How to be an Effective Director in Singapore?

What is defined as local Singapore Director?

A Director in Singapore is a person who holds a directorship position in a Singapore company, regardless of whether they are employed by the company or assigned any job title.

Once appointed, you become a fiduciary of the company. A fiduciary is expected to act in the interests of another person. As such, you have a duty to act in what you genuinely believe to be the company's best interests and for its overall benefit.

In Singapore, both private (including private limited or Pte Ltd) and listed companies are required to have at least one local director whose ordinary place of residence is in Singapore. This individual may be a Singapore citizen, Singapore permanent resident, or an Employment Pass (EP) or Entrepreneur Pass (EntrePass) holder employed by the same company.

No. of Directors required per company and the role of Nominee Director

Whilst a Singapore company is required to appoint at least one local Director upon incorporation, the maximum number of board members is usually specified in its Constitution. If your company has only one Director, you must appoint a different individual as the company secretary, as Singapore companies are required to have at least two company officers.

A Nominee Director is an individual appointed to serve on behalf of another person or group and represent their interests. A common example is when a shareholder, or a group of shareholders, appoints someone to sit on the company's board on their behalf.

Read more: Director's Salary, Fee, Dividend: 3 Ways to be Paid, Which is the Best?

In some cases, a foreign shareholder or board member of a Singapore company may appoint a local nominee to facilitate incorporation, assist with bank account opening, or attend board meetings.

Do note, however, that a nominee has the same fiduciary duties and legal responsibilities as any other board member under the Companies Act. These include, but are not limited to, acting honestly and in good faith, avoiding conflicts of interest, exercising reasonable care, skill and diligence, and refraining from misusing powers or confidential information.

Fiduciary Duties of a Director

Whether you are an “active”, “in-active”, “shadow”, or a “sleeping” director, you are an agent of the company appointing you. This means you act for the company and in turn, the company is bound by your acts. It is important that you fulfill the key duties owed by Directors to a company as stipulated in the common law and the Companies Act.

The following summarizes four key duties:

1. To act honestly and in good faith in the interest of the company

A director is expected to act honestly and in good faith in the interest of the company. This means undivided loyalty to the company when it comes to company decision-making.

Personal and third party interests should play no part in a Director’s company decision making process and any decision made while sharing opinions or company information with other parties to gain self-advantage over the company will be regarded as dishonesty, and may result in civil action or criminal prosecution.

2. To avoid conflict of interest

A Director must not place themselves in a situation where their personal interests conflict with those of the company. Common examples of conflicts of interest include:

Transactions with the company: Buying property from, or selling property to, the company either directly or indirectly.
Taking advantage of corporate information or opportunities: Diverting business opportunities intended for the company to a third party or for personal gain, or establishing a competing business to pursue the same contracts.
Conflicting duties: Where an individual holds board positions in two or more companies, conflicts of interest may arise. Such interests should be declared at the first board meeting, and the individual should abstain from discussions and decisions involving competing businesses.
Nominee Director: A nominee may face competing obligations between the company and the appointing party. In such situations, full disclosure must be made to the board. Under common law, any conflicting interest must be declared at the relevant board meeting.

3. To exercise care, skill, and diligence

Directors should manage their companies with care, skill and diligence. Honesty and reasonable diligence are expected when directors carry out their duties. Often times, the actual skills and experience that the Director possesses is used as a yardstick to determine the standards expected of him.

4. To not misuse power and information

A director should not misuse his power or the information he has on the company. All the power you hold as a Director should only be directed towards the benefit and proper purposes of the company. One commonly misused power is that of issuing shares, which is commonly intended for capital raising. However, if a Director issues shares to dilute a member’s shareholdings, or preserve control of the board, he may be abusing his power as a director.
When it comes to information, all the information that a Director has on the company should be used for the company’s proper purposes and not for his personal benefit or for that of others.

Common statutory requirements under the Companies Act

Below lists certain common statutory requirements under the Companies Act. As a Director, you are responsible to ensure the company compiles with the requirements on time.

1. Annual General Meeting (AGM) and Annual Return (AR)

AGMs and the subsequent filing of annual returns (ARs) are mandatory on an annual basis, where the Director is responsible for convening. At the AGM, the company’s financial statements will be presented before its shareholders and members where queries could be raised. The financial reports must be sent to members 14 days prior to the AGM date and annual returns be filed with ACRA within one month after the AGM is held.

2. Keeping records of Statutory Registers

A Singapore company needs to maintain a statutory register and it’s the Director’s responsibility to ensure the company maintains so. Common registers include the Register of Members, Register of Charges, Register of Directors shareholdings, and Register of Directors, Managers, Secretaries, & Auditors.

The company’s accounting records and other documents that explain the company’s business transactions and financial standing shall also be safe-kept and kept up-to-date to compute the company’s annual accounts as required by Law.

3. Registering an office address

Singapore companies are required to maintain a local registered business address that is not a PO Box. This helps in the delivery of office related mails, as well as where company officers may be reached. In case of change of office address, a record has to be lodged with ACRA within 14 days and failure to do so is an offence.

4. Reporting changes in Company Directors, Secretary, Auditors, and Managers

All changes in a Singapore company have to be documented and reported to ACRA, and Directors have to ensure these statutory records are properly maintained and updated.

5. Reporting changes in the Register for Directors Shareholdings

Any interests, whether its in form of shares, rights, options or contracts, that a Director may have in his company is recorded in this Register. It’s required by Law that a Director fully discloses his interest and give proper notice in writing to the company if there are any changes to be effected such that their respective corporate secretary could keep the Register properly updated.

Singapore company setup timeline

Setting up in Singapore - Timeline to Expect - from 2 days to 60 days depending on ACRA’s approval of the name and whether any referral to any other Approving Authority (other Government ministries) is required.

Statutory liabilities in case of breach of duties:

The following lists certain statutory liabilities to Directors of Singapore companies under the Companies Act. The list is not exhaustive but in general a breach of statutory duties carries with it certain sanctions. Therefore, as a Director it is important for you to familiarize yourself with these obligations and duties:

[Section 8A (8)] Providing misleading information either knowingly or recklessly regarding the company when required to give information. This offence attracts imprisonment of up to 2 years or a fine running to $20,000 or both

[Section 8D (1)] Falsifying of documents or destroying documents pertaining to the company with the intention of hiding company affairs to gain an upper hand over laws. This offence attracts a fine of up to $10,000 or 2 years imprisonment or both

[Section 157] Acts which are dishonest with reasonable diligence in carrying out duties from office in order to gain an advantage for self or for other individuals in relation to the company. This includes using official information improperly and failing to discharge duties as required. This offence attracts an up to 1 year imprisonment, a $ 5,000 fine and liability to damage suffered by the company.

[Section 175 (4)] Failure to hold an AGM (Annual General Meeting) as required. This offence attracts a $ 5,000 fine and a default penalty

[Section 197 (7)] Failure to file the AR (Annual Returns) as required. This offence attracts a $ 5,000 fine as well as a default penalty

[Section 401 (2)] Knowingly prepare or allow the preparation of misleading returns information, certificates, financial documents, or reports. This offence attracts up to 2 years imprisonment and a fine of up to $ 50,000 or both.

For further information, please read up the latest Singapore Companies Act for reference.

(This article is a modified excerpt from the original article by Enterprise Singapore at www.smeportal.sg.)