Hong Kong Company Directors: A Guide to Eligibility and Liability
Like corporations in other jurisdictions, a Hong Kong company is an artificial legal entity whose existence derives from legislation. What it chooses to do can only be determined by real human beings. Under Hong Kong law, these human beings are the directors. These directors must act collectively as a board and they must act in accordance not only with the general law but the articles of association of the company.
Every Hong Kong private company limited by shares must have at least 1 director. This is different from Hong Kong public companies and companies limited by guarantee, both of which must have at least 2 directors.
There are no residency or nationality requirements for a director and, unless the articles of association otherwise require, there is no requirement for a director to be a shareholder.
A corporation can be a director of a Hong Kong private company but in this case, there must be at least 1 other director of the company who is a real human being. In contrast, a corporation cannot be a director of a public company or a private company that is a member of a group of companies, one of which is listed on the Stock Exchange of Hong Kong. Similarly, a corporation cannot be a director of a company limited by guarantee.
A director who is a real human being must be at least 18 years old.
Hong Kong private companies who have a single shareholder who serves as the sole director may appoint a reserve director. The reserve director has the power to act in place of the sole director in the event of the sole director's death. There is no provision however, by which the reserve director has the power to act in the event of the sole director becoming mentally incapacitated.
The identity of the directors of a Hong Kong company is publicly disclosed.
First, when a person is appointed as a director of a Hong Kong company, the company must, within 15 days of that appointment, file a notice of that appointment with the Registrar of Companies. That notice will, amongst other things, state the person's name as well as his personal particulars. In the case of a director who is a natural person, those personal particulars include the person's usual residential address and correspondence address as well as the number of his identity card or the number and issuing country of a passport held by the person. A PO box is not accepted as a usual residential address. As notices filed with the Registrar of Companies are available for public inspection, the identity of a company's directors and their personal particulars is a matter of public record.
Secondly, every Hong Kong company must keep a register of its directors and a member of the public is entitled to inspect that register. The register must contain not only the name of each director but the personal particulars of each director which were notified to the Registrar of Companies.
Every person who is a director of a Hong Kong company has a statutory duty to notify the company of his personal particulars required for the above.
Duties of Directors
Director of companies incorporated in Hong Kong are, in broad terms, subject to 2 types of duties to the company, namely fiduciary duties and the duty of care and skill.
As a result of fiduciary duties, a director of a Hong Kong company is expected to (i) act bona fide in the best interest of the company, (ii) not exercise his powers for improper purposes, (iii) refrain from fettering his own discretion, and (iv) avoid conflicts with the interests of the company.
The Companies Ordinance imposes a number of restrictions which reflect the fiduciary duties owed by a director to a company. These restrictions include the following:
Disclosure of Conflicts of Interest - A director of a Hong Kong company must disclose conflicts of interest with the company and must deal fairly with the company.
Restrictions on the Extension of Credit - A Hong Kong company is restricted from extending credit to its directors.
Duty of Skill and Care
The Companies Ordinance provides expressly that each director of a Hong Kong company must exercise reasonable care, skill and diligence. Whether a director meets this standard depends on both on his or her individual background and on the expectations of the world at large for a director in the same role. The former test is expressed as requiring the director to act with the care, skill and diligence that would be exercised by a reasonably diligent person with the general knowledge, skill and experience that director has. The latter is expressed as requiring the director to act with the care, skill and diligence that would be exercised by a reasonably diligent person with the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director.
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Timothy Loh Corporate Services has experience in best practices for corporate governance and for ensuring compliance with statutory requirements in the appointment and resignation of directors.