Duties of Singapore Company Directors
A company cannot function on its own. It requires officers and directors to control and manage its affairs. Singapore Companies Act mandates that a company must appoint at least one director. Furthermore, one director of every company must be a local resident of Singapore. He or she should be at least 18 years of age and not disqualified by law to act as a director.
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The Company law vests the ultimate authority and power in the directors of the company. To provide checks and balances on this power, the common law and the Companies Act dictates certain statutory duties and fiduciary obligations for company directors.
The purpose of this article is to highlight the duties of a company director.
Note regarding Companies (Amendment) Act 2014In 2014, Singapore government passed the 2014 Amendment to the Companies Act and made several enhancements to the regulations that cover the formation and operation of companies in the country. The information covered in this article is up-to-date and refers to the relevant sections of the Companies (Amendment) Act 2014.
Statutory Duties of a Director
The directors must also fulfill their statutory duties as set forth by the Company Law. Also, they need to understand the procedural aspects of their compliance to ensure that no breach occurs. The duties are described below.
Keeping Accounting Records
Section 114 of the Companies (Amendment) Act 2014 states that every company shall keep accounting records which explain its financial position. These records should be kept in a place considered fit by the directors. The financial statements should at all times be easily accessible for inspection by the directors. Failure to comply with this section will render the company and the directors guilty of an offense.
This requirement can be met by setting up an efficient accounting and filing system. The system should record all the business transactions which will help avoid any discrepancies at a later stage.
Maintaining Annual Accounts
Section 116 of the Companies (Amendment) Act 2014 states that directors shall submit the financial statements of the company at its Annual General Meeting (AGM). These financial statements mut be presented to the shareholders every calendar year at the AGM. The first financial statements should be submitted within 18 months of incorporation at the AGM and no more than 15 months should pass between any two such meetings. The financial statements should be made up to the date:
- Not more than 4 months before the date of the meeting in the case of a public listed company
- Not more than 6 months before the date of the meeting in the case of any other company.
Holding of Meetings
The Companies Act lays down three important meetings to be held by a company as follows:
- Statutory Meeting: Section 174 of the Companies Act states that every public limited company having a share capital has to hold a general meeting called “statutory meeting” within no less than one month and no more than three months from the date of commencement of business. This is not a recurring meeting and instead is held only once.
- Annual General Meeting (AGM): Section 91 of the Companies (Amendment) Act 2014 lays down the requirement of holding an annual general meeting. The provision states that the meeting shall be held once in every calendar year and not more than fifteen months should pass between the annual general meeting of the preceding year. The first annual general meeting of a company shall be held within a period of eighteen months from the incorporation date.
- Extraordinary General Meeting (EGM): As per Section 92 of the Companies (Amendment) Act 2014, the directors, on request of the members who hold at minimum ten percent of the total paid-up shares and carry the right to vote at general meetings, should proceed to convene an EGM which is to be held no later than 2 months from the date of such request. In the case of a company not having a share capital, the request should be made by members who represent at least ten percent of the voting rights of the company. 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.
Appointment of a Company Secretary
Section 88 of the Companies (Amendment ) Act 2014 states that the secretary of the Company has to be appointed by the directors. The directors have to ensure that the secretary appointed has the requisite experience, qualification and industry membership before he or she is appointed. The office of the secretary shall not be kept vacant for more than a period of 6 months.
Appointment of Auditors
Section 125 of the Companies (Amendment) Act 2014 states that the directors of the company shall appoint either an accounting entity or entities as an auditor, within 3 months of the incorporation of the Company. The auditors appointed will hold office up to the conclusion of the first AGM of the Company.
NoteThis provision will not be applicable to dormant companies and small companies that are exempt from audit requirements.
Payment of Dividends
Section 403 of the Companies Act states that the dividend can be paid only out of the profits generated by the company. The directors of the company are entrusted with the responsibility of ensuring that this is the case.
Issue of shares
Section 161 of the Companies Act states that the directors of the company can issue shares only after approval is sought from the shareholders at the annual general meeting. Any shares issued in contravention of this section will be considered void.
Duty to disclose
Section 77 of the Companies (Amendment) Act 2014 states that every director of the company should disclose his interest in any transaction with the company. The interest in the transaction or proposed transaction should be disclosed at a meeting of the company directors. The section further states that a director joining a company shall disclose his or her affiliation (in the form of membership, officership or partnership) with any other corporation, firm or a limited liability partnership. This disclosure is made to the company, so that the company can assess the director’s potential conflict of interest in any transaction that may arise with the other corporation, firm or limited liability partnership at any future date.
The directors must also ensure that other disclosures are made to avoid any conflict of interest. Conflict of interest arises when the personal interests of a director conflict with the interests of the company. For example, a conflict of interest will arise if a director of the company is also a shareholder of a competitor company. The Singapore Institute of Directors (SID) through its Statement of Good Practice 5, categorizes the following as situations where conflict of interest may arise:
- Where directors have a material interest in the transaction of a company,
- Where directors possess property as well as hold positions in the company that gives rise into duties of a conflicting nature, and
- Where directors receive information due to their position and benefit from them.
If a director holds any office or property whereby any conflict of interest is created with his own duties and interests, the director should declare the nature and extent of the conflict at a meeting of the directors. A notice should also be sent to the company with respect to the conflict of interest. For example, if the company rents office space that is owned by one of the directors, the nature of the relationship must be declared.
The duty to avoid conflict of interests and ensure full disclosure is vested in the director.
Fiduciary Duties of a Director
Fiduciary duties of a director derive from the principle that a director must be loyal to his company, should act in its best interest, and should not have any conflict in loyalty. To fulfill the fiduciary duty, a director should always act in good faith to benefit the members of the company and engage in actions that are in the best interests of the company. A director must exercise his duties with utmost care and diligence. No undue advantage should accrue to any director in the course of carrying out his duties.
Understanding the concept of fiduciary relationship
A fiduciary relationship is a relationship that puts someone in a position of trust, confidence and responsibility while acting on behalf and in the best interest of another person or persons.
Examples of fiduciary relationships:
- Client and his lawyer.
- Customer and bank.
- Patient and Doctor.
- Director and shareholder.
Director as a Fiduciary
A director in that role has the duty to keep the interests of the company and its shareholders above any other interests, including his or her own personal interests. Imagine a director taking a decision in the board meeting which is beneficial to him on a personal basis but not to the company. This is strictly against common law principles. A statute cannot specifically outline each and every act that a director must or must not do. Therefore, the concept of fiduciary is used to encompass all such situations. Thus, a director must ensure to act in good faith and in a responsible manner since his position demands this behavior whether or not expressly mentioned by law.
The Accounting and Corporate Regulatory Authority of Singapore has outlined fiduciary duties that a director of a company must fulfill.
Every director must fulfill the following fiduciary duties:
- Act honestly and in good faith keeping the interests of the company in mind.
- Avoid any conflict of interest.
- Be diligent and perform duties with utmost care.
- Not take advantage of the powers vested in them or information that they are aware of.
Example: The director and chief executive officer of a company approved the financial statements without disclosing the liabilities of the company accurately. This act of the directors amounts to a breach of fiduciary duty. The directors did not act honestly and in good faith. Furthermore, they did not act with utmost care which their position in the company demands.
Fiduciary Duty – Case Law Analysis
A landmark judgment in the UK outlines the concept of fiduciary duty which is prevalent in Singapore’s company law and is also a common law principle that every director must observe.
Principal outlined in this case:
A director has a fiduciary duty to ensure that his or her personal interest in a company does not conflict with his or her duty towards the company.
Facts of the case:
Regal (Hastings) Ltd owned a cinema and formed a subsidiary company to take a lease of two more cinemas. However, the landlord was willing to grant the lease to the company only if the subsidiary’s paid-up capital was £5,000. Regal invested £2,000 in the subsidiary company and since Regal did not have the sufficient resources to invest further, the directors and one solicitor of the company decided to subscribe to the outstanding amount of £3,000. Subsequently, the entire business was taken over and each of the directors who had subscribed to the shares of the subsidiary company made a profit. Pursuant to the sale, Regal instituted an action against the former directors stating that they were accountable for the profit made on the sale of the shares held in the subsidiary as it amounts to a breach of their fiduciary duty.
The court held that the directors had the opportunity to purchase shares of the subsidiary company because of their position (as directors) of Regal and were accountable for the personal profit made by them. Additionally, the directors’ interests were in conflict with their duty towards the company which amounts to a breach of fiduciary duty.
Keeping the facts of this case in mind a director must ensure that even if a company is in a position where it does not have sufficient resources to take advantage of an opportunity, a director will not be excused if he diverts that specific opportunity to anyone else, including himself. The fact that the directors purchased the shares and made a profit amounts to a conflict of interest which is a breach of their fiduciary duty.
A director must not only ensure to fulfill the statutory duties outlined by law but also the fiduciary duty which his position as an officer of a company demands.
The list of duties of directors is very comprehensive. The directors should be familiar with their duties and responsibilities. For a company to run efficiently, its directors have to comply with all the statutory requirements as outlined by the law. Breach of duties can result in penalties and, in serious cases, criminal prosecution and civil action against directors. To ensure proper compliance with these duties, it is usually a good practice to engage the services of a reputable corporate services firm that can guide and assist the directors to execute their duties in accordance with the law.
TABLE OF CONTENTS
- Keeping Accounting Records
- Maintaining Annual Accounts
- Holding of Meetings
- Appointment of a Company Secretary
- Appointment of Auditors
- Payment of Dividends
- Issue of Shares
- Duty to Disclose