Nominee Director Services in Singapore – What You Need to Know
Introduction to Nominee Director Services in Singapore
The law compels every firm that is incorporated in Singapore to ensure at least one of its directors is ordinarily resident in Singapore. In the case of foreign entrepreneurs who desire to start a business but they are not present in the country then this requirement can be met by hiring a nominee director. However, the idea is simple, but there are significant legal and compliance consequences. It is vital to understand the role of the nominee, his/her responsibilities, and possible risks to make sure that your company does not violate ACRA, or Singapore Companies Act. This is especially important when navigating regulatory matters such as the MAS licensing process for Licensed Fund Management Companies.
Who Is a Nominee Director?
A nominee director is a local who is put in place simply to meet the statutory obligation of ensuring the presence of a Singapore resident director. This is a position that is usually administrative and the nominee is not part of day to day management and business decision making. A nominee director is however, legally, subject to the same responsibilities and liabilities as any other company director under the Companies Act.
The foreign owned companies may use the nominee director who will help in incorporation, ensure local compliance and in the correspondence with the regulatory bodies ACRA or IRAS. Although the nominee as a passive representative effectively makes the company fulfill the residency requirement, its presence guarantees the foreign shareholders of the company that provided operational control via appointed executives or authorized signatories.
Knowing the Role and Responsibilities.
It is imperative to note that the nominee directors are legally responsible of the actions of the firm according to the Singaporean law. They are subject to the liability of any breaches of statutory duties even when they do it under the direction of foreign shareholders.
The purpose and compliance responsibilities of nominee directors in Singapore companies include ensuring that:
- The company keeps the correct and up to date statutory filings with ACRA.
- Annual returns, financial statements and tax filings are duly filed.
- The company does not perform fraudulent and illegal activities.
This is done in terms of proper accounting records and registers as stipulated by the Companies Act. The nominee directors are required to act in good faith and reasonably diligently. Otherwise, it may cause individual sanctions or disqualification.
The Structure of appointment and Agreement.
In cases involving the use of nominee director services, a Nominee Director Agreement is customary to sign. Some areas of responsibility are outlined in this legal document, authority restrictions, terms of indemnity and termination procedures. It brings the transparency between the nominee, and the foreign shareholders.
The company or its foreign owners usually cover the nominee director against any liability suffered as long as he or she performs as per the agreed terms, and within the boundaries of the law. Security deposit can also be charged and this will act as a guarantee to the nominee in case of misconduct or non-cooperation of the company.
The agreement should be well-written in terms of balancing the interests of both sides of the contract by ensuring that the nominee is not overexposed but at the same time, the company has the freedom to work effectively.
Legal Compliance and Accountability.
Even though the involvement of a nominee director might be limited in the operations of the company, the Singaporean corporate structure equally makes all the directors accountable on compliance of the company. That involves compliance with statutory requirements contained in Companies Act, Income Tax Act and ACRA rules.
As part of the guide to using nominee director services safely under Singapore company law, foreign companies should ensure:
- The nominee is an experienced and reliable professional who is employed by a licensed corporate service provider.
- In compliance filings, all the compliance filings are done by qualified company secretaries or accountants.
- The nominee director is also updated with the company operations and filings so that he is not liable in cases of omissions.
- Shareholder decisions and board resolutions are properly recorded, in order to show transparency.
This will reduce legal risks and both the shareholders and the nominee will be operating within the framework of corporate governance in Singapore.
Risks and Abuse of Nominee Arrangements.
Among the most widespread myths, there is the belief that a nominee director may represent a kind of a silent figurehead with no actual responsibility. As a matter of fact, the Singapore courts and ACRA take a particularly aggressive approach to abuse of the nominee structure – particularly where such structure is adopted to hide beneficial ownership or in support of illegal conduct.
In case of failure by the nominee directors to execute their statutory functions, such a person may be subjected to criminal or civil sanctions. The same case applies to companies whose use of nominee arrangements hides their ownership or any form of regulation. They may be severely punished, such as deregistration or prosecuted. Openness and record keeping is thus very important where nominee services are involved.
Best Practices in the use of Nominee director Services.
In order to make sure that nominee director arrangements are not only compliant but also secure, the following best practices can be considered:
- Deal with reputed service providers — Only licensed corporate service firms that are registered by ACRA should be engaged that have a good track record of managing nominees and compliance.
- Ensure a good level of communication – Be sure to provide the nominee with all relevant decisions, financial reporting and regulatory changes.
- Firstly, have documentation in place – Have a written agreement that stipulates the role of the nominee, coverage of indemnity and scope of authority.
- Adhere to anti-money laundering (AML) laws – Publicity of all beneficial owners in compliance with the beneficial ownership and the beneficial ownership requirements of ACRA.
- Periodic checks of compliance- Confirm your company- Make sure that your company is filing, submitting annual returns together with tax filings are always in order to safeguard the business as well as the nomination.
These steps can assist in making sure that nominee agreements are transparent, legal and advantageous to all parties concerned.
Dismissal and Replacement Process.
The nominee director may resign at all times as long as he or she gives the appropriate notice as stipulated by the Companies Act and the Nominee Director Agreement. When the company resigns, another director of the company should be appointed at once, who is also a resident of Singapore to keep up with ACRA requirement.
The change in directorship should also be recorded in BizFile+ system of ACRA by the companies as soon as possible to avoid punishment. A good corporate secretarial partner will also help in ensuring that transitions are made easy as well as maintenance of the statutory requirements.
Conclusion
Nominee director services is important in assisting foreign investors and offshore organizations to comply with the local directorship requirements of Singapore. Nevertheless, the role has a lot of legal responsibility and it cannot be seen as an empty ritual.
Through collaboration with licensed corporate service providers, having clear agreements, and knowledge of compliance responsibilities of the nominee, the businesses will be able to work in the legal environment of Singapore with a lot of confidence with minimal risks to both the directors and shareholders.
