Directors’ Duties and Responsibilities for Singapore Companies: How to be an effective Director

This article is intended for persons who are interested in setting up companies or doing business in Singapore, who may take up directorship positions in locally incorporated companies.

What is defined as local Singapore Director?

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A Director in Singapore is a person who takes up Directorship positions in a Singapore Company, regardless of whether he or she is employed by the company or being assigned any job titles.

Being appointed as a Director, you are the fiduciary of the company that appoints you. A fiduciary is expected to act in the interests of another person and hence as a company’s director, you have the duty to act in the way you truly believe is in the best interest and benefit of the company.

In Singapore, whether private (aka private limited, or Pte Ltd) or listed companies, all companies are required to have at least (one) local director, whose normal place of residence is in Singapore. This director could either be a Singapore citizen, a Singapore permanent resident or an Entrepreneur Pass (EntrePass) or Employment Pass (EP) holder under the same company he is employed.

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

Whilst a Singapore Company has to appoint a minimum of local director to begin with, the maximum number of director is usually stated in the company’s Constitution. In case your company elects to have one director only, then you would need to appoint a different individual to be the company’s secretary, as Singapore companies require at least two company officers.

A Nominee Director is an individual who has been appointed to act in the capacity of the director for a company and represent the interests of the group or person appointing him. An excellent example of a nominee director is a case where you as a shareholder, or a group of shareholders, appoint a person to act on your behalf to sit on the company’s board.

In some cases, a foreign director and shareholder of a Singapore company may elect to appoint a local Nominee Director to incorporate his entity, arrange account opening matters, or attend to board meetings.

Do note however that a Nominee Director has the same fiduciary duties as that of a regular director as mentioned in the Company’s Act, including but not limited to duties to act honestly and in good faith, to avoid conflict of interest, to exercise care, skill and diligence and to not misuse powers and 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

Directors shall not place himself in a circumstance where there is conflict between his interests and the company’s. Some of the potential areas of conflict include:

  • Transactions with company: A director directly or indirectly buys from or sells property to the company
  • Taking advantage of corporation information or opportunities: A director diverting businesses meant for the company to a third party or to himself, or setting up a rival firm to compete for contracts
  • Conflicting duties: Where a Director holds various directorships in two or more companies, there may be a potential conflict of interest. It is important for the Director to declare this on the First Board Meeting to the company’s board. The Director shall also be absent from meetings that involve discussions of subjects involving competing companies to avoid conflict of interest.
  • Nominee Director: A nominee director may have a dilemma as to whose interest he should represent, often between that of the company or that of his appointer. It is important that the Director makes full disclosure to the board in case he is in a position of conflict. He is required under the common law to disclose his conflicting interest with the company at the 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)

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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

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 offense 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 offense 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 offense 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 offense attracts a $ 5,000 fine and a default penalty

[Section 197 (7)] Failure to file the AR (Annual Returns) as required. This offense 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 offense 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.

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