Risks and Benefits of Nominee Director Service

About the Risks and Benefits of Nominal Director Service

All companies that are registered in Singapore should have at least 1 director who is a resident. This regulation is according to the Companies Act. If the person is a foreigner and incorporates a Singapore company but does not have a local person who acts as a resident director, the foreigner is allowed to hire an acting director for a fee. This person is called a Nominee Director ND or is sometimes called a local director.

A local resident is someone who physically resides in Singapore and is not disqualified from a director role.

In Singapore, when the company is incorporated, a Singapore citizen can hold the resident director role. It can also be a permanent resident who has an Entrepass work visa.

An Employment Pass (EP) holder with local residence can only be a director if the new company has incorporated a bank account, and it has been opened.

Know more about it here.

 

Does Your Company Require a Nominee Director?

The Singapore government requires someone who can be held responsible in case the company violates laws. For instance, it fails to pay taxes, or scams customers, etc. If Singapore did not require an ND, then the foreign owners can simply abandon and abscond the company. To avoid having this situation, the Singapore government imposed a requirement to have a local director and assumes that the person who is the company’s ND will undertake the proper diligence to ensure that the company continues to follow the law.

Therefore, the Companies Act and common law of Singapore imposes the obligations and responsibilities of an ND like what they impose on a regular director. Directors have to make sure that the company’s statutory books are correctly maintained, the directors and shareholders meetings are held, and they always honour their company fiduciary duty in their actions.

 

Risk of Using an ND

A lot of foreign investors want to have a business in Singapore so they benefit from the legal and tax systems even if they are not based in Singapore. In order to comply with the laws in Singapore, each company would have to appoint a local nominee director.

However, there are risks in doing this. The ND has access to a lot of company information and it can interfere with the company’s daily activities. This risk is easily secured by contracting a reputable company so the right person is chosen. As for the ND, they face a lot of liabilities in case the company has fraudulent activities or gets bankrupt. They should not take this position lightly.

Two primary liabilities that NDs face:

1. Financial liability – If the company becomes bankrupt, or has illegal financial transactions, the ND will be held liable on their personal assets. Directors are liable for their personal funds, but it is not the limited company’s assets.
2. Administrative liability – This risk might come from issues of health and safety, tax and accounting, environmental, data protection, food safety, or cybersecurity. Any wrongdoing of the company’s operations can cause personal fines for the company directors.

 

Things That Could Become a Problem in the Company Are:

• There could be damaging relationships between the company and nominee and they consider the shares to be a gift from you. Therefore, they will claim the entitlement as the company share’s real owner.
• They ask for more payment.
• The nominee dies or loses their mental capacity, and the next of kin does not want to recognize the arrangement with the company and want to treat the shares as theirs.
• The nominee can no longer be contacted.
• They use the shares for personal loan security or selling them, or they pay themselves a service for directors
• Nominee discloses the arrangement to someone outside the company.

That is why it is important to use well-written documents so a nominee director can be recorded to make an arrangement that cannot be overstated because of its risks.

 

Benefits of Having a Nominee Director in Singapore

There are a couple of benefits in getting an ND, which is for the best interests of your company:

• A good arrangement that helps you to quickly and easily comply with ACRA’s requirements.
• It is a convenient and temporary arrangement for the EP or DP applicants that want to eventually be a director of their own entities or for the entities to set up internationally without a local presence.
• Access to someone with extensive knowledge of ensuring that your company is still compliant all the time, which includes making sure of the punctual filing of documents with the IRAS and ACRA.
• A person who performs their director duties with diligence, transparency, honesty, and integrity.
• Having someone who knows all the rules and regulations you should follow so you have peace of mind.
• They provide proof of your company’s local address.
• Fulfil the company compliance of Singapore.

 

Other Information About Nominee Director Service

A corporate service offers Nominee Director services to foreign clients if needed. These are the general terms that apply for getting an ND service:

• They will perform a KYC when you request their service because it is required by Singapore law.
• You must have at least 1 executive director who will take responsibility for the company’s management and operations. The ND will be involved in the company’s business matters. The ND executes operational documents or financial assurance on the company’s behalf.
• Your company needs to use a company secretary, registered address, and services for tax filing in order to ensure that all compliance activities are accurately performed.
• You need to execute the Nominee Director Indemnity Agreement, which is a contract between the company requiring the service and the company owner. It also protects you by making sure that the ND will be unable to take actions that could harm the company. The ND is also protected because it confirms that they cannot be held liable for the executive directors’ decisions.
• You need to appraise the company’s business practices sufficiently and provide clarifications when asked.
• You must make sure that the company abides by all the laws.

Most providers of corporate services also require you to put a security deposit if the company’s profile has a heightened risk.

 

Why Use a Nominee Service?

• To make sure the owner stays anonymous for the non-governmental bodies and also protects the disclosure of ownership information if there is a public inquiry.
• To ensure there is anonymity in business deals signing agreements.
• When the company director’s personal presence must conduct business in a foreign country and the beneficial owner cannot travel.
• To prevent the lawful restrictions about the deals between the affiliate bodies. Transferring of assets within a holding company finds this option very useful.
• When the statutory bodies must be extended by the correct number of members.

 

The Know Your Client Process

Nominee Service Companies normally follow a “trust but verify” model. They assume that customers are honest individuals, and they want to help them. However, in compliance with AML regulations, they perform a “know your client” check just like every other service provider to follow the Singapore government requirements. They normally require supporting from main shareholders, beneficiaries, and directors.

• They will verify the identification and proof of documents.
• Information about their professional background. This could be in a curriculum vitae (CV), resume, or Linkedin profile link.
• The plans and purpose for the company in Singapore.

 

Nominee Director Incorporation Fees

• The incorporation fee is $800
• ACRA fee is $315
• Appointing a company secretary is $600 a year
• Registered address costs $240 per year
• Nominee Director costs $3800 per year

 

 

What Documents Do Directors and Shareholders Need?

• Local resident director/shareholder – passport or IC or Singapore Work Visa Card.
• Foreign director/shareholder – passport and bill that shows overseas residential address.

 

Incorporation Documents and Samples of App Forms

• Nominee Director to the client
• The direct form of Nominee Director
• Application waiver needed to file taxes with the IRAS
• An application form that strikes off the company
• The director’s resolution to strike off the EGM
• Strike off a letter of authorization
• Strike off a letter to the IRAS
• Resolution of a member to strike off
• EGM notice to strike off the company

A nominee director is beneficial to company business owners because they can save on company registration, the responsibilities and shareholder GST risks. That is why there are a lot of company owners who choose to do this. They do not have to be in the country, and someone else is taking care of the direct responsibilities for them. You can inquire about the Singapore Nominee Director Services of 3E Accounting, and get the best treatment because they are experts in the business.