Understanding the role of Directors’ roles and responsibilities in Singapore

Every registered company in Singapore must always have at least one director. Directors or shareholders of a company appoint the director, and his/her primary role and responsibility is to manage the company and provide it with a direction.

Roles of the director

• Manages the company and provides it with a direction
• Makes decisions for the company
• Acts in the best interest of the company
• Is honest and diligent in carrying out his/her duties

Who can be and act as a company director?

A company director must be:

• At least 18 years old
• Of full legal capacity (sound mind)
• A Singapore citizen, Singapore permanent resident or EntrePass holder
• A director may also be an Employment Pass (EP) holder. However, an EP holder wishing to become the director of a local company must first get a Letter of Consent from the Ministry of Manpower
• Cannot be disqualified from acting as a director of a company, e.g. an undischarged bankrupt

Who cannot act as a director:

• An undischarged bankrupt
• An unfit director of an insolvent company
• Issued with a disqualification order by a court
• A director of a company which was wound up for using it against national security or national interest
• A director in three or more companies which ACRA initiated striking off within five years
• Convicted with three or more BizFile+ filing related offences within five years
• Debarred by ACRA for a breach which has continued for three months or more
• Convicted for certain offences including fraud or dishonest conduct

Note that it is a very serious offence for a disqualified person to act as director. If convicted, he/she:

• Can be fined up to S$10,000
• Imprisoned for up to two years
• Both fined and imprisoned

Appointment of a director

A company can appoint a director by passing an ordinary resolution at a general meeting unless the company constitution declares otherwise.

A person must agree to be appointed as director and sign a declaration of consent.
The appointment takes effect on the date stated in the declaration form.

Documents required to appoint a director

1. A declaration of consent to act as a director
2. The director’s disclosure of all other directorships or shareholdings
3. A signed board resolution that approves the appointment

Active, inactive and dormant director

Under the law, there is no difference between active, inactive or dormant director. All directors must ensure that the company complies with all regulations, regardless of the level of participation of the director. The director owes a duty to the company.

Resignation of a director

A director’s resignation is valid only if certain conditions are met:

• The resignation must comply with the company’s constitution
• The company must have at least one remaining director who is resident in Singapore

Within 14 days from the resignation of the director, the company must notify ACRA. If the company fails to do so, every officer of the company can be individually fined up to S$5,000 and be liable to a default penalty.

Checklist before submitting your resignation

• There is at least one locally resident director remaining in the company after your resignation (if there are no remaining locally resident directors left in the company, you cannot resign as a director unless another locally resident director is appointed).
• The resignation complies with the rules of the company’s constitution.
• The resignation is sent by registered post to the company’s registered address, or the resignation is delivered by hand at the company’s registered address, and you have obtained a signed acknowledgement.

Removal of a director

A director can also be removed by an ordinary resolution of shareholders before the expiration of his/her appointment period as long as the removal complies with the company’s constitution.
Once a director has been removed, the company must file a removal of director notice with ACRA within 14 days.

Register of directors

Companies are required to maintain a register of directors that contains the following information for each director:

• Full name
• Residential address
• Nationality
• Identification
• Date of appointment, and
• Date of cessation of appointment.
• A signed copy of the declaration of consent to act as a director
• A statement that verifies the director is not disqualified from being a director of the company

The register of directors must be kept at the company’s registered address.

Powers of director

Directors have the authority to make decisions on behalf of the company unless the matter requires an ordinary or special resolution decided upon by a shareholder vote.

Examples of company decisions that can be made by the directors

• Opening a bank account
• Borrowing or lending funds
• Investing company funds
• Selling company assets

Examples of company decisions that require a shareholder vote

• Declaring dividends
• Appointing and removing auditors
• Electing directors in place of retiring directors
• Alteration to clauses in the constitution
• Reducing the share capital of the company
• Changing the company name

Duties of director

The decisions of its directors bound a company. To ensure that directors make decisions in the best interest of their company, directors must fulfil both fiduciary and statutory duties.

Fiduciary duties of a director

A director must act in the best interests of the company and must ensure transactions are commercially justifiable and not for improper purposes. A director is not entitled to make a personal profit or obtain a personal advantage by using company property and money, or with the company information acquired in his/her role as director. Directors must objectively make decisions in the interests of the company. Directors must not act beyond powers given in the constitution, illegally or contrary to public policy.
Statutory duties

• Keep accounting records: A director must ensure that accounting records of the company are kept and demonstrate the financial position of the company. The files must be held in a way that allows them to be inspected by the other company directors.
• Maintain annual accounts: Directors are required to submit financial statements to shareholders at least once a year at the company’s annual general meeting.
• Hold annual general meetings (AGM): All companies are required to hold annual general meetings at least once a year.
• Hold statutory meetings: Directors of public companies are required to hold a statutory meeting within the first three months after starting a business.
• Hold extraordinary meeting: Directors are required to hold extraordinary general meetings if requested by the shareholders who combined own a minimum of 10% of the shares in the company.
• Appointment of a company secretary: It is the duty of the directors to appoint a company secretary within six months of starting the business.
• Appointment of an auditor: Directors must appoint an auditor or a committee of auditors within the first three months of starting the business.
• Payment of dividends: Directors are entrusted with paying dividends to the company shareholders out of the profits of the company.
• Issues of shares: The directors must ensure that shares of the company are issued only after approval from the company shareholders.
• Duty to disclose conflicts of interest: Directors are required to avoid conflicts of interest. However, if a conflict arises, directors are obliged to disclose such dispute to the company. An example of a conflict of interest is when the director has a personal gain from a company transaction. In this scenario, he/she must disclose to the company the potential of personal gain in said transaction.

Liabilities of director

A director who breaches his/her duties is liable to:

• The company for any profit made by him/her or for any damage suffered by the company as a result of the breach
• Liable on conviction to a fine not exceeding S$5,000 or to imprisonment for a term not exceeding 12 months
• Failure to keep accounting records: A director who fails to keep an accounting record faces a fine of up to S$5,000 and/or a prison sentence of up to 12 months.
• Failure to maintain annual accounts: A director who fails to maintain the annual accounts of the company faces a fine of up to S$5,000 or a prison sentence of up to 12 months.
• Failure to hold required meetings: A director of a public company who fails to hold a statutory meeting can be fined up to S$1,000 and a default penalty. Similarly, a director who fails to hold an annual general meeting faces a fine of up to S$5,000 and a default penalty.
• Failure to appoint an auditor: A director who fails to appoint an auditor faces a fine of up to S$5,000.
• Payment of dividends from a source other than profits: A director who issues dividends using a source other than profits can face a fine of up to S$5,000 and a prison sentence of up to 12 months. The director will also be liable to repay any creditors for any debt used to pay the dividend.
• Issue of shares without shareholder approval: A director who issues shares without the shareholder’s approval may be liable to compensate the company and shareholder to whom the shares were issued.
• Duty to disclose: A director who fails to disclose their interest in company transactions or ownership of office property will face a fine of up to S$5,000.

Resident (nominee) directors

The Companies Act (Cap. 50) (Companies Act) has been amended to introduce Registers of Nominee Directors of companies under the new Part XIA which came into effect on 31 March 2017.

Companies incorporated under the Companies Act are required to:

• Keep a register of its nominee directors containing the particulars of the nominators of the company’s nominee directors; and
• Produce the register of nominee directors and any related document to the registrar, an officer of ACRA or a public agency, upon request.

A director is a nominee if the director acts in accordance with the directions, instructions, or wishes of another person.

The obligation to act in accordance with the directions, instructions or wishes of another person may arise from legal obligations (e.g., contract; trust) or informal arrangements.

For example, a director is a nominee of a person with a shareholding in a company if that person appoints him to the board of directors of the company and he acts in accordance with the directions, instructions or wishes of that person.

For example, a person appointed as a director of a company for compliance with the requirement that every company registered in Singapore must have at least one director who is ordinarily a resident in Singapore would generally fall within the definition of a director who is a nominee. This is the usual scenario when most foreign business owners use a nominee director.

In most cases, the corporate services provider that you use to incorporate your company will offer a resident director service that allows you to comply with the regulations. Ask Astria about assistance with resident directors.

Obligations of nominee directors

Directors who are nominees should, within the applicable timelines, (i) inform their respective companies of that fact and (ii) provide the particulars of their nominators. In addition, nominee directors must inform their companies when they cease to be a nominee and of any change to the nominator’s particulars provided to the company.

For nominators who are individuals:

• Full name
• Residential address
• Nationality
• Identity card number or passport number
• Date of birth
• The date on which the director became the individual’s nominee

For nominators who are legal entities:

• Name
• Unique entity number issued by the registrar, if any
• Address of registered office
• Legal form of the legal entity
• Jurisdiction of entity registration
• Legal form of the legal entity
• The jurisdiction where the legal entity is formed or incorporated
• Name of corporate entity register of the jurisdiction where the legal entity is formed or incorporated (if applicable)
• Identification number or registration number of the legal entity on the corporate entity register of the jurisdiction where the legal entity is formed or incorporated (if applicable)
• Date on which the director became the legal entity’s nominee

Nominee directors’ risks

As long as you have engaged a reputable corporate service provider, you do not run any risks in using a nominee director.

The nominee director, in this case, will be contractually prohibited to engage in the management of the company, will not come to your offices, will not participate in negotiations, run the day-to-day business or have any saying in board meetings. He/she will only be utilised to comply with the local director requirement, and the operations of the company will be entirely left to the real directors.

Nevertheless, since the nominee director is a director of the company, he/she must act as a fiduciary of the company and always act in the interests of the company and in compliance with the laws and regulations of Singapore. This means that in the event the real directors break the law, the nominee director will also be held accountable for this breach.

Conclusion

For a company to run smoothly and efficiently, its directors must comply with all statutory requirements and fulfil their role as outlined above. Breach of duties can result in penalties, criminal prosecution and/or civil action against the directors.

To ensure proper compliance with these duties, it is advisable to engage the services of a reputable corporate services firm to guide and assist the directors in understanding their responsibilities and liabilities under the laws and regulations of Singapore.

How can Astria help?

At Astria, we ensure that you are compliant with directors’ statutory duties. Our strong and updated corporate secretarial team monitors the latest ACRA requirements closely so that you can concentrate on your business. Reach out to Astria and gain confidence in a smooth, efficient operation. To learn more about how we can help you leverage the opportunities in Singapore, contact us today and speak with one of our experts.