In the Singapore company incorporation process, a nominee director is a person appointed by written agreement, as opposed to being elected, to serve on a company’s board of directors. For example, a majority shareholder or a parent company may appoint this type of director as its representative on the company’s board. It is a common practice of foreign companies to appoint a Singapore resident as a nominee director to meet Singapore laws that require at least one director to be:
- A Singaporean citizen;
- A permanent resident of Singapore; or
- A holder of an entrepass, employment pass, or dependent pass with a Singapore residential address
Why an Agreement?
Nominee directors represent potentially conflicting interests of both the appointing party and the company. These directors have the rights, obligations, and duties of elected directors, but their authority, voting power, and management responsibilities are restricted. For this reason, agreements are made to limit their authority while protecting them from liability.
What Are Common Terms?
Agreements with nominee directors include standard clauses defining the relationship parameters, including appointment and acceptance, time for service, and the fee for serving. The rights and powers that are usually restricted or completely prohibited include the following:
- the director’s right to convene the board
- the director’s right to vote on board actions, including company policies and management decisions
- the director’s authority to sign company documents
- the director’s power to pledge, sell, transfer, encumber, or otherwise impair company property
- the director’s authority to handle business operations
- the director’s power to make business, financial, or moral contracts or commitments for the company
- the director’s authority to be a signatory on company bank accounts
- the director’s authority to make personal guarantees for company debts
Most likely, the agreement will require any actions of the nominee director to be taken based solely on written instructions only. It is also likely to provide for “at-will” termination, meaning the appointing party can end the director’s service at any time with notice of a qualified replacement director.
What Terms Protect the Director?
To protect against potential liability arising out of company activities, nominee directors usually insist on terms similar to the following:
- An indemnity against liability for damages, penalties, fines, or claims arising from the appointment
- A provision clarifying that the director is not responsible for the content or maintenance of company records, filings, or accounts
- A provision that the director will not be required to act contrary to Singapore laws
- An annual audit of company financial accounts, perhaps by a Singapore firm
- A provision requiring the company to be kept solvent
- A provision requiring the company to comply with Singapore law
Who Writes the Agreement?
These agreements are made by Singapore companies that specialize in assisting foreign businesses to secure a local entity. The contract provisions must comply with Singapore law. Business owners are best advised to contact Singapore legal professionals to review and advise them about the agreement terms.
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