There are various factors in deciding who should be a Director of your company. Being a company Director is not a trivial matter, because apart from the big-picture duties of a Director to oversee the overall advancement of the company’s business, a Director also has duties to be fulfilled in acting honestly and to use reasonable diligence in the discharge of his duties. The Director will also have to act in good faith in the interests of the company; act with due care and skill; avoid conflicts of interests; and to use his powers for proper purposes.
This is especially true if you yourself are not based in Singapore, and will be leaving the business activities and/or the running of the company to the Director who is based in Singapore. Your Director will have to ensure that he/she complies with all the requirements and laws connected with the exercising of his powers in the position of Director. In choosing and appointing a Director for your company, the factors below are to be considered.
Who can be a company Director?
A company director must be:
- a natural person (i.e. a company or business entity cannot be a director)
- ordinarily resident in Singapore— ideally Singaporean citizen, but can be a Singapore Permanent Resident or a person with an Employment Pass/ Dependent’s Pass
- of a minimum age of 18
- of sound mind
Who elects a Company Director?
Directors are elected by the shareholders. They manage or direct the affairs of a corporation and typically make only major business decisions. They elect and monitor the activities of the officers
Who cannot be a Director?
The following will disqualify a person from becoming the Director of any company:
- An undischarged bankrupt;
- A person convicted in Singapore or elsewhere of any offence involving fraud or dishonesty punishable with imprisonment for 3 months or more;
- An unfit director of another company;
- A director of a company which was wound up on grounds of national security or interest;
- A person convicted in Singapore of any offence in connection with the formation or management of a corporation;
- A person who has been adjudged guilty of 3 or more offences in relation to the requirements of the Companies Act within a period of 5 years.
What are the duties of a Director, under the law?
The duties of a Director are two-pronged, sanctioned by statutes and derived from common law. A breach of statutory duties (enforced by ACRA, CAD or the Singapore Police Force) will result in criminal prosecution and criminal sanctions, whereas a breach of common-law duties (enforced by the company or individual member) would result in civil liabilities and remedies.
In the event a breach of duty has been committed, the company can sue the directors for damages or for the return of specific property or secret profits they have made.
In addition, a director who is guilty of an offence of failing to act honestly and use reasonable diligence or making improper use of information shall be liable on conviction to a fine not exceeding $5,000 or to imprisonment for a term not exceeding one year.
If in the event the Director is disqualified or disqualifies himself, the director also has a duty to give notice in writing to the company of his disqualification, which will then need to be reported to ACRA within 1 month.
What are Directors key duties under the Companies Act?
Among other things, directors need to comply with disclosure / reporting requirements under the Singapore Companies Act. Directors also need to comply with their financial reporting obligations under the Companies Act. This entails maintaining financial statements, to lay the profit and loss account, balance sheet and directors’ report before the members at the annual general meeting, to report on the state of the company’s affairs and to provide members with copies of the financial statements
The statutory duties of the Director are outlined in the Companies Act, namely Sections 145, 156, 157, 165 and 197. These are quite different from the duties of a Director under common law, as will be explained below.
Other Director duties under common-law
The Director’s duties under common-law are namely as follows:
- To act in good faith in the company’s interests
The company’s interests are its interests as a separate legal entity. It includes the interests of all its members and employees. A director should not do any act to further his own personal interests.
- To act with due care and skill
The director is required to exercise reasonable care and skill in undertaking his responsibilities. The standard of skill and care is one that may reasonably be expected from a person of his knowledge and experience. For instance, if a Director of a
- To avoid conflicts of interests
The director must avoid conflicts between his personal interests and those of the company. A director who is in any way, whether directly or indirectly, interested in a transaction or proposed transaction with the company shall as soon as practicable after the relevant facts have come to his knowledge declare the nature of his interest at a meeting of the directors of the company. For instance, the Director will have to declare to the company if the subcontractor (for instance, a provider of the company’s computer systems and the network support) is his brother-in-law or friend.
- To use his powers for proper purposes.
A director shall not use his/her powers for personal benefit, collateral purposes or improper purposes. For instance, if he does not like a certain shareholder, he cannot pass a Director’s resolution to effect anything oppressive towards that shareholder.
Can a Director resign?
A director is not allowed to resign or vacate his office (notwithstanding the provisions in the company’s memorandum or articles of association or any agreement with his company) unless there is remaining in the company at least one director who is ordinarily resident in Singapore. A resignation or vacation of office of a director in breach of these provisions will be deemed invalid.
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