Understanding Directors’ and Shareholders’ Responsibilities in Hong Kong

Directors: Responsibilities and Liabilities

A Hong Kong private limited company must have at least one individual director who is over 18 years old. This person can be either a Hong Kong resident or a foreigner.

Directors are responsible for ensuring the company complies with all legal obligations. Depending on the company’s size and structure, they may take on supervisory roles or handle daily management tasks. Executive directors manage operations, while non-executive directors do not have managerial responsibilities.

According to the Hong Kong Companies Registry, directors have a legal duty to:

• Act in good faith for the benefit of the company as a whole.
• Use powers for proper purposes and in the interests of members as a whole.
• Avoid delegating powers without proper authorization and maintain independent judgment.
• Exercise care, skill, and diligence.
• Avoid conflicts of interest between personal matters and the company’s affairs.
• Comply with legal requirements when entering into transactions where they have an interest.
• Refrain from gaining personal advantages through their position as a director.
• Avoid unauthorized use of company property or information.
• Not accept personal benefits from third parties.
• Abide by the company’s Articles of Association.
• Keep accurate and proper accounting records.

Risks of Non-Compliance

Directors who fail to fulfill these duties can face legal action and disqualification. Individual directors may also be held personally liable for company decisions and can be sued if they sign off on illegal activities. While directors’ liability insurance covers civil liabilities, it does not extend to criminal liabilities.

Shareholders: Rights and Roles

Every Hong Kong private limited company must have at least one shareholder, who can be an individual or a corporate entity.

Shareholders are the owners of the company, holding shares that represent their financial stake. Their liability is typically limited to the capital they invested. Unlike directors, shareholders are usually not involved in day-to-day management.

Key Rights of Shareholders:

• Vote on business decisions.
• Receive dividends based on their shareholding.
• Share in the company’s proceeds if dissolved.
• Be kept informed about company activities.
• Suggest resolutions at shareholder meetings.
• Appoint and remove directors.

Directors vs. Shareholders

While shareholders own the company, they appoint directors to represent their interests. Directors, in turn, manage the company and ensure legal compliance. In smaller businesses, the same person may act as a director and shareholder, but their responsibilities remain separate.

Transparency and Privacy

In Hong Kong, the details of directors and shareholders are public information. If privacy is a concern, appointing a nominee director or shareholder may be an option. However, given the significant responsibilities and potential liabilities, careful evaluation is necessary.