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Types of Directors, Director’s Duty and Appointment of Director

Updated: Jun 17, 2023

The term "directors" refers to individuals who hold the position of director in a corporation, regardless of the title or designation used. This includes not only those formally appointed as directors but also individuals who effectively exercise the powers and responsibilities of directors. This can include individuals who, although not officially appointed as directors, are accustomed to directing or instructing the directors or majority of directors of a corporation. Additionally, alternate or substitute directors who are appointed to act on behalf of a director are also considered directors for legal and administrative purposes.

Director


Who can be a director?


To be eligible to be a director of a company in Singapore, the following requirements must be met:

  • Natural person and legal capacity

Only individuals who are natural persons and have attained the age of 18 years can be directors of a company. They must also possess full legal capacity, meaning they are not restricted or disqualified from holding such a position.

  • Ordinary residence in Singapore

Every company must have at least one director who is ordinarily resident in Singapore. This requirement ensures that there is a local representative responsible for the company's operations and compliance with local laws and regulations. If a company has only one member (shareholder), that sole director can also be the sole member of the company.

  • Disqualification

Individuals who are disqualified from acting as directors, such as undischarged bankrupts or those convicted of certain offenses, are not eligible to hold directorship positions in companies.



Types of Directors, Director’s Duty and Appointment of Director


What types of Directors are there?

1. Executive Director

An Executive Director in a company is typically an employee who holds a senior management position and is responsible for the day-to-day operations and decision-making of the company. Within the category of Executive Directors, there may be various specific titles used, such as Managing Director, Executive Vice President, or Chief Operating Officer (COO). These titles can vary depending on the company's structure, industry norms, and individual company practices.


2. Non executive Director

A Non-Executive Director (NED) is a member of a company's board of directors who is not involved in the day-to-day operations of the company but carries a crucial role in providing impartial advice, corporate governance and compliance, industry knowledge, financial or legal expertise, prestige and professional networks that can be beneficial for the company’s growth and development.


3. Nominee Director

A Nominee Director is an individual who is appointed or nominated by a major stakeholder, such as a significant shareholder or a corporate entity, to serve as a director on their behalf. Their appointment is typically intended to represent the interests of the nominating party and ensure their views and objectives are represented on the board. Nominee Directors have the same legal obligations and responsibilities as regular directors under Company Act.


4. De Facto Director

A De Facto Director refers to an individual who assumes the role and responsibilities of a director, even though they may not have been formally appointed as one.

De Facto Directors are subject to the same legal obligations, responsibilities, and duties as formally appointed directors under the Companies Act or other applicable laws. This includes fiduciary duties, duty of care, duty to act in good faith, and duty to exercise independent judgment.

The legal status of a De Facto Director can be established based on their actions, role, and level of control or influence within the company.


5. Shadow Director

A Shadow Director refers to an individual who, without formal appointment or openly acting as a director, exercises significant influence or control over the appointed directors and the decision-making process of the company.

Shadow Director is subject to the same legal duties and obligations as formally appointed directors under the Companies Act or other relevant legislation.

The status of a Shadow Director is determined by their influence, control, and habitual instructions given to the appointed directors. Regulatory authorities and the courts will consider the substance of their involvement in the company's affairs to establish their status as a Shadow Director.




What are the Duties of Directors?


I. Statutory

The statutory obligations for directors include the following:

  • Duty of Honesty and Diligence

Directors are required to act honestly and exercise reasonable diligence in carrying out their responsibilities. This includes taking reasonable steps to monitor the management of the company, staying informed about the business operations, and making decisions that are in the best interests of the company. This duty is outlined in Section 157(1) of the Companies Act.

  • Prohibition of Improper Use of Information

Directors are prohibited from improperly using any information they obtain through their position to benefit themselves or any other person, while causing detriment to the company. This duty, specified in Section 157(2) of the Companies Act, ensures that directors act in the company's best interests and avoid conflicts of interest.

  • Compliance with Laws and Requirements

Directors are responsible for ensuring that the company complies with all relevant laws, regulations, the company's constitution, and other related provisions. This includes compliance with the Companies Act and other applicable legislation governing the company's operations and activities.


II. Common Law

Under common law, directors have additional duties and responsibilities that include:

  • Duty of Skill and Diligence

Directors are expected to exercise the degree of skill and diligence that would be reasonably expected of an ordinary person in similar circumstances. If a director has an employment contract with the company, they are generally expected to devote their full-time efforts to the affairs of the company. This may include attending board meetings and actively participating in the management of the company.

  • Duty of Loyalty and Avoidance of Conflict of Interest

Directors must act in good faith and in the best interests of the company as a whole. They should not use their powers for purposes other than what is conferred upon them by the company's constitution or in a manner that would result in a conflict of interest. Any conflicts of interest should be disclosed to the board of directors, and the director should abstain from participating in decisions where their personal interests may influence the outcome.


III. Fiduciary

Fiduciary duties are an important aspect of a director's responsibilities and arise from the position of trust they hold as directors.

  • Duty to Act in the Company's Interest

Directors must act in good faith and in the best interests of the company. They should make decisions and take actions that they reasonably believe are in the company's best interests, considering what a prudent and diligent director would do in similar circumstances.




How a Director is appointed?


1. Appointment of First Director

The appointment of the first director can be made through the first directors' resolutions or at the first board meeting. This is typically done to establish the initial board of directors for the newly incorporated company.


2. Subsequent Appointment of Additional Directors

The appointment of additional directors can be done in different ways:


a. Shareholders' general meeting

This typically involves a formal resolution passed by the shareholders, specifying the appointment of the new director(s).


b. Board of Directors' meeting

The existing board of directors has the authority to appoint additional directors. This can be done to fill a casual vacancy (e.g., when a director resigns or is unable to continue serving) or to appoint an additional director for specific reasons. The appointment by the board of directors is usually documented through directors' resolutions or minutes of a board meeting.


Documents required: Consent to Act (F45), Directors’ Resolutions/Minutes of Board of Directors’ Meeting


Filing with ACRA: within 14 days from the date of appointment, failing which, a late penalty applies


Additionally, the eRegister of Directors should be updated to reflect the changes in the directorship of the company.




Director's Resignation

When a director wishes to resign from their position, the following steps are typically followed:


1. Written Notice/resignation letter

The director should provide a written notice of resignation to the company (provided that he/she is not the sole director) or to the board of directors.


2. Effective Date

The resignation becomes effective as per the resignation date stated in the resignation letter. The director remains responsible for fulfilling their duties until the effective date of resignation.


3. Resolution

The board of directors may pass a resolution as a formal record to acknowledge and accept the resignation of the director.




Removal

The removal of a director from a private company typically involves the following steps:


1. Member's Approval

The removal of a director generally requires the approval of the company's members (shareholders obtained through a resolution passed at a general meeting of the company.


2. Resolution

A resolution is prepared and presented to the members at the general meeting, stating the intention to remove the director from office. The resolution may also include any relevant justifications or reasons for the removal.


3. Filing with ACRA

Once the resolution for the removal of the director is approved by the members, the company must file the necessary documents with ACRA within 14 days from the date of the director's removal. This includes notifying ACRA of the change in directorship and updating the eRegister of Directors to reflect the removal.


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