Companies in Hong Kong are required to have at least one director who is a natural person of any nationality (and not simply a corporation) to oversee the operation and take responsibility for the company’s affairs.
You may find it common that many directors choose to conceal their identity for various reasons and hire another person to act their role, which is called a nominee director.
In this article, let’s explore the reason for having a nominee director, what they do, how they are appointed, and what you should be aware of during the process.
1. Why appoint a nominee director in Hong Kong?
Before going into detail about the role of nominee directors and what they do, you need to know the reason behind this common practice.
There are 2 key reasons why business owners choose to appoint a nominee director – confidentiality and tax advantages.
In certain cases, you may not want to disclose your involvement in the company, with the purpose to protect yourself from any potential legal issues or harassment, or you simply do not wish to make known publicly your interests, investments, or direct relationships with a company.
Nominee directors provide a high degree of confidentiality that helps you remain anonymous from the public gaze while meeting your statutory compliance.
- Tax advantages
If you’re a foreigner wanting to set up a company in Hong Kong, you’ll likely be worried about losing a chunk of your income due to taxation. Although the tax rates in Hong Kong are not as high as in other countries, you still want to avoid paying extra taxes.
Having someone else as a director will reduce the tax burden for you so that you can get more income from the company.
Nominee directors may sound beneficial to your business, but there are potential drawbacks to that, including business disruption and bank account opening.
- Business disruption
Despite acting the role on your behalf, most nominees directors don’t want to be involved in unwanted risk or face serious consequences regarding the company’s affairs.
As such, the nominee may express unwillingness to perform necessary tasks if they sense some risky or speculative ventures leaving them vulnerable, this can disrupt the business process, create inconvenience for both parties, and even cause you loss.
At the end of the day, this problem can be mitigated by an effective agreement between you and your nominee director, you should also make sure that the agent is willing to sign all the essential documentation before you hire them.
- Bank account opening with nominee structure
Several banks may refuse or make it difficult to open bank accounts if you appoint a nominee director, due to high compliance costs and risks. The anonymous nature of the nominee director, despite being legitimate, may raise suspicion for banks as they fear the business owners employ this practice for tax evasion or money laundering purpose.
When making the decision of whether to appoint a nominee director, you should carefully consider these advantages and drawbacks and make an informed decision based on their specific needs.
Apart from having at least one director, you’ll also need to appoint a Company Secretary in Hong Kong. Curious what this role is about? Check out our article for more detail.
2. What are the basics of nominee directors in Hong Kong?
Generally, a nominee director refers to a natural person(i.e., an individual) who takes the directive role to protect the identity of the real company’s director.
A nominee director is unequal to a regular director, even though they have the same responsibilities. In most cases, the nominee does not have executive authority and will need to consult for approval before making decisions.
Despite being strictly non-executive, they can still oversee the company, undertake agreements, and ensure that the company is operating within the law.
Who can be the nominee director?
In legal terms, a nominee director must be a citizen or permanent resident of Hong Kong or have an Entrepass work visa.
Being chosen as the representative of the business, a nominee director must be someone who has the experience, responsibility, and professionalism. They have to do what is best for the company, assisting it in achieving its goals.
How to appoint a nominee director?
You can appoint your company’s nominee director in a number of ways. The most common is for the shareholders to appoint them in the company’s constitution. The nominee can also be appointed by a resolution of the shareholders or by an order of the court.
What are some of the key points to consider when appointing a nominee director?
There are a few key things to consider when appointing a nominee director:
- The nominee director should be trustworthy and reliable
- They should have the relevant experience and knowledge to act as a director of the company
- They should be willing to take on the liabilities of the company
- There should be a written agreement between the shareholders and the nominee director setting out their roles and responsibilities
Businesses who are considering appointing a nominee director should take these points into account to ensure that they are making the best decision for their company.
3. What are the responsibilities of nominee directors in Hong Kong
A nominee director does not have any power to make decisions, their role is purely administrative, and their main function is to ensure that the company complies with all relevant regulations and to take any necessary actions in the event of a legal dispute.
In Hong Kong, nominee directors are commonly used in private companies and family businesses. They play an important role in ensuring that the company is run efficiently and in accordance with the law, and can provide peace of mind to shareholders who may not have the time or knowledge to perform these duties themselves.
Nominee directors must comply with a number of legal requirements, such as filing annual returns and company accounts and must also maintain adequate records of the company’s activities.
They may be held liable for any breaches of the law that occur in the course of their employment, so it is important that they take all necessary precautions to protect the company’s interests.
Despite their important role, nominee directors are often overlooked and under-valued. They play a crucial role in maintaining the good governance of companies and should be given the respect they deserve.
Although the nominee director can provide support in certain areas, you should still be aware of annual compliance requirements in Hong Kong. Our article cover anything you need to know, check it out now!
When it comes to appointing a nominee director for your Hong Kong company, it is important to be aware of the benefits and drawbacks of this decision.
Appointing a nominee director can provide you with some added protection against public exposure and scrutiny from the authorities. Yet, you may find it difficult to open a business bank account under the nominee structure.
Before making a decision, it is important to consider these factors and consult with an experienced corporate service provider. If you decide that a nominee director is a right choice for your business, then it is important to choose someone with the right skills and experience.
At BBCIncorp, our team of experienced consultants can help you find the right nominee director for your Hong Kong company and advise you on the best way to protect your interests. Feel free to drop us a message via firstname.lastname@example.org.