Risks Of Having Non-Local Directors In Singapore How Much Do You Know?

Potential Risks of Non-Local Directors in Singapore How Much Do You Know?

In the context of global economic integration, an increasing number of companies are choosing to establish themselves in Singapore to leverage its stable business environment, strategic geographical location, and mature financial system for international expansion. However, during the setup or operation of a company, businesses often face a practical challenge under Singapore’s Companies Act, every registered company must have at least one local director. For many startups or overseas investors, finding a suitable local director is not always easy, leading to the common practice of hiring a non-local director-often referred to as a nominee or placeholder director.

However, this practice comes with significant risks that should not be overlooked.

Definition and Current Situation of Non-Local Directors

The term non-local director does not merely refer to nationality, but rather describes individuals who are not actively involved in the company's operations and serve solely to meet legal requirements. These directors typically do not participate in daily management or exercise actual control over the business. Some professional service providers offer nominee director services to help foreign investors comply with Singapore’s legal requirements. This practice is especially common among small and medium-sized enterprises SMEs, particularly those from mainland China, India, and the Middle East.

According to data from the Accounting and Corporate Regulatory Authority ACRA as of the end of 2025, the number of registered companies in Singapore continues to grow steadily, with a significant portion established by foreign investors. This trend has further increased the demand for non-local director services.

Risk Analysis

Although hiring a non-local director may seem like a straightforward compliance solution, it involves multiple legal and operational risks.

1. Legal Liability Risks

Under Singapore law, directors are legally responsible for corporate actions, including the accuracy of financial reporting, compliance with regulations, and proper tax filings. Even if a nominee director is not involved in daily operations, they may still be held jointly liable in cases of misconduct such as false declarations, tax fraud, or labor law violations. In mid-2025, the Monetary Authority of Singapore MAS launched investigations into several companies suspected of money laundering, and some nominee directors were implicated as a result.

2. Corporate Governance Risks

Non-local directors often lack a deep understanding of the company's strategy, operations, and market dynamics. This can result in a lack of effective oversight and guidance in decision-making. During crises or major strategic decisions, the absence of knowledgeable directors can hinder progress. For example, in 2025, a tech startup registered in Singapore missed a critical investment opportunity due to a lack of industry expertise within its board during a funding negotiation.

3. Reputational and Relationship Risks

If a company faces regulatory scrutiny due to compliance issues, the presence of a nominee director may raise concerns among partners or investors. In cross-border collaborations, external parties typically prefer to work with companies that demonstrate operational capability and transparent governance. If a nominee director serves multiple companies simultaneously, their independence and professionalism may also be questioned.

4. Stricter Qualification Requirements

In recent years, Singapore has intensified its scrutiny of business registration and corporate governance. Both ACRA and MAS have strengthened checks on director qualifications, emphasizing the need for directors to possess sufficient capability to fulfill their roles. In early 2025, ACRA issued new guidelines explicitly stating that the use of nominee directors could affect a company's compliance rating and may lead to disqualification under certain circumstances.

How to Mitigate Risks?

To address these risks, companies should adopt a more cautious approach in selecting and managing local directors.

First, businesses should prioritize hiring professionals with relevant industry experience and management capabilities as local directors, rather than simply appointing nominees to meet legal requirements. This not only enhances corporate governance but also helps build stronger business credibility.

Second, companies can collaborate with professional corporate secretarial service providers to ensure compliance while receiving comprehensive governance support. These agencies often have extensive local resources and can recommend qualified director candidates while assisting with routine compliance matters.

Additionally, companies should regularly evaluate the performance of their directors to ensure they are fulfilling their roles effectively from both legal and strategic perspectives. For companies heavily reliant on non-local directors, developing a local management team over time can improve control and responsiveness.

Conclusion

Establishing a company in Singapore is a strategic decision, and the selection of local directors is a critical component of that process. While hiring non-local directors may appear convenient in the short term, the potential risks could have irreversible consequences for long-term development. In an increasingly regulated global environment, only by building a compliant, transparent, and efficient governance structure can companies truly thrive in Singapore’s dynamic business landscape.