Directorship – Boon or Bane?
It is quite common that most of the SME owners are directors and not just a business owners eg shareholders. At times, friends and business associates may also send invite for you to come onboard as a director, tapping your expertise or network to help grow their businesses.
Before you gladly accede to being a director for a company, it may be wise to understand what exactly is a director, its responsibilities and are there any things that you may want to watch out for.
A director is an officer of the company and under the Company Act (CA), all the statutory obligations relating to the Company including the secretarial responsibilities of annual filing, holding AGM etc, and the financial responsibilities of ensuring a true and fair financials falls on the shoulders of the directors, or collectively the board of directors. A director is a fiduciary of the company and is expected to exercise due care and diligence in a fit and proper manner as well as not to act in his personal interests. In fact, a director is the most powerful person in a company for the day-to-day running of the company with the powers being conferred under the CA s157 limited only by those that specifically stated to be decided by the members under the Act (matters relating to liquidation, strike-off, major disposal of property, change in constitution etc) or by the company’s constitution. There is no difference whether you are a sleeping, dormant, executive, non-executive or active director. They all carry the same responsibility.
As the saying goes, power comes with responsibility. Recently, ACRA has been stepping up on enforcing the directors’ responsibilities relating to annual return filing or holding of AGM and on financial statement integrity and accuracy or any false or misleading declaration in submission. ACRA has prosecuted 13 directors for multiple breaches of failing to hold AGM and file AR in 2018 and 2019 with fines ranging from $7,500 to $113,400 with disqualification. It is therefore important that one consider the company compliance culture before taking up a directorship in that company. The reputational impact on a director personal name due to non-compliance is significant and in cases of debarment or disqualification, it further restricts any new appointment or worse, the dire consequences of resigning from all directorship in the former.