While nominee directors are highly beneficial for the setting up and operations of a company, hiring them isn’t without any risks. We talked with a leading nominee director services provider, Chai Chung Hoong to understand the risks of hiring nominee director services and how you can control them.
What are Nominee Director Services?
Nominee director services outsource nominee directors to other companies. They are generally accounting firms, as people mostly trust registered Public Accountants to stand in as the nominee director for their companies.
The Risks of Hiring Nominee Director Services in Singapore
As per Chai Chung Hoong, these are the risks of hiring nominee director services:
Legal Loopholes
There can be loopholes even if there are legal arrangements to safeguard the company and its owners from the nominee director’s actions. At the same time, reliability is an essential factor; you need to be able to inherently trust that the service provider’s activities doesn’t harm you in any way.
Lingering Problems from Bad Actions
Sometimes even legal actions may not be able to solve all the problems that could take part due to ill-intended decisions taken by the nominee director.
For example, say that you can take legal action for something that was done incorrectly, but that incorrect decision may have changed how your customers view you. Worst, you may have lost a huge client base, or your brand identity may have been put in danger.
Bad Customer Service
Chai Chung Hoong shares that most of his clients contact him because they have had bad customer experiences with their lat service provider. Some examples include:
- Higher and hidden payments.
- A bad relationship between the nominee director and stakeholders.
- Nominee director not being able to carry basic jobs of a director.
- Nominee director not picking up the phone or email.
- Nominee director taking autonomous action to benefit themselves.
There is one hidden yet, not talked about a lot risk.
Say that the nominee director passes away or becomes medically unable to carry on their tasks. The responsibility now falls on their kin or children to give back the shares they may have. They could always refuse to do so.
Risks to the Nominee Director Service Provider
Risks and responsibilities are two-way streets, shares Chai Chung Hoong. According to him, nominee director service providers also have some risks.
Say you hire a nominee director, and some company member does something illegal. In this case, the director may be held liable, including even the nominee director.
The Companies Act sees everyone from the board of directors as equals and doesn’t differentiate between nominee director and actual director. Hence, you can expect your nominee director service to be overly conscious of your business activities, and they will want out as soon as they see a red flag.
Mitigating the Risks
There is only one way to minimise the risks. That is, to select the right nominee director services provider.
Chai Chung Hoong recommends doing your due diligence before hiring a company. You will need to look at their track records and make sure that you can trust them. Also, you will need to be very careful regarding the work contract. See for satisfiable terms in case the work doesn’t go as you may have planned.