND as those imposed on a regular director. Directors are responsible for ensuring that the statutory books of the company are maintained correctly, its regulatory filings are done in a timely manner, accurate accounting records and annual accounts are maintained, shareholders and directors meetings are conducted as per the law, and their fiduciary duty towards the company is honored at all times in all their official actions.
How can you get a Nominee Director for your company?
In most cases, the corporate services provider that you use to incorporate the company will offer the ND service. We at CorporateServices.com also offer this service, both to newly incorporated companies as well as existing ones.
Does hiring a Nominee Director entail any risk for your company?
In the eyes of the law, there is no difference between a regular director and a nominee director. The Companies Act states, “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”. In general, this means directors have the authority to make all decisions on behalf of the company unless the matter requires an ordinary or special resolution decided upon by a shareholder vote.
Therefore, it's important to appoint a reputable corporate service provider to handle the affairs of the company. Such a service provider will not only appoint a "professional" local director (usually one of their senior staff members) but also contractually limit the powers of a nominee director via the service agreement. Furthermore, you will be asked to appoint one or more executive directors (who do not have to be residents of Singapore and can reside in any country) to manage the affairs of the company. When you want to appoint a nominee local director for your company, you should have complete peace of mind and that's what a professional service provider
When you use our Nominee Director service, the Nominee Director (ND) is contractually prohibited (by way of your contractual agreement with us) from participating in the management of your company. The ND will not come to your office, can not participate in any policy meetings, will not engage in any negotiations on the company's behalf and is simply a figurehead director to comply with the local director requirement. The non-ND directors (i.e. your executive director(s)) operate the company.
What risks does a Nominee Director take?
A Nominee Director undertakes significant risk. If the company or its "real" directors breaks a law, the ND is also on the hook with Singapore authorities. While the ND's powers are severely curtailed, his or her liability is not – serious breaches of the law by the company can result in the prosecution of the ND. Of course, Singapore authorities in such cases will also go after foreign owners and directors and prosecute them to the full extent of the law. Singapore laws are simple and straightforward but the government takes a serious view on their compliance to protect itself from bad players.
With the above in mind, corporate service providers conduct a KYC due diligence as part of agreeing to act as an ND for a company. Additionally, an ND has to monitor the activities of the company in sufficient detail to ensure that the company is not violating any laws.
Terms of our Nominee Director Service
We offer Nominee Director (ND) service to foreign clients when necessary. The following general terms apply for our ND service:
- As required by Singapore law, we will perform a KYC due-diligence check on the client prior to commencing our services.
- You must appoint at least one executive director who will be responsible for managing and running the company. Our ND will not be involved in any business matters of the company. The ND will not make any management decisions, execute any operational documents, or provide any financial guarantees on behalf of the Company.
- You must execute our Nominee Director Indemnity Agreement. It is a contract between the ND, the company that requires the ND service, and you — the owner of the company. On the one hand, it protects you by ensuring that the ND is prohibited from taking any actions that are harmful to the company. On the other hand, it protects the ND by confirming that the ND can not be held responsible for the management decisions of the company's executive directors.
Depending on the risk profile of your company, additional terms will apply as described below. The risk profile is determined by our compliance team during the KYC due-diligence process and influenced by the following factors:
- Background and prior history of the company shareholders
- The complexity of company's corporate structure
- The nature of the company's business activities
- Anticipated annual turn-over of the company
- GST-registration status of the company
- Business licensing requirements for the company
Our KYC team will assign a risk-classification of Low, Medium or High to the company. We currently do not offer ND service to a company that is classified as High risk. Approximately 85% of our current clients are classified as Low risk and the remaining 15% as Medium risk. For Low and Medium risk companies, the corresponding additional terms are listed below.
Our terms of service will include the following:
- Our standard annual nominee director service fee applies. No security deposit is required in this case.
- You must subscribe to our annual company secretary, registered address, and tax filing services. You may do your own bookkeeping.
- We will conduct a standard KYC due-diligence assessment once every two years.
- You must ensure the Company follows all relevant laws and remains solvent. You must inform us of any changes that may affect the risk-profile of the company.
Approximately 85% of our clients fall under this risk profile.
Our terms of service will include the following:
- Our ND fee will include an additional charge to account for the increased risk monitoring required from our compliance team. For planning purposes, you can assume that the annual service fee will be twice the amount of our standard service fee.
- A security deposit may be required. The amount of deposit will be determined on a case-by-case basis.
- You must subscribe to our annual company secretary, registered address, tax filing, and monthly bookkeeping services.
- KYC due diligence process will be conducted once every year.
- You must ensure the Company follows all relevant laws and remains solvent. You must inform us of any changes that may affect the risk-profile of the company. You must also agree to provide clarifications regarding any specific financial transactions if such clarification is sought by us as part of our routine risk monitoring checks.
As stated previously, approximately 14% of our clients fall under this risk profile. Note that a company's risk profile may be changed to Low-Risk in subsequent years after we have a better understanding of your business.
If your company's risk profile is determined as high-risk, we will not be able to offer our ND service to you. About 1% of our clients that approach us for incorporation fall under this category. In such cases, we charge S$500 towards our KYC due diligence efforts and refund the remaining balance to the client.
Our "Know Your Client" Process
We follow the "trust but verify" model. We assume that our customers are well-meaning honest individuals and we are keen to have them as our clients. But in compliance with the international AML regulations, we perform the "know your client" checks on our client as every Corporate Service Provider is required to do by the Singapore government. We will typically require at least the following supporting information from the key shareholders, ultimate beneficiaries, and directors:
- Verification of identification and address proof documents.
- Professional background information. This can be in the form of a curriculum vitae (CV), resume or link to the person’s LinkedIn profile.
- Purpose and plans for the Singapore entity
If the company will have a corporate shareholder, we will also require verification of the corporate profile of the shareholding company.
Nominee Director Role at a Glance
The table below clarifies the division of responsibilities between the ND and you, the owner of the company.
|Division of roles|
|Who will be responsible for the overall management and operation of the company?||You|
|Who will be the signatory on the company's bank account?||You|
|Who will provide a guarantee for all debts and liabilities of the company||You|
|Who will execute all contracts on behalf of the company?||You|
|Who will be the shareholder of the company?||You|
|Who will satisfy the local director requirement for your Singapore company?||ND|
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