Features Including the Risks Involved of Nominee Director

A company director is an employee of the company and also a part of its board of directors. There are many roles that directors play in a company, which may include taking part in its decision-making processes, analyzing and monitoring employees, appointing or hiring senior management or setting its goals or objectives. Singapore’s Company Act requires companies to have at least one director who is a local resident.

Instead of appointing a director, companies can also hire a nominee director. A nominee director is someone who acts as a director of a company in place of someone else. It can happen when, for example, a company does not have a local director to meet the requirement of the Companies Act. In this case, the company or a foreign director may hire a nominee director to act as a director of the company.

Duties of Nominee Director

The nominee directors of a company have the same duties as its directors. In fact, under the Singapore Companies Act and common law, the Nominee Resident Director (NRD) is similar to a regular director and has the same duties. Therefore, the nominee director also must take some roles and responsibilities of directors, which include the following.

• To act in good faith and with all honesty on behalf of the company’s best interest.
• To avoid conflict of interest.
• To exercise professionalism and the utmost care and diligence.
• Not to exploit their position and power.

Apart from these, the Companies Act also sets some other duties for the nominee director in the absence of a local resident director. Therefore, nominee directors must also fulfil the statutory requirements given below.

• To convene the mandatory Annual General Meeting and file the Annual Returns of the company.
• To maintain an accurate and updated record of the Statutory registers required by the Companies Act.
• To register a local business address.
• To report changes or amendments within and about the company.
• To provide regular updates about the Register of Directors Shareholdings.

Most of these reporting and filling duties relate to the nominee directors’ dealings with ACRA. Therefore, they must fulfil all these requirements.

Risks involved in using Nominee Directors

There are a few risks that come with using nominee directors for companies. Usually, nominee directors must be appointed through a legal written arrangement to safeguard the company and its owners. In case there are any discrepancies in the process, it can be harmful to the company. At Achi Biz, we ensure you don’t have to go through these risks as a company owner. However, it is still vital to understand what these risks are.

Apart from the risks above, there are also some other risks associated with appointing nominee directors. These include the following.

• Nominee director demanding higher payments.
• Nominee director becoming unreachable through contact options.
• Damage in the relationship between nominee director and company shareholders or owner.
• Nominee director not avoiding conflict of interest or disclosing agreement to third parties.
• Nominee director misusing his position of power to benefit themselves.
• In case the nominee director passes away or becomes mentally unstable, their next of kin refusing to honour the agreement and treat the shares as their right.

All of these risks involved with nominee directors increase the need for a well-written agreement that does not have any loopholes. The importance of an agreement, therefore, cannot be neglected. As mentioned above, with AchiBiz, companies don’t need to worry about the agreement.

AchiBiz provides them with a well-defined written agreement that limits the nominee directors’ involvement in the company’s business. Similarly, the agreement also limits them to only serving for the mandatory regulatory requirements purpose.

Conclusion

Under the Singapore Companies Act, companies must appoint at least one resident director or nominee director. Nominee directors play the same role in a business as other directors. However, there are some risks of appointing nominee directors as well, as discussed above. Companies can mitigate these risks easily with a well-written agreement.