As a director in Hong Kong, it is important to be aware of your key duties and responsibilities to ensure that your company is run effectively and following the law.
In this article, we will look at various types of directors, their duties, and the eligibility requirements for being a director in Hong Kong companies.
Importance of director’s duties in Hong Kong
The director is undoubtedly one of the most important positions in an organization.
Simply put, directors are the ones responsible for ensuring that a company is run lawfully and efficiently. They make sure that all legal and regulatory requirements are met, and that the company’s finances are in order.
Furthermore, the company director is responsible for protecting the company’s interests and preparing and overseeing the company. Not to mention they must act in the company’s best interests at all times.
In Hong Kong, there are some specific duties that directors must uphold.
- Protect the company’s interest, including all of the company’s shareholders
- Properly exercise powers in controlling the Hong Kong company (as prescribed in the entity’s articles of association) and following the company’s purposes
- Exercise reasonable care, skill, and diligence when performing directorial duties, ensuring that the company is operating legally and ethically and that all financial records are accurate
- Properly use the organizational information and other assets of the company
- Responsible for the constitution and resolutions, filing regular financial reports and other required documents
Types of company directors
Several types of company directors in Hong Kong that you should understand are as followed:
- Executive Director: directors who make decisions on day-to-day business activities
- Non-Executive Director: industry experts who are not involved in daily operations, but provide an objective professional perspective in the decision-making process.
- Managing Director (or CEO): the other directors can appoint the managing director (MD) of the company who looks after the company in the absence of other directors.
- De Facto Director: not officially appointed as a director but act as one in the place of other directors, with the same responsibilities and obligations.
- Shadow Director: they do not have any official title but the board of directors is accustomed to acting by their instructions.
- Reserve Director: Typically seen in companies with a single shareholder and a sole director. In case the sole director is absent or dead, the reserve director can take decisions on behalf of that sole director.
What are nominee directors?
Many directors conceal their identity for numerous reasons and hire another person to act in their role. This employed person is recognized as a nominee director.
Despite carrying the administrative responsibilities as a regular director, the nominee director is strictly non-executive and must consult for approval before making decisions.
More on the benefits and how to pick the right nominee director for your Hong Kong Company.
Further responsibilities of a company director in Hong Kong
The duties and responsibilities of Hong Kong’s company directors are vital to the company itself and its shareholders.
Directors must act honestly and in good faith with a view to the best interests of the company. They must also maintain good relationships with shareholders, employees, and creditors.
Furthermore, directors must avoid conflicts of interest, and must not make improper use of their position. This means making decisions that benefit the company, not themselves or others.
Additionally, he/ she must well manage the relationship between the director’s personal gains and the organizational interests, by not joining into transactions related to the company’s interest unless complying with laws.
Directors have a responsibility to keep proper accounting records and prepare director reports, based on which the shareholders and other interested parties will be able to make informed decisions about the company.
Directors must ensure that all financial records are accurate and up-to-date and that any relevant information is included in the director’s reports.
Requirements for being a Hong Kong company director
A few specific requirements should be noted to become a director in a Hong Kong company. A business entity in Hong Kong that is registered as a company must appoint a director.
This director is responsible for the management of the company and must act per the company’s constitution. If the director fails to perform their duties, they may be held liable by the courts.
For foreign investors, Hong Kong companies limited by shares and by guarantee are often widely selected to incorporate thanks to their distinct characteristics.
There is no maximum number of directors restricted in a Hong Kong company. You must appoint a least 1 director for a company limited by shares, while the company limited by guarantee must have two directors. Your directors:
- Can be any natural person who is over the age of 18 and has not been declared bankrupt or disqualified from being a director
- Can be of any nationality, either Hong Kong citizens or foreigners
- Must be of good character and have a clean criminal record
- Must also be competent and qualified to perform their directorial duties, meaning having the necessary skills and experience to understand and manage the company’s operations
Hong Kong law regulates the public release of information about directors just like that of company secretaries in Hong Kong companies.
How to remove a company director in Hong Kong
As a company director in Hong Kong, you have certain statutory duties to fulfill. If you fail to meet your duties or are unable to continue performing your role, you may be removed from your position.
Grounds on which a director can be removed from their post
- Failure to comply with their duties as director
- Being unable to discharge their duties due to illness or incapacity
- Resigning from their position
- Being convicted of an offense involving dishonesty
Basic removal procedures
If the director of a company is removed from their position, they will no longer be able to act as director of that company. The process for removing a director from their position is relatively straightforward.
Shareholders may pass an ordinary resolution at the general meeting of the company to remove the director, according to Cap. 622 Companies Ordinance.
So what is the takeaway from all of this? Simply put, directors in Hong Kong have a lot of important duties and responsibilities to uphold.
This is why it’s so important for them to be well-informed about the law and how it applies to their company. By ensuring that they are fulfilling their obligations, directors can help protect their business and its shareholders.
Don’t hesitate to contact our support team via the chatbox or email your concern through email@example.com. We are happy to offer our assistance.
Frequently Asked Questions
How does the board operate in practice in Hong Kong?
A director shall call for a board meeting by issuing a notice for a directors’ meeting to each director. A meeting of a Hong Kong company can be through phone calls or video conferencing. Minutes for the directors’ meeting must be prepared and kept for at least ten years.
A majority of votes is required for a resolution to pass, and the chairperson gets a casting vote in the case of equality. Once all eligible directors agree on a matter, the Board can pass a resolution by way of a written directors’ resolution.
Do the Hong Kong director’s duties get adjusted if the company is struggling financially?
The answer is yes. The greater the company’s financial difficulties are, the more the directors should pay attention to the interests of creditors. Consider the interests of creditors as a whole, not just a particular creditor or class of creditors.
In the event of an insolvent liquidation or administration, creditors’ interests become paramount as shareholders lose any valuable stake in the firm.
It is essential for Hong Kong directors to prevent the company from incurring further debt while knowing there is no reasonable prospect of avoiding insolvency to minimize the amount of liability for wrongful trading.
What liabilities will a Hong Kong director possibly incur?
Directors are not safe from personal liabilities in Hong Kong. They can be found liable to compensate the company for the financial loss suffered as a result of directors’ breach of duties.
Moreover, they are personally responsible for any debts and obligations of a dormant company if they know or ought to know that the company has entered into certain transactions.
The liquidator or creditor of a failing company can also claim directors for misfeasance, wrongful trading, or undervalued transactions when the company is in financial difficulty.
Can Hong Kong directors limit their liability?
As per the provisions of the relevant statutes and the articles of association of the company, directors are entitled to be indemnified from corporate assets against all losses and liabilities incurred or sustained in defending any suit.
A Hong Kong company may also indemnify its directors from possible liabilities and costs arising from claims that may be made against them with directors’ liability insurance.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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