It is a very common rule in the offshore business world: appoint at least one nominee director if you want to run business activities. Let us guide you through getting a company director for your Singapore business.

The time set to hire a director is different in each country. Sometimes, the law requires you to appoint a company director as soon as you create the company, while other times, there is no certain period set by the law. There are even some offshore countries that have no legal requirement of hiring a director.

However, there is a general rule in every country: a company cannot simply operate without a director.

In this article, we will discuss some pros and cons of being a nominee director. We will also get into the responsibilities and liabilities of a nominee director, and the steps you can take to protect yourself.

What Is A Nominee Director?

A nominee director is a person who acts as a director of a business in place of the owner. It can happen for a number of reasons. For instance, it can happen when a company lacks a local director to fulfill the legal requirements of the Companies Act.

In this case, it is very common for the company to appoint a nominee director who will act as a director of the company in place of the foreign director. Just to be clear, the people we are referring to in this approach are not local shareholders or secretaries. Instead, they are stand-in directors for the owner of the company.

What Are The Responsibilities Of A Nominee Director?

In some countries, nominee directors are required to take the same responsibilities as their regular directors. For instance, in Singapore, under the Companies Act, the nominee director is similar to a regular business director and has the same roles and responsibilities. The general responsibilities of a nominee director include:

• Work in the best interest of the company
• Follow all the statutory requirements, including filing for the annual returns and arranging the annual business meeting
• Put aside any conflict of interest that may harm the company
• Work diligently, without exploiting their position of power

Generally, nominee directors are appointed in name only and are not responsible for running day to day operations of the business. Depending on the terms of agreement set between the director and the company, responsibilities and the influence the nominee director could have over the company can be altered.

What Are the Requirements Of Being a Nominee Director?

Businesses primarily appoint nominee directors to comply with the requirement of having at least one local director in the company. For instance, Singapore’s law requires companies to hire a minimum of one director who is a permanent Singapore resident with a permanent Singapore address. In order to work as a nominee director in Singapore, you must be 18 years or older.

Moreover, Section 155(A) of the Companies Act conditions that you should not be:

• An undischarged bankrupt
• Someone who has been previously convicted of fraud, forgery, or any offense that includes minimum imprisonment of 3 months
• Someone who has been served by the Singapore court for more than 3 ACRA filing offenses
• Someone who has 3 or more businesses that have been struck by ACRA within the period of 5 years

Pros and Cons of Being Appointed As a Nominee Director

Pros

• Nominee directors are entitled to receive the same fees paid to the regular directors in accordance with the agreed scale.
• In Singapore, you can make a significant amount of money being a nominee director.
• As a nominee director, you can also enjoy all the facilities and incentives given to a regular director.

Cons

• Your inability to perform appropriately as a nominee director and fulfilling responsibilities can lead to penalties and fines.
• If the company is sued for a scam or goes bankrupt for some reason, the nominee director can face consequences on behalf of the company.

How Can You Avoid Risks As A Nominee Director?

Since nominee directors are appointed by foreign companies and they work as interim directors, there are so many liabilities that can harm their interests. Therefore, nominee directors must take measures to protect themselves before taking their position as local directors.

To decrease risks and safeguard their interest, nominee directors must use strategic tactics that can help them dodge potential risks. Here are some things you can do to protect your role:

• Save yourself from penalties, potential losses, fines, and financial claims of any kind by signing a nominee director indemnity agreement. It is a common way for nominee directors to safeguard their assets.
• Most companies offer a security deposit fund to nominee directors at the time of agreement. This security deposit is typically refunded once the nominee director’s contract expires. This is kind of an insurance move that protects the local director in case of any law violations by the company that may result in penalties.
• Another great option for local directors is to purchase D&O—directors and officers liability insurance. Through this insurance program, you can easily get coverage for liabilities and financial losses.

Final Words

Companies mostly hire local directors to comply with the legal requirements, but most businesses choose to appoint a nominee director to divide their strategic burden.

Local directors play a vital role as they are working as the representatives for the owner as well as well-wishers and promoters for the business. They are trusted to drive productivity and growth for the company. Despite having fewer responsibilities, nominee directors receive great salaries and incentives, making this position an ideal job for business associates.

But the great rewards always come with liabilities. Local directors often face issues like penalties and fraud charges due to the actions of their company. Therefore, it is always recommended to nominee directors that they take appropriate strategic measures before joining any foreign company.

If you are having trouble appointing the right nominee director, contact Mi2u Business Support now!