Produced by SilverKris for HC Consultancy
The economic upheavals and widespread lay-offs during the pandemic have prompted many individuals to develop other income streams. More and more Singaporeans are establishing their own companies. Likewise, foreign investors attracted by Singapore’s excellent public health response, especially over the Covid pandemic, and overall infrastructure, want to move here and establish their business.
In this environment, the idea of the nominee director has gained a great deal of buzz. The Singapore Companies Act requires every company to have a resident director – a criteria that can often give would-be entrepreneurs some pause. Whilst engaging a so-called nominee director for the role is increasingly a common solution, it is a decision that carries liabilities and should not be taken lightly.
Business advisory firm HC Consultancy has decades of experience in registering companies and providing ongoing corporate secretarial, accounting and tax compliance services. Here, the company’s founder and corporate lawyer Helen Campos explains the lay of the land when it comes to nominee directors.
What is a nominee director?
In accordance with Singapore law, each and every company requires one resident director, defined as either a Singapore citizen, permanent resident (PR) or even an employment pass (EP) holder whose EP is issued for the relevant company and ideally with a validity of at least one year. The purpose of this requirement is to ensure that there is at least one individual who can be held accountable for the company’s actions, should the need arise.
Foreigners who wish to start a business but do not have a Singaporean business partner who can be designated as the resident director may wish to enlist the nominee services of business advisory firms such as HC Consultancy in the interim, while they apply for an employment pass themselves. Among our many services, we arrange legal partnerships between such individuals and appropriate nominee directors. To be clear, there is no difference in the law governing the duties and responsibilities of a nominee director. They are held to the same standards as a director of the company.
Who might need a nominee director?
Foreigners who wish to come to Singapore to set up a business will need a resident director from day one. While the individuals may come with some capital and the right skillset, the appointment of a resident director is a non-negotiable: the government doesn’t give you a grace period to appoint one. The same goes for companies who wish to open a subsidiary in Singapore. This is why most businesses opt to take up the services of a nominee director, in order to incorporate the company and start business. They may then apply for an employment pass and once they receive this, they can then choose to become the resident director of the company and rescind the nominee director’s services.
There is no difference in the law governing the responsibilities of a nominee director – they are held to the same standards as a director of the company
Similarly, at HC Consultancy, we have helped many foreigners who wish to register a start-up and eventually become the resident director of their company. Some of the bigger companies, such as multi-national corporations, tend to require a nominee director for a long period of time. This is because instead of requiring one of their staff to take on this role in the local office, they find it convenient to hire a professional for nominee services for the long term.
Would the EntrePass not be a more suitable option for foreigners who wish to have a business in Singapore?
In some cases, yes, although the EntrePass has strict criteria around investment, intellectual property and proven track records, not to mention the need for more capital. The application processing time can be up to six months. Many people may not wish to wait that long.
What risks does a nominee director take?
There’s significant risk. Even though he or she may not have actual powers in this arrangement as the nominee director, he may be obliged to supply information or use voting power at board meetings in the interests of his appointer. If the company or its other directors break any laws, the nominee director is liable and can be prosecuted. Of course, Singapore authorities in such cases may also go after foreign owners and directors and prosecute them to the full extent of the law. Though Singapore laws are simple and straightforward, the government takes a serious view on corporate compliance.
What sorts of liabilities could a nominee director face?
There are two main categories of liabilities a potential nominee director should consider: If the company is facing financial liabilities, then the nominee director may be liable, depending on the offence, on his or her personal assets, not just company assets. Then there’s administrative liability, including health and safety issues, environmental issues, tax and accounting, food safety, cyber security law or data protection issues. Any wrongdoing in the company operation can lead to penalties for the directors. Additionally, a nominee has to monitor the activities of the company in sufficient detail to ensure that the company is not violating any laws.
What services can HC Consultancy offer companies in this regard?
Our core business is registering companies and then remaining on retainer service for all related needs: applying for employment passes, permanent residency (PR) and dependent passes; drawing up employment contracts and handling employment issues (such as termination); and advising and preparing clients’ corporate secretarial, accounting and tax compliance work. Related to our core business, HC Consultancy conducts Know Your Customer (KYC) due diligence as part of agreeing to act as a nominee director for a company. Doing due diligence on potential nominee directors, conducting searches and evaluating the suitability of the individual is part and parcel of what we do.