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A stroke, a fall, advancing dementia or a sudden illness can leave a company’s founder unable to make decisions overnight. If that person is the only director, the only bank signatory or the majority shareholder, the company can stall within days: payroll cannot be approved, invoices cannot be paid and nobody has clear authority to sign.
Singapore law deals with the person and the company separately. The Mental Capacity Act 2008 decides who may make decisions about the individual’s own property and affairs. The Companies Act 1967 and the company’s constitution decide who runs the company. The two only meet at one point: the individual’s shares. Understanding that link is what lets a family or a board keep the business running lawfully.
This article explains what happens to the directorship, the shares and the bank mandate when a director or shareholder loses mental capacity, and what the company should do about its records and ACRA filings.
Short answer
A director who lacks mental capacity cannot simply be replaced by a relative. Under the Model Constitution the office becomes vacant, and the shareholders must appoint a new director. If the affected person is also the shareholder, a donee under a registered lasting power of attorney, or a court-appointed deputy, can vote those shares to do so.
How Singapore law tests mental capacity
Under section 4 of the Mental Capacity Act 2008, a person lacks capacity in relation to a matter if, at the material time, they are unable to make a decision for themselves because of an impairment of, or a disturbance in the functioning of, the mind or brain. It does not matter whether the impairment is permanent or temporary. Section 5 explains that a person is unable to make a decision if they cannot understand the relevant information, retain it, use or weigh it, or communicate the decision.
Capacity is assessed decision by decision, and a person is presumed to have capacity unless the contrary is shown. In Re BKR [2015] SGCA 26, the Court of Appeal emphasised that the inquiry looks at the person’s actual circumstances, not a theoretical setting, and that an impairment which makes someone unable to weigh information because of outside influence can still amount to a lack of capacity. For a company, the practical point is that a director who is confused about some matters may still be able to make others, and a medical opinion addressed to the specific decision is usually needed before anyone acts on the basis that capacity has been lost.
What happens to the directorship
The statutory qualification
Section 145(2) of the Companies Act 1967 provides that no person other than a natural person who has attained the age of 18 years and who is otherwise of full legal capacity may be a director of a company. Section 145(1) also requires every company to have at least one director who is ordinarily resident in Singapore.
The constitution
Many private companies use the Model Constitution in the First Schedule to the Companies (Model Constitutions) Regulations 2015, or a constitution based on it. Regulation 76(f) of that Model Constitution provides that the office of director becomes vacant if the director becomes mentally disordered and incapable of managing himself or herself or his or her affairs, or becomes a person whose person or estate is liable to be dealt with in any way under the law relating to mental capacity. A bespoke constitution may use different wording, so the first document to read is the company’s own constitution.
No one can act as director “on behalf of” the director
A lasting power of attorney (LPA) or a deputyship gives authority over the individual’s own personal welfare or property and affairs. It does not make the donee or deputy a director of the company. A directorship is a personal office carrying fiduciary and statutory duties, and a new director has to be appointed in the ordinary way, with their own consent to act. A family member who starts signing company cheques or contracts without being appointed risks acting without authority, and the company’s counterparties and bank are unlikely to accept the signature.
What happens to the shares
Shares are property. They do not pass to anyone when the holder loses capacity; the person remains the registered member. The question is who may exercise the rights attached to them, such as voting, signing written resolutions and receiving dividends.
Regulation 60 of the Model Constitution provides that a member who is mentally disordered, or whose person or estate is liable to be dealt with under the law relating to mental capacity, may vote by a person who properly has the management of the member’s estate, and that person may vote by proxy or attorney. In practice, that is usually one of the following.
| Route | Source of authority | When it is available | Can it vote the shares? |
|---|---|---|---|
| Donee under a lasting power of attorney (property and affairs) | Sections 11 to 13, Mental Capacity Act 2008; LPA registered with the Office of the Public Guardian | Only if the person made and registered an LPA while they still had capacity, at age 21 or over | Yes, within the scope of the LPA and only where the person lacks capacity (s 13(1)) |
| Court-appointed deputy | Sections 20 and 24, Mental Capacity Act 2008 | Where there is no valid LPA, on application to the court | Yes, within the powers the court confers |
| Court order for a single decision | Section 20(2)(a), Mental Capacity Act 2008 | Where one specific decision is needed | The court makes the decision itself |
Limits on donees and deputies
A donee may only make decisions under the LPA where the donor lacks capacity, or the donee reasonably believes so (s 13(1)). Every decision must follow the principles in section 3 and the best interests test in section 6. Section 25 also restricts deputies: a deputy cannot be given powers to make gifts of the person’s property or execute a will for them, and cannot make a decision inconsistent with a valid decision of an LPA donee. Section 20(4) requires the court to keep a deputy’s powers as limited in scope and duration as is reasonably practicable. For a company, that means a deputy order should expressly cover dealing with the shares and voting them if that is what the family needs.
Three common scenarios
1. The incapacitated person was sole director and sole shareholder
This is the most urgent case. Nobody else can call a meeting or sign a resolution. If there is a registered LPA covering property and affairs, the donee can exercise the shareholder’s voting rights to appoint a new director, including a resident director to satisfy section 145(1). If there is no LPA, the family will usually need to apply for a deputyship with powers over the shares before the company can be restarted. Until then, the company may be unable to operate its bank account or meet filing deadlines.
2. Several directors, one of whom has lost capacity
If the remaining directors form a quorum, the board can continue. Where the Model Constitution applies, the affected director’s office becomes vacant, and the board should minute that fact on the basis of appropriate medical evidence, update the register of directors and notify ACRA. If removing the director is disputed, the members can also act under section 152 of the Companies Act; see our guide to removing a director from a Singapore private company.
3. A shareholder (not a director) has lost capacity
The company carries on as normal, but resolutions that need that member’s vote, or unanimous written resolutions, cannot be passed without the donee or deputy. Dividends remain payable to the member and should be paid into an account the donee or deputy controls on the member’s behalf. A shareholders’ agreement may contain a buy-sell clause triggered by incapacity; our article on key clauses in a shareholders’ agreement explains how these work.
Bank accounts, contracts and signatories
Banks act on the mandate the board has given them. When a sole signatory loses capacity, the bank will usually freeze outgoing payments once it is told, until the board passes a new resolution and the new signatories complete the bank’s checks. The company should not wait until salaries fall due. Our checklist on changing bank mandates when a director leaves covers the documents banks typically ask for.
Contracts signed by the director before capacity was lost remain binding on the company. Contracts the director purports to sign after losing capacity raise difficult questions about authority and validity, which is one reason to deal with the board position quickly.
Incapacity compared with death
Families sometimes assume the steps are the same as on death. They are not. On death, the shares pass to the legal personal representatives under regulation 28 of the Model Constitution and can be transmitted under regulation 29. On incapacity, the person is still the owner; nothing is transmitted, and the donee or deputy acts as the person’s agent. For the death scenario, see our article on the death of a sole director and shareholder.
What the company should do
- Board minutes. Record the director’s incapacity and the evidence relied on, any vacation of office under the constitution, the appointment of any new director, and changes to bank signatories. Keep the medical evidence confidentially with the minute book.
- Member resolutions. Where a donee or deputy votes on behalf of a member, keep a certified copy of the registered LPA or court order with the resolution, and record the capacity in which they signed.
- Registers. Update the register of directors and, if relevant, the register of registrable controllers. The person remains on the register of members unless the shares are actually transferred.
- ACRA filings. Under section 173A(1) of the Companies Act, the company must notify the Registrar within 14 days after any change in the appointment of a director. Lodge the cessation and the new appointment on Bizfile within that window.
- Accounts and annual return. Diarise the AGM (if one is required), financial statements and annual return deadlines. A new director must be in place to approve the accounts and sign the directors’ statement.
- Plan ahead. Encourage every key director and shareholder to make an LPA covering property and affairs while they are well. The forms and guidance are on the Office of the Public Guardian website. A second director, an alternate signatory and a buy-sell clause in the shareholders’ agreement all reduce the risk of the company freezing.
Frequently asked questions
Can my spouse take over as director because I made an LPA?
No. An LPA lets the donee manage your own property and affairs, which may include voting your shares. It does not appoint anyone as a director. If you are the shareholder, your donee could vote your shares to appoint a new director, who must consent and be qualified.
Does a director automatically stop being a director when they lose capacity?
It depends on the constitution. Under regulation 76(f) of the Model Constitution, the office becomes vacant once the stated conditions are met. Section 145(2) of the Companies Act also requires directors to be of full legal capacity. The board should still document the position and file the change with ACRA.
What if there is no LPA?
A family member or other suitable person can apply to the court to be appointed as a deputy under section 20 of the Mental Capacity Act 2008. The court will decide what powers to give, and those powers should cover the shares if the company needs the shareholder’s vote.
Can the company still pay dividends to a shareholder who lacks capacity?
Yes. The shareholder still owns the shares and is entitled to dividends declared on them. Payment should be made in a way the donee or deputy can account for. Any dividend must still be paid out of profits; see our companion article on unlawful dividends.
Is temporary incapacity treated differently?
The Mental Capacity Act applies whether the impairment is permanent or temporary (s 4(2)). Whether a director’s office is vacated depends on the constitution’s wording. Where recovery is expected, boards often appoint an additional director to keep the company running rather than take irreversible steps.
Need a lawyer?
This article is general information about Singapore law for companies, directors and shareholders. It is not legal advice, and it does not take account of your circumstances. Raffles Corporate Services Pte Ltd is a corporate service provider, not a law practice, and does not give legal advice.
If a director or shareholder of your company has lost mental capacity and you need to restore control of the company, we can introduce you to an experienced Singapore law firm that handles deputyship applications, lasting power of attorney issues and related company matters. Tell us briefly what has happened and we will connect you.
Email: [email protected]
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We can also take care of the corporate side for you: board and shareholder resolutions, register updates and ACRA filings.
Conclusion
When a director or shareholder loses mental capacity, the company does not pass to the family, and nobody can sign as director simply because they hold an LPA. The board, the constitution and the Mental Capacity Act each play a part, and the shares are the bridge between them. Companies that have a second director, signed LPAs and a clear shareholders’ agreement can usually keep trading without interruption; those that do not may have to wait for a court order. If you need help with the resolutions, registers or Bizfile filings that follow, speak to Raffles Corporate Services.
The Editorial Team, Raffles Corporate Services