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 knows no resident of Singapore who can become a 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 running a company in Singapore, 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 an Employment Pass or an Entrepreneur Pass. After you obtain the pass, you can become a director of your company and then you will not need an ND. But keep in mind that during the interim period i.e. the period between incorporation of your company and your pass approval, you will still need an ND albeit on a temporary basis.
But if you do not plan to live in Singapore then you should simply obtain the services of an ND on an on-going basis.
Why does your company need an ND?
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 behaves badly; 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 behave appropriately.
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 an ND 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 an ND entail any risk for your company?
The simple answer is "no" as long as you have engaged a reputable corporate service provider. Part IXA of Singapore’s Companies Act explicitly endorses the concept of an ND, so you will not be breaking any laws by hiring an ND. In fact, you will be fulfilling the mandatory "local director" requirement by doing so.
But can't the director of a company take actions on behalf of the company that can jeopardize the owner's interest? Again the answer is "no". The ND will have no managerial, operational, or financial role. You will appoint your own "real" directors (who do not have to be residents of Singapore and can reside in any country) and they will be responsible for running the company on a day to day basis.
In fact, the ND is generally contractually prohibited (by way of contractual agreement with your corporate service provider) from participating in the management of your company. The ND will not come to your office, can not participate in any meetings, will not engage in any negotiations on the company's behalf and is simply a figurehead director to comply with the law. The non-ND directors operate the company.
Nevertheless, since an ND is a director of the company, he or she has to act as a fiduciary of the company and always act in the interests of the company and in compliance with the law.
Risks that an ND takes on
As you can see from the above, a Nominee Director undertakes significant risk. If the company or its "real" directors act badly, the ND is also on the hook with Singapore authorities. While the ND's powers are severely curtailed, his or her liability is not – breaches of the law by the company can result in the prosecution of the ND. The ND may be required to pay for the company's liquidation charges in case the foreign directors and owners abscond and are not available. Of course, Singapore authorities may also go after foreign owners and directors and prosecute them to the full extend of the law. Singapore laws are simple and straightforward but the government takes a very serious view on their compliance.
Furthermore, if an ND is associated with a company that behaves as above or violates the law in general, the ND will be put on a "blacklist" by the Singapore authorities and may a) face a financial penalty and b) be barred from becoming the director of any company for several years.
It is for these reasons that we have to conduct extensive due diligence checks before we agree 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.
Using our ND Service
We would love to offer our ND service for your company. However, for the reasons explained above, we will insist on the following:
- You must satisfy our “KYC” requirements.
- You must appoint at least one "real" director who will make all decisions for the company. Our ND will not be involved in any day-to-day matters of the company. The ND will not execute any operational documents or financial guarantees on behalf of the Company.
- Your company must use our annual company secretary, registered address, and tax compliance services so that we can ensure all compliance activities of the company are being performed accurately.
- 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 can not take 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 decisions of "real" directors.
- You must keep us sufficiently appraised of the company's business activities and provide any clarifications to us in a timely manner.
- You must ensure that the Company follows all relevant laws and remains solvent.
Most corporate service providers also require that you put down a security deposit. By default, CorporateServices.com does not require a security deposit; however a security deposit may be required if the client's company is GST registered, or the company owners and/or the business activities are assessed as high-risk by our compliance team.
To summarize, 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|
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 Singapore government. We will typically require at least the following supporting information from the key shareholders and officers:
- 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.
If the company will have a corporate shareholder, we will also require verification of the corporate profile of the shareholding company.
If you are interested in our ND service as part of our company secretarial services, please send us your request today.