We’ve received many requests for nominee services hence we wrote the article Nominee Services: How Does It Work and How Much Protection Does It Actually Provide? As we have received these requests, however, it has become evident that many are unaware of what is involved when one is appointed a director or shareholder. So, what are the actual responsibilities and obligations of directors and shareholders in Hong Kong? Read on to find out.
A Hong Kong private limited company can have individual or corporate body directors, but as mentioned many times on our blog it must have at least one individual director. An individual director can be either an HK resident or a foreigner and must be over the age of 18.
Directors have the responsibility of ensuring that the company is complying with legal obligations at all times. As such they should always know what is happening with the company and sometimes they will take on a supervisory and managerial role and are typically known as executive directors versus non-executive directors who have no managerial responsibilities. Although the extent to which directors will be involved in daily business operations will usually depend on the company size. In some cases, directors may receive compensation from the company for acting as a director in the form of director’s fees.
According to the Hong Kong Companies Registry, Directors have the duty:
- To act in good faith for the benefit of the company as a whole.
- To use powers for a proper purpose for the benefit of members as a whole.
- Not to delegate powers except with proper authorization and duty to exercise independent judgment.
- To exercise care, skill and diligence.
- To avoid conflicts between personal interest and interests of the company.
- Not to enter into transactions in which the directors have an interest, except in compliance with the requirements of the law.
- Not to gain advantage from the use of position as “director.”
- Not to make unauthorized use of company’s property or information.
- Not to accept personal benefit from third parties.
- To observe the company’s Articles of Association.
- To keep proper books of account.
Directors who fail to perform their duties in accordance with the Companies Registry’s standards may be subject to legal proceedings and/or may be disqualified from acting as a director. Not to mention individual directors will be held personally liable and can be sued if they sign off on matters that may be considered illegal. Meanwhile, director’s civil liabilities (but not criminal liabilities) can be covered by director’s liability insurance, but the cost is likely to be high.
A Hong Kong private limited company must have at least one shareholder who can either be an individual or a body corporate. And again, an individual shareholder can be either an HK resident or foreigner and must be above the age of 18.
Shareholders have a financial stake in the company as they own shares, which effectively means they own a part of the company. While their liability is normally limited to the amount of capital they own. If the company is successful, shareholders will receive a return on their investment in accordance with the number of shares they own i.e. dividends. They can make changes to the Articles of the company and can stop any changes being made to the company’s capital, but unlike directors, shareholders will not usually be involved in the running of the company.
- Shareholders have the right to:
- Vote for matters related to the running of the business;
- Receive dividends;
- Receive a portion of the proceeds should the company close down;
- Be kept informed of the goings on of the company;
- Suggest shareholder resolutions; and
- Appoint directors.
Everyone Should Know What Is Involved
Considering the scope of responsibility of both the directors and shareholders of a company, it is important for all parties to understand the role and responsibilities they are taking on.
Don’t mix up the roles of directors and shareholders. In short, shareholders are the owners of the company; they choose directors to represent them and defend their best interests within the board. The board of directors will then select an executive manager to manage the company on a daily basis, and once in a while, they will meet to approve or disapprove the management. Of course, this is more applicable to larger companies, whereas, for small ventures, the executive manager, the director, and the shareholder can all be the same person but with different levels of responsibility.
Meanwhile, it is important to consider that the details and names of directors and shareholders are public information and can be easily accessed via the Companies Registry. But if you decide to appoint someone else as a director or shareholder, such as in the case of nominee directors and shareholders, again considering the scope of their responsibility think twice the before you proceed.
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