De Facto Or De Jure Company Director: What’s The Difference?
A company needs directors to make decisions and act on its behalf. These directors are usually responsible for making sure that the company is compliant with the legal rules governing enterprises. As such, they manage and supervise the company’s business activities. Now, a company can have various kinds of directors, two of which are de facto and de jure.
The distinction between de facto directors and de jure directors is actually legal in nature. If you are not quite familiar with these terms, this article might interest you! Below, we discuss the fundamental differences between de facto and de jure directors.
What is a de facto director?
A de facto director is a director that has not been appointed properly or legally as a director. Nonetheless, in reality, this director does things only company directors are authorised to do, such as signing contracts, making decisions on behalf of the company, and making themselves out to be a director or representing themselves as a director to third parties.
The term de facto literally means ‘in fact’ or ‘in practice’. Hence, a de facto director is a director in practice. Whether or not an individual act as a de facto director depends on their actions. However, in general, they are required to be objectively seen as acting in a senior role involved in decision-making instead of being a mere member of the management.
During their time in the position, a de facto director must owe the company the same general duties as a de jure director.
What is a de jure director?
The term ‘de jure’ literally translates to ‘by law’ or ‘by right’. Therefore, in contrast to a de facto director, a de jure director is an individual who is legally entitled to be a company director because they have been formally appointed as a director either by law or in accordance with the company’s Articles of Association.
There are various ways for a de jure director to be validly appointed. They can be appointed by the members of the company, by its board of directors, and in some instances, they can even be appointed by a court order. For as long as an individual is at least 18 years old, possesses the qualifications of a company director required by the law, and has consented to act as the company director, they can be a de jure director.
Are nominee directors de facto or de jure directors?
Nominee directors are de jure directors because they have been formally appointed to represent a specific interest, stakeholder, or party other than the company. For instance, if you are establishing a company joint venture, the shareholders of the said venture will each appoint nominee directors for their representation on the board. The appointment of a nominee director is a helpful way to monitor the joint venture’s strategic management effectively.
Despite being appointed by an individual shareholder, a nominee director nonetheless owes the general duties of a director to the company to which it is appointed. As such, they must keep in mind the significance of independence from their sponsor, especially in making decisions for the company. The typical nominee director fee in Singapore ranges between $1,800 to $3,000.
Overall, the main difference between a de facto and a de jure director lies in the nature or formality of their appointment. While a de facto director has not been properly appointed as a director but nonetheless performs acts only directors are allowed to do, a de jure director is given a formal appointment to act as a director of the company. Determining whether one is a de facto or a de jure director is crucial because transacting with them has varying legal implications.
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