A Guide on Directors Duties in Hong Kong Under Company Law

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Regardless of whether you are setting up a private or public company, you will need to appoint a company director.

Read on to learn and understand the roles, responsibilities and directors duties in Hong Kong under the countries company laws.

Table of Contents

Who is a Director?

Did you know that one of the requirements in setting up a private Hong Kong company is to have at least one director?

Who is a Director

As an artificial legal entity, a private company in Hong Kong operates under the legislation, hence the requirement for company directors who will act by these laws. Note that the Companies Registry has a different requirement for companies limited by guarantee and public companies, as both must have at least two directors.

While there are no residency requirements in appointing a company director, the Companies Ordinance set up the following guidelines in choosing company directors in Hong Kong:

  • at least 18 years old
  • the director can be of any nationality and may not need to reside in Hong Kong
  • a company can have as many directors but must comply with the requirement of having at least one natural person.
  • directors are appointed by the shareholders

With their authority vested through legislation, company directors are expected to act and represent the best interest of the company. Read on to learn more about the duties and responsibilities of company directors in Hong Kong.

Directors Duties – Hong Kong Companies Registry

Act in good faith

How should company directors act in good faith?

The obligation to act honestly and properly suggests that company directors should act to advance the business’ best interests.  It requires directors to act with sincerity in monitoring the company’s business operation.  while ensuring that it operates in compliance with existing laws.

As agents of the company, company directors must act with genuine resolve for the betterment of the business, and without the intent to commit fraud. Note that a director often makes decisions for the company, and these decisions should be made based on the belief that these are for the benefit of the business as a whole.

According to the Companies Registry, Hong Kong company directors should concern themselves about the need to achieve results that are most equitable among the company members.

Use power vested on them for a proper purpose

A significant degree of power is conferred to directors, as this authority is necessary for them to make decisions for the company.  Moreover, the company director’s extent of authorization is defined either through shareholder’s resolution or the company’s articles.

Under the proper purpose duty, the company director must use this position to promote the best interest of the shareholders and the company as a whole.

For example, a violation of the company’s provisions precluding the director from using the company’s property for personal use means that the company director fails to adhere to the concept of proper purposes.

Delegate power only with proper authorization

Note that unless conferred by the shareholders or provided through the company’s articles of association, company directors must never delegate their powers.

Company directors in Hong Kong are also expected to use independent judgment in exercising their powers. While they can rely on the advice of other professionals who are experts in their field, company directors are not bound to conform to their advice, and instead, use independent judgment.

The terms associated with proper authorization are included in either the company’s articles or shareholder’s resolution to avoid confusion. The articles may include terms where a director may delegate minor functions to qualified members of the management.

Exercise care, skill, and due diligence

Company directors are required to exercise reasonable care in carrying out their duties and responsibilities. Here are things that a director can do to establish observance of due diligence:

  • get familiar with the company’s financial standing
  • ensure that company concerns are discussed during meetings
  • consult experts for advice when needed
  • determine from shareholders or management the existence of systems to monitor operations and financial variations

Overall, the due diligence factor requires a director to exercise independent judgment and diligence in overseeing the company affairs.

Avoid involvement with activities that reflect the conflict of interest

Trust is important and company directorship is no exception.

At all times, company directors should avoid getting themselves into situations where their interest conflicts with their duties to the company.

How much you can trust a company director can have a great impact on your start-up business. Therefore, the approval of shareholders and other boards of directors is necessary before a board of directors can engage in an interest.

Avoid transactions that favor the director’s interest at the expense of the company

As the company’s decision-maker, the director is expected to act ethically and should not engage in transactions that compromise his duty of loyalty.

To act ethically, a director or former director of a Hong Kong company is required to disclose a direct or indirect interest in a particular transaction.

The disclosure of direct or indirect interest is part of the director’s fiduciary duties, which may result in legal consequences when taken for granted.

Not abuse vested power

Appointed directors must never use the authority vested on them to gain a direct or indirect advantage to the detriment of the business.

Not use company property without proper authorization

In line with their duty not to abuse power, directors must not use the business properties, including any information and opportunities that became known to them on account of their role as a company director.

Note that the director may use the company’s property when the use and benefit were previously disclosed and consent was given during a general meeting.

Not pursue personal gain from third party transactions

In the performance of their duties, directors may face instances where they become the recipient of rewards as a result of the exercise of their power.

guidelines for Hong Kong company directors

The guidelines explicitly say that a company director in Hong Kong may need to turn down gifts given to them owing to their role as directors.

The director must decline unless the benefit is incidental to the directorship function, or the company specifically consented to it as specified in an ordinary resolution.

Act by the company’s law

A company director is bound by his duty to respect the company’s resolutions, memorandum, and articles of association.

Keep accounting records

Did you know that a company director could be held liable for failing to keep a proper record of accounts?

The Companies Registry provided that a company director has the responsibility to ensure that the accounting books are regularly updated and properly maintained. A company director is required to keep accounting records that:

  • present the correct company transactions
  • allow the business to comply create financial statements in compliance with the generally accepted accounting principles
  • facilitate efficient examination and proper auditing

important legal duties of a director

The three important legal duties of a director

Duty of care

The duty of care suggests that directors are expected to act in an honest, fair, reasonable, and informed manner. No company director is perfect and may commit mistakes in the process. However, this does not preclude them from abiding by their legal duty to be thoughtful and thorough in making decisions.

Duty of loyalty

The duty of loyalty is closely related to the concept of avoiding conflict of interest.

The Board of directors should use their authority in good faith, and for the best interest of the company, rather than use their power for personal advantage.

They should avoid any form of conflict of interest, provide full disclosure and seek approval of the board when deemed necessary.

Duty of obedience

Inherent in the legal responsibilities of a company director is the duty of obedience.

The director has to remain loyal and steadfast to the mission of the business and act in ways that are consistent with its goals. This includes ensuring that the company remains in compliance with existing laws and policies.

FAQs

What is the role of Directors in corporate governance practices?

Directors play an important role in looking after the company and its operating strategies.

That being so, directors are in the best position to perform their duties well when they are abreast of the laws and policies concerning their duties.

What are the roles of non-executive directors?

Both the executive and non-executive directors have a fiduciary duty to shareholders. However, a non-executive director does not normally engage in the company’s day-to-day operations.

The role of a non-executive director is rather supervisory and includes the provision of support for good governance rather than overseeing the day-to-day business operations.

Can a corporate become the director of a Hong Kong company?

Yes, any kind of corporate can become the director of the Hong Kong company, presuming there is already one human director in the company.

Is the director being required to stay in Hong Kong?

No, the director is not required to stay in Hong Kong.

Is the director’s remuneration subject to Hong Kong salary tax?

Yes, the director is liable to Hong Kong salary tax for his remuneration even though the director is not residing in Hong Kong.

Conclusion

This article provides a summary of the duties and responsibilities of a company director in Hong Kong.

Contact us if you have more questions with regards to the appointment of a company director for your company.


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