Who is a Nominee Director and Dangers of Becoming One

In the world of business, the term nominee is usually used to refer to the person whose name will be on the list of the directors, but in the real sense, the individual does not have real powers. Such people only implement the instructions that they have been assigned by the entities that nominated them. A nominee director is a non-executive director who is appointed by the shareholders of the company. The shareholders hope that the director will fully represent their interests during the board meetings.

A nominee director can sit on the board of both a public and private company. Under normal circumstance, investors or shareholders choose someone who will not only represent their interest but also be loyal to them. Even while representing the interests of the nominating shareholder, the director is also expected to act in good faith and stay within the legal framework of the company. While executing the duties, the director is also expected to exercise some level of independence especially in situations where there’s conflict of interest by the shareholder. We speak to a nominee director services provider Director Plus Singapore to find out more about the roles & responsibility of a nominee director.

Roles of a Nominee Director

Maybe you are about to be nominated to be a nominee director and you are wondering what your roles & responsibility will be. You will just be like any other company director and your roles will be equal to others. Your title won’t make you a weaker member of the board. Unlike the popular notion, a nominee director is not just an agent of the investor. You will be required to supervise and oversee all the affairs of the company. Failure by the director to stay within the company’s constitution will lead to some repercussions.

Dealing with Conflict of Interest

As a director, you will be expected to act just like any other company director especially in situations where there might arise the conflict of interest. You should be aware of such situations and know how to act in case you find yourself in them. For instance, if there is a conflict of interest between the nominating shareholder and the company, the director is required to disclose his or her interest on the matter. The disclosure should be made in writing and should be made public during the board meeting. The director is required by law to explain the nature of the interest and how it can affect the company. This information will be used in drafting the final judgment of the issue at hand.

The rules pertaining conflict of interests apply to both public and private companies. In some cases, incidences of conflict of interest may force all the directors to disqualify themselves from attending the board meetings. If the shareholder who nominated you has some special interest on the matter such as a contract, the board can decide to exclude you from participating in all the meetings concerning the contract. During such scenarios, you have no other option but to oblige with the rules at hand even if you are pressurized by the nominating shareholder.

Risks of Being a Nominee Director

As much as the title may be lucrative, there are some risks that come with it. Most of the risks of occur if the shareholder uses the director wrongly. The risks may not only affect the director can also have some impact on the nominating shareholder. Some of the major risks include:

  • Suffer from personal liability: As a director, your assets may be seized in case the company suffers from any loss.
  • Criminal liability: The director will be subjected to criminal prosecution if found engaging in any actions that are contrary to the company’s constitution.

How to Avoid the Risks

There are measures that both the director and shareholder can take to avert the risks of being a minimal director. If you are about to be nominated as a nominee director in a private company, you can sign a shareholder’s agreement with nominating shareholder. In this agreement, some powers of the director will be given back to the shareholder. Even though this move will be stripping you of some powers, the agreement will be protecting you from some liabilities. However, this agreement is only applicable in some jurisdictions. It is also prudent to do some background investigations on the interests of the shareholder before accepting the nomination. Check if they have any hidden agendas.