Authority of a Nominee Director in the company

Authority of a Nominee Director in the company

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In Singapore, the Companies Act states that a company incorporated in the country must have at least one local resident as a director. Whether a company starts in Singapore or expands into its markets later, the country’s Companies Act makes this a necessary consideration for business owners who live outside of Singapore.

Why Singapore-based companies need a Nominee Director

The Companies Act was put in place to make sure that companies have a local director who is accountable to Singapore law. This is to prevent foreign owners and directors from breaking the law and simply abandoning their businesses when caught.A Nominee Director does not necessarily need to be a Singapore citizen, but they must have a permanent address in Singapore. This means that foreign directors can qualify for this role if they apply for an Employment Pass under the company in which he/she will be appointed as director.

What differentiates a Nominee Director from an Executive Director?

Because of the residency requirement, a Nominee Director can only fulfil the role from a Singapore residence, while other directors are not limited by location.As a result, Nominee Directors tend to have much less authority than other board members. They are mostly employed to fulfil the Companies Act requirements and to ensure a level of accountability to the institutions that nominate them.A Nominee Director role can be tricky, even in situations of complete trust, so processes have to be put in place to protect the company and the individual.

What authority does a Nominee Director have?

A Nominee Director’s authority is one of the first considerations that need to be made. They could have none at all, meaning they have no power over any decisions in the company. However, they will still be held accountable for those decisions, putting them at a disproportionate risk.This is why Nominee Directors are permitted all the standard oversight and transparency given to regular directors.

One of a Nominee Director’s most important duties is making sure a company operates within the law, as any director would.By having access to director-level information, nominee directors can better liaise with the company.Nominee Directors use this information in their duties – if they have any – and to report wrongdoing in cases of illegal activity. That gives nominee directors the ability to protect themselves by coordinating with the law and discourages companies from using nominee directors as scapegoats.

Can a Nominee Director’s authority be limited?

The simple answer is yes. The Companies Act states that:“The directors may exercise all the powers of a company except any power that [the Companies Act] or a constitution of the company requires the company to exercise in a general meeting.”This means that a Nominee Director can be granted full executive authority. However, there is no law against how much decision-making authority can be limited, so a company and candidate must negotiate executive authority in the employment contract.

What are the key involvements of a Nominee Director?

When it comes to the key involvements of a Nominee Director, they all centre on the responsibilities directors have to their stakeholders and the law.All directors – including Nominees – have what is called a fiduciary duty to their companies. In other words, directors are obligated to act in the best interest of their companies.This means that if a nominee director learns of illegal activities being conducted within a company, they have a legal duty to report it to the appropriate bodies, including Singaporean authorities.So, while a Nominee Director does not have to be given executive authority, they have the same responsibilities as the rest of the board.  

Nominee Directors and risk management

By law, a Know-your-client (KYC) due diligence check must be conducted on any company before it can hire a Nominee Director in Singapore. This check gives companies a rating based on their risk profile.Companies with moderate risk profiles can be subject to additional surveillance to make sure they comply with the law. Higher risk companies are often barred from hiring Nominee Directors outright.The position is a necessity for companies in Singapore to protect all parties. It needs everyone involved to operate in good faith and within the law, which was why the Companies Act was created, after all.  

Engaging a Nominee Director at Sprout

A corporate service provider such as Sprout works with a panel of Nominee Directors who have proven track records and will help to protect the arrangements between the Nominee Director and yourself. At Sprout, clients who have signed up for our Nominee Director packages will be provided with an agreement that will capture the nature of the relationship and authority of the Nominee Directors.