Becoming a director is both prestigious and challenging. There are specific rules and responsibilities to follow when it comes to the director’s tasks. If a director fails to fulfill their duties, they may be subject to civil or criminal liability and be barred from operating as a director. Many aspiring Hong Kong entrepreneurs may be confused by directors’ roles. The good news is that the Companies Registry has revised ‘A Guide on Directors’ Duties’ to help entrepreneurs understand their duties as directors.
This article will help you establish a corporation in Hong Kong and pick a director.
Who Is a Director?
A company has assets, property, workers, and legal obligations. This “machine” needs to be run. A director is a statutory officer who supervises and represents a company’s interests. Shareholders appoint directors.
A private limited corporation in Hong Kong must have at least one director. This rule does not apply to public businesses or limited liability companies that must have two directors. A director must be at least 18 years old. A legal person of any country, although not necessarily a Hong Kong resident. They cannot be bankrupt or convicted of malpractice.
A company’s board of directors may consist of more than one individual. Neither executive nor non-executive directors are exempt from the company’s management and operations.
Roles of a director
- Manages the company in the interests of all shareholders
- Represents the company’s interests
- Administers, controls and directs the company
- Conduct and discharge his/her duties effectively
- Ensure that the company is legally compliant
- The director verifies that they are following the guide’s instructions.
- Although the director is not in charge of day-to-day operations, they must monitor staff performance to see if they meet its long-term strategic goals.
What Are the General Directors’ Duties?
Every company director has duties. Generally, these duties are governed by sources such as:
- The Companies Ordinance;
- Common law;
- Case law;
- A company’s articles of organization (constitution),
- Shareholders’ (members’) resolutions
- If a director fails to perform their duties, they may face civil or criminal charges and may be barred from working as a director in the future.
Let us examine the director’s duties in detail:
Act in good faith
A director must act in the company’s best interest. It involves treating all shareholders fairly and not favoring one shareholder’s interests over others.
In some circumstances, the company’s best interests are unclear.
Use power for a proper purpose
A director must only utilize their power for the desired purpose. Their main aim is to help the company. It is a duty violation if they seek personal gain or control of the company.
It is not enough to have good intentions and a reasonable assumption that your actions would help the organization.
Don’t delegate power without sufficient authorization and use your judgment.
The power of a director is near absolute. A shareholder can limit the director’s authority through the articles of association or resolutions. The board of directors can form committees or divide responsibility for specific matters. Also, they can name a managing director or CEO to oversee daily operations.
Neither a director, a board of directors, nor shareholders can exercise their rights without permission. It is usually specified in the company’s articles or a shareholder resolution. Allowable delegations include a director’s modest duties to senior management.
A director can seek expert guidance while making decisions. Though not constrained by professional advice, they must use their discretion. They are solely accountable for any damage caused by their choices.
Exercise care, skill and due diligence
A director should manage the organization with care. That is, they must have and use the overall knowledge, talent, and experience that a director should have, taking into account their education and professional history.
Limited credentials as a director are not an excuse. He must still exercise reasonable care and can be held accountable for negligence. A director with exceptional knowledge in both law and finance, for example, is likely to perform better than a director without such knowledge.
Avoid conflict of interest
A director must avoid circumstances where personal benefit exceeds the company’s interests.
A director cannot form a competitor company and operate against their employer. He also can’t have relatives working for a competitor or secretly have two directorships in the same industry.
A director must report a conflict of interest to the shareholders and fellow directors.
Don’t engage in transactions involving personal financial gain that are illegal.
A director who has a material stake in a company transaction, arrangement, or contract must follow specified processes. A director must inform the other directors or shareholders of his interests and obtain their consent in most circumstances.
The articles of organization may provide a mechanism to ensure impartiality. Similarly, a director with a perceived conflict of interest is usually barred from voting.
Do not abuse power
A firm’s director cannot exploit his position to benefit himself at the company’s expense. A director who violates this responsibility also violates the duty to act in the company’s best interest.
Unauthorized use of company property or information
A director protects and uses the company’s assets. Assets like know-how and trade secrets are valuable and tangible assets like computers, furniture, and cash.
Illegal transfers of property are a breach of this obligation. Insider trading also violates this duty. A director may not trade in the company’s securities using confidential information.
Do not accept any personal benefit from third parties
A director or former director cannot receive bonuses, gifts, or bribes simply for being a director. A gold bar from your spouse or a mug from your coworker isn’t an acceptable gift. In exchange for something, a potential contractor should not offer you a part in their company or a weekend at their Canary Island property.
If the shareholders agree, a director can receive these advantages.
Observe the company’s memorandum and articles of association and resolutions
A director must follow the company’s internal rules, such as the bylaws and resolutions. Also, the bylaws reflect the shareholders’ wishes and how they want their business to manage.
Keep accounting records
A company’s director must maintain timely and accurate accounting records. A company’s financial position and transaction history must be accurately recorded. A director cannot take out a loan if the company is insolvent. Otherwise, they face fraud charges.
What you will need to do after you have a director.
Appointing a director in Hong Kong is done by ordinary resolution or by the decision of existing directors. The corporation must notify the Companies Registry 15 days after the appointment. A Hong Kong private limited corporation can have 1 to 50 shareholders. Shareholders do not need to live in the area; They can be the same person or separate. The stakeholder must be 18 years old and of any country. They are the shareholder. 100% local or international ownership is permitted. Nominee shareholder designation is allowed. Shareholder meetings can take place anywhere.
Company Secretary – Appointing a company secretary is necessary for Hong Kong. The secretary must typically reside in Hong Kong or have a registered office or company in Hong Kong. A solitary director/shareholder cannot also be the company secretary. The company secretary is in charge of keeping the firm’s statutory books and records and ensuring that they are up to date. A nominated secretary is possible.
The professional company secretary you hired to form your Hong Kong corporation will generally handle all essential processes from start to finish. Because this is a long-term relationship, hiring a professional and service-oriented organization is critical.
