Responsibilities of a Director
What are the duties of a Company Director?
A Director of a company gives it direction, and manages the business and financial operations of the Company. The Director is responsible for ensuring that business operations are carried out accordance to the law.
Under the Companies Act, listed below are the main responsibilities of a Director:
Keep accounting records and taking care of any necessary statutory papers
✓ The system should record all the business transactions which can dispel discrepancies should the need arise. (Ref: Section 114)
Maintain annual accounts
✓ Submit the Company’s financial statements at the Annual General Meeting (AGM)
✓ The first financial statements should be submitted within 18 months of incorporation at the AGM. READ: How to incorporate a company in Singapore
Organize necessary meetings
✓ Annual General Meeting (AGM): To be held once a year and no more than 15 months should pass between any two such meetings. The first AGM can be held within a period of eighteen months from the incorporation date. (Ref: Section 91)
What is usually done at the AGM? Examples include:
Dividend declaration
Retirement and appointment of directors
Appointment of auditors and
Approval to issue shares
Public Companies: Legal requirement to conduct an AGM annually
Private Companies: Either conduct an AGM or agree to a dispensation of the AGM by a resolution
✓ Statutory Meeting: Private Limited Companies are not required to hold this meeting.
A Public Limited Company having a share capital has to hold a statutory meeting (one-time meeting and non-recurring) within no less than 1 month and no more than 3 months from the date of commencement of business. The Directors of the Company will send a report (the “statutory report”) which consists of company details to all its members and Registrar 7 days prior to the meeting date. (Ref: Section 174)
✓ Extraordinary General Meeting (EGM): Usually reserved for urgent business matters that requires immediate attention.
On request of the members who hold minimum 10% of the shares and carry the right to vote at general meetings, can request from the Directors for an EGM. If the Directors do not proceed to convene the meeting within a period of 21 days from the receipt of the request, the members can themselves convene the meeting. (Ref: Section 92)
Appointment of a Company Secretary
✓ The Company Secretary is responsible for ensuring that the company complies with the relevant legislations and regulations. The Secretary also keeps the Board Members informed of their legal responsibilities towards the company. The secretary must be a resident of Singapore and the position cannot be held vacant for more than 6 months. A Company cannot appoint a Director as a Company Secretary if he or she is the sole Director of the organization. (Ref: Section 88)
Appointment of Auditors
✓ Not applicable to small companies. An auditor must be appointed within 3 months of incorporation. The auditors appointed will hold office up to the conclusion of the first AGM of the Company. (Ref: Section 125)
Declaration of Dividends
✓ A Director must ensure that dividends are paid only out of the profits generated by the Company. (Ref: Section 403)
Issuance of Shares
✓ Shares may be issued after gaining approval from the shareholders at the AGM. (Ref: Section 161)
Duty to Disclose
✓ A Director must disclose any interests in any transaction with the company or any affiliation with any other companies to assess the Director’s potential conflict of interest. (Ref: Section 77)
In addition, the Director has fiduciary duties that stem from the principle that a Director must be loyal to his company, avoid any conflict of interest, keep the interests of the company and its shareholders above any other interests, including his or her own personal interests and perform his duties diligently with care.
What happens if a company doesn’t comply?
A Company will be in default if it does not comply with the relevant provisions of the Company Law in Singapore. For instance, a company will be in default if it does not conduct the AGM in a timely manner as the law prescribes. Such offenses can result in the company and its officers being held guilty on conviction and it can also attract a fine and default penalties.
It is the duty of the Director to ensure that proper records are maintained and business is conducted in accordance to the law.
Here are some examples of actual scenarios where the Director was charged for failing to exercise reasonable diligence as a director.
“I didn’t know…” doesn’t count.
EXAMPLE 1:
Channel News Asia article on a company Director that faced two counts of offences under the Companies Act, for allegedly failing to exercise reasonable diligence in her duties as director. She allegedly incorporated two firms after being instructed to do so by an unidentified person. This person is thought to have accessed the companies' bank accounts to launder crime proceeds.
Verdict: For failing to exercise reasonable diligence in the discharge of her duties, she may be jailed up to a year, or fined up to S$5,000.
EXAMPLE 2:
Business Times article of a man was charged for failing to exercise reasonable diligence in the discharge of his duties as a director of a company. He was appointed as a Director of the company but was not involved in any aspect of its management and affairs. He did not monitor the transactions in the bank accounts and the company received about US$33.5 million of fraud proceeds.
Verdict: He was sentenced to 4 weeks in jail and disqualified from being a company director for 5 years.
EXAMPLE 3:
Singapore Police article of a woman failing to use reasonable diligence, funneling illegal funds though a shell company. Investigations revealed that a man purportedly introduced the woman to incorporate a company as its sole director and sole shareholder. In return, the woman would be paid SGD 400 every month for being the nominee director. The Company’s principal activity was wholesale trade of a variety of goods without a dominant product. Funds totalling SGD 35,100 that were derived from a tech support scam case were transferred into one of the company’s bank accounts.
Learning Point: Individuals should not be a Director of a company when they have limited or no oversight or control, as the company may be used for illegal purposes such as the laundering of criminal proceeds.
Forgery and cheating is a serious offence.
EXAMPLE 4:
Straits Times article on a Company Director charged with money laundering, cheating and forgery for allowing her company's bank account to receive criminal proceeds. The Director allegedly forged three invoices for the purpose of cheating Maybank by hiding the source and purpose of the funds. In addition, she alleged to have also cheated an employee of a corporate service provider into making lodgements with ACRA. The lodgements were in relation to the transfer of shares of two companies and involved having the company directorships transferred to an individual who had not consented.
Verdict: For each charge of forgery, she may be jailed for up to 10 years and fined. For each charge of cheating, she may be jailed for up to three years and fined.
Evading taxes and altering profit figures will eventually come to light.
EXAMPLE 5:
Today Online article about a Director who avoided paying about S$172,000 in income tax as well as Goods and Services Tax (GST) by hiding cash sales from the firm’s accountant. He used the money for a down-payment on a condominium apartment and bought a vehicle. He also recorded the cash sales in a separate folder in its accounting software and deliberately did not allow the firm’s accountant to access it. In addition, he also altered profit figures to refinance loans.
Verdict: He was jailed for nine months and has to pay a penalty of about S$253,000.
Reach out to our dedicated team to understand more on how we can help you to incorporate your company and guide you as you set up your company.
Image credit: Photo by EKATERINA BOLOVTSOVA