Many foreign business owners want to establish a company in Singapore to take advantage of the legal and tax system, without necessarily being based in Singapore. To comply with the Singapore law, each company will need to appoint a local nominee director.
In this article, we explain the role of director and the risks engaged and the solutions to cover such risk.
What is a nominee director
Setting up a company in Singapore will require at least one director, and this person must be Singaporean, permanent resident or an employment pass residing in Singapore. If your company does not have any person residing in Singapore, they can “hire” a person that will act as director for a fee. This person will be called a nominee director. It is very common that consulting or accounting companies offer to find a nominee director for you for a fee.
What are the risks of a nominee director
There are risks with this practice on both sides: from the company point of view, the nominee director has access to many company information and can disrupt the daily company activity. This risk can be easily secured by contracting a reputable company to select the right person for you. For the nominee director himself, he faces many liabilities if the company does fraudulent activities or goes bankrupt. Accepting such a position shouldn’t be taken lightly.
Two main liabilities faced by nominee directors
- Financial liability: if the company goes bankrupt, or does an illegal financial transaction, the nominee director will be liable on his personal assets. Directors are liable on personal funds, not limited to company assets.
- Administrative liability: liability risks may come from 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 personal fines for the directors of the company.
Directors and Officers liability insurance can lower the liability risks
Most of the director’s liabilities can be covered by Directors and Officers liability insurance. In the event of such a claim, the legal fees will be at least SGD 50,000.00, which will be covered by D&O policy. Maximum coverage will depend on the sum insured selected for the D&O policy.. Such policy has to be put in place by the company for the whole management, and you can also find individual D&O coverage but such policy remain unusual and very selective underwriting.
Covering the risk for the nominee director as well as company management is important if you set up an entity in Singapore. Contact us if you want to know more about D&O coverage.