Achieving sustainable corporate success also means maintaining vigilant corporate governance. The board of directors plays a pivotal role in sound governance by steering strategic decisions and overseeing management.
Under Singapore’s Companies Act, every company must appoint at least one resident director who meets residency requirements as an ordinary resident. It could be hugely or highly valuable if you understand the complexities around requirements for appointing and overseeing local directors or nominee directors.
This article aims to demystify all key considerations around constituting your company’s board and leveraging directors to facilitate robust governance.
Definition and Types of Company Directors
As defined by the Companies Act, a company director refers to any person occupying the director role within a company, regardless of their specific title. This legal definition also includes those who are not formally appointed as directors and instructions that appointed directors follow.
Different categories of directors exist based on their level of involvement, independence, and source of appointment:
Executive Directors/Managing Directors
Executive directors are directors who are simultaneously full-time salaried employees responsible for the company’s daily administrative and operational management. Typical executive director roles include chief executive officer (CEO), chief operating officer (COO), chief financial officer (CFO), and chief technology officer (CTO).
These hands-on directors craft and execute business strategies based on the board’s overall direction. The selection of a company’s managing executives transpires through a formal agreement and a unanimous Board decision.
Generally speaking, managing directors are exempt from the memorandum of association’s (MoA) retirement or rotation policy, unlike other executives. And, the constitutions of most companies usually permit the Boards to delegate to the managing director all the powers exercisable by the board, subject to whatever conditions and restrictions that are appropriate for the particular situation.
Non-executive Directors
As their name suggests, non-executive directors are members of the board who are not actively engaged in the daily activities of the firm. They attend board meetings and provide general guidance grounded in their expertise and networks without handling day-to-day decisions or receiving salaries. Their detached perspective allows them to assess and advise management objectively.
Independent Directors
Found primarily in publicly listed companies, independent directors have no stake or relationship with the company that can impair their judgment. Such directors are appointed specifically to satisfy corporate governance requirements for competent, transparent decision-making. Their priorities are solely on company interests rather than personal or external agendas.
Nominee Directors
Unlike independent directors, nominee directors directly represent particular stakeholders’ interests in board decisions as instructed by their nominators. Those nominators can include certain shareholders, creditors, or even employees. However, good corporate governance requires balancing all stakeholders, so nominee directors cannot have free reign.
Shadow Directors
Shadow directors refer to people who are not officially directors by title or board appointment but can issue explicit instructions that appointed directors follow. Legally, under the definition of directors in Singapore’s Companies Act, they also bear duties and liabilities equivalent to formally constituted directors.
De Facto Directors
Similar to shadow directors, de facto directors exercise director decision-making powers and responsibilities without holding an actual director title. They carry the same duties and obligations as named directors. If their actions eventually harm the company, shareholders can potentially take legal recourse against them.
Clearly defining and consciously assigning director roles per company needs and governance objectives allows organisations to constitute boards with an appropriate mix of engagement levels, expertise, stakeholder representation, and detached objectivity. Each director type serves certain purposes, so make sure to pursue diversity and align with long-term interests in mind.
Requirements and Qualifications
Serving as a company director in Singapore requires meeting certain eligibility criteria as per the Act. Some key requirements to keep in mind include the following:
- Age and Residency
To begin with, one must be a natural person who has reached 18 years of age and has full legal capacity. Private companies do not have director age limits, but public companies impose a maximum age of 70.
Each company must also appoint at least one director considered an “ordinarily resident” in Singapore – either a citizen, permanent resident, employment pass holder, or entrepreneur pass holder. - Sound mental state
Directors carry significantly important government duties, so they must be in a sound state of mind, allowing the exercise of full judgment faculties without physical or mental constraints. Those lacking such capacity, like undischarged bankruptcies, cannot qualify. - Clean legal and compliance history
Persons declared bankrupt or holding fraud and dishonesty criminal convictions face outright disqualification as directors. In addition, individuals with three or more legal offences under the Companies Act or high court order non-compliance instances in the past five years cannot serve either. Only formal court permission after such instances allows directorship. - Ongoing eligibility
Besides background eligibility, directors must uphold certain standards on an ongoing basis as well. These include avoiding acting as directors for more than three defunct companies recently, maintaining updated registers and disclosures, executing fiduciary duties like avoiding conflicts of interest, and preventing personal liabilities from exceeding assets. Breaching these current requirements risks court-mandated disqualification.
Fundamentally, directors must have the competence, integrity, and availability to fulfil extensive governance duties meticulously. Companies should screen candidates based on suitability before appointing them through shareholder resolutions.
Thereafter, continual monitoring helps guarantee sustained eligibility and performance. Have checklists outlining qualification criteria to simplify oversight of existing directors’ standing.
Appointment and Resignation
Once a qualified candidate is identified, appointing them as a company director involves formal shareholder approval along with filing the appropriate documentation under Singapore’s regulatory framework. Conversely, directors planning to resign must adhere to stipulated legal procedures, too.
Appointment Process and Requirements
The memorandum and articles of association of each company specify the exact appointment method for directors based on shareholder voting thresholds. Usually, this involves tabling an ordinary resolution at the annual general meeting (AGM) requiring over 50 per cent shareholder approval.
Before the resolution, the candidate must sign a consent to act as a director while disclosing all concurrent directorships and shareholdings for transparency. Existing directors can temporarily appoint replacements until the next AGM, where shareholders formally elect them.
Once appointed, the company must notify the Accounting and Corporate Regulatory Authority (ACRA) within 14 days via BizFile by filing a form accompanied by the requisite fees. This notifies ACRA of particulars like names, addresses, and nationalities for updating records.
Resignation Protocol
Company directors can resign, provided at least one remaining director meets residency requirements. However, the company’s constitution may impose constraints on resignations without appropriate notice periods.
Resigning directors typically submit signed written notices to the registered company office. After that, the company must file a notification of resignation with ACRA within 14 days. Similar to appointment, online BizFile submission through a corporate service provider like Corporate Services Singapore facilitates smooth resignation recording.
Duties and Responsibilities
In Singapore, directors bear interlinked common law and statutory duties spanning ethics, compliance, and performance.
Fiduciary Responsibilities
Firstly, directors assume certain ethical fiduciary responsibilities requiring good faith, care, and honesty as corporate trustees.
- Acting with unbiased judgment aligned solely with company interests rather than personal or external interests to prevent conflicts
- Deploying sound, legally compliant decisions while leveraging knowledge and skill diligence
- Avoiding deriving unauthorised personal profits from the director position, transactions, or confidential information
- Using powers legitimately for intended purposes based on long-term interests
Statutory Duties
Singapore laws also mandate various compliance duties on top of fiduciary responsibilities, including:
- Timely convening of annual general meetings for financial reporting and strategy alignment with shareholders
- Maintaining updated registers of members, directors, charges, and key decisions
- Proper preparation, presentation, and filing of annual returns and financial statements
- Overseeing auditor and company secretary appointments per legal stipulations
- Recommending dividend rate alignments to shareholders
- Disclosing interests directors may hold in transactions
- Ensuring ongoing appointments meet qualifications and eligibility
Directors delegating duties without reasonable supervision retain legal liability. Breaching either fiduciary or statutory duties risks civil or criminal consequences like fines, imprisonment, damages payments, and profit disgorgement.
Support Structures
Balancing extensive duties (i.e., from compliance oversight to stakeholder collaboration) requires competence and diligent effort. Seek external expertise through corporate secretarial services to strengthen supportive board structures.
But the essence of governance accountability rests firmly with directors themselves. Their continuous dedication remains integral to corporate excellence.
Powers and Authority
Singapore’s Companies Act empowers directors to steer overall strategic business direction and most daily decisions, specifying:
“The business of a company shall be managed by, or under the direction or supervision of, the directors.”
This grants extensive autonomy, constrained only by shareholder votes required for certain fundamental decisions per company constitutional by-laws. General power domains directors can exclusively govern cover:
- Crafting and aligning organisational vision, mission, and values
- Structuring optimal leadership frameworks of delegation and controls
- Identifying market opportunities and crafting responsive strategies
- Developing budgets/plans and allocating resources accordingly
- Creating operational efficiency through digitalisation, improvements in the process, and more
- Building employee, customer, and community relationships
- Specifying regulatory compliance measures
All amendments to company constitutions, voting rights changes, corporate restructuring, and appointment of board members require shareholder approval through resolutions. And even though strategy and business operations fall under directors’ authority, the implementation of decisions through company agents and employees is still subject to employment laws and governance standards outlined in guiding codes like Singapore’s Code of Corporate Governance.
Remuneration and Fees
Serving as strategic stewards on boards is intensive work warranting fair compensation for retained directors. The usual payment structures include fixed monthly salaries for executive directors and sitting fees or profit-linked commissions for non-executive and independent directors.
Salaried Executive Directors
Executive directors assume active management roles akin to C-suite executives. They have full-taxable monthly salaries with provident fund contributions like typical employees. Their financially material compensation contracts require approval through shareholder ordinary resolutions.
Remunerated Non-executive Directors
Non-executive directors only contribute strategic guidance during periodic board meetings rather than daily oversight. So, most receive annual director fees either as fixed retainers or payments per meeting attended. Additional performance-based commissions may supplement base fees, too.
Unlike taxable salary, directorial fees only undergo withholding tax deductions without the need for CPF payments. This is to allow organisations to structure compensation optimally, balancing engagement levels, incentives, and long-running affordability.
Conclusion
The directorial role remains extremely demanding yet integral for the success of a company. Thus, seeking professional support goes a long way in stepping up and growing in the market.
Looking for end-to-end assistance on directorship matters? Let Corporate Services Singapore do the job for you. Our full spectrum of Singapore accounting and accounting services ensures foolproof, legally compliant directorship processes upholding your board’s efficiency.
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