In Singapore, all companies incorporated in the country must have always at least one resident director on its board of directors. This requirement can be challenging for foreigners seeking to set up a Singapore-incorporated company. To address this challenge, the concept of nominee directors was introduced.

What is a Nominee Director?

A nominee director is an individual appointed to act as a director of a company to fulfil the legal requirement of having at least one resident director. Nominee directors of the company do not have any ownership stake in the company. These individuals serve as placeholders for foreign directors who may not be physically present in Singapore. While nominee directors are typically not involved in the day-to-day operations and do not hold any actual decision-making power, they bear significant responsibilities and must adhere to strict guidelines.

Duties and Responsibilities of a Nominee Director

Despite their non-executive role, nominee directors hold certain responsibilities:

1. Comply with Company’s Instructions: Nominee directors must follow the instructions of the company’s ultimate owners, typically the foreign company owners.
2. Monitoring Company Operations: Nominee directors have a duty to oversee the company’s operations, ensuring that they adhere to legal and regulatory requirements.
3. Protecting Shareholder Interests: Nominee directors act as guardians of shareholder interests, safeguarding their rights and ensuring that the company operates in their best interests.
4. Maintaining Confidentiality: Nominee directors must maintain strict confidentiality regarding all sensitive company information.

Selecting a Nominee Director

When selecting a nominee director, it is crucial to consider the following factors:

1. Singapore Citizenship or Permanent Residency: Nominee directors must be Singapore citizens or permanent residents.
2. Experience and Qualifications: Choose a nominee director with relevant experience and knowledge of Singaporean corporate governance.
3. Reputation and Trust: Select a nominee director from a reputable firm or individual you trust to act in your company’s best interests.
4. Clear Communication and Understanding: Establish clear communication channels and ensure the nominee director understands their duties and limitations.

Consequences of Choosing the Wrong Nominee Director

The appointment of an unsuitable nominee director can have detrimental consequences for both the company and the nominee director themselves:

For the Company:

• Reputational Damage: Negligent or unethical behaviour by a nominee director can tarnish the company’s reputation and erode stakeholder confidence.
• Legal and Financial Liability: Nominee directors may be held liable for any breaches of fiduciary duty or regulatory non-compliance.
• Loss of Control: Foreign shareholders may feel a loss of control if their nominee director does not act in their best interests.

For the Nominee Director:

• Professional Misconduct: Misconduct by a nominee director can lead to professional sanctions or even legal action.
• Damage to Reputation: A nominee director’s reputation can be tarnished if they are associated with a company’s misfortunes.
• Loss of Client Trust: Nominee directors may lose the trust and confidence of their clients if they fail to perform their duties diligently.