If you are the sole director and shareholder of your company, you can skip this article. This article is written for company owners which have a relatively more complicated structure, i.e. more than 2 directors and shareholders.
In some small corporations, some shareholders may act as directors themselves. For some sizable companies, some shareholders have a busy schedule and they may appoint a person or an employee to represent his or her interest in the board. While different directors may represent a different group of shareholders, they still have to act in the best interest of the “company”. If you intend to take up the role of being a company director, you may want to understand the general principles below.
Roles of Company Director
Director is an important role in every Hong Kong limited company. Subject to the provisions of the Companies Ordinance and Articles of Association, the director can exercise all powers of the company on company business and affairs. However, if the director fails to comply with his duties for being a director, he may be subject to disqualification. In case of serious misconduct, the person can also be liable to civil or criminal prosecution. We have prepared a summary of the director’s duties below.
Principle 1: Duty to act in good faith
Director shall always act in good faith and he should act in the best interest of the company. In practice, it can sometimes be difficult for directors to keep every shareholder happy as different groups may have different interests. When directors make a decision, they should consider the benefit for the company in general but not to a specific group of shareholders. Decisions should be fair and transparent for the whole company.
Principle 2: Duty to exercise powers for a proper purpose
Director shall also exercise his power for a proper purpose only. This principle focuses on the primary motive of the person. If the motive is to benefit a specific group of people, the director’s action and his power should be void. For example, the director is given the power to issue shares in order to increase capital for the company. However, if the director issues shares for the purpose to maintain control of the board or to help a specific group to achieve majority shareholding, the power is not exercised for a proper purpose.
Principle 3: Duty to exercise care, skill, and diligence
Director shall exercise reasonable care, skill, and diligence. This principle has both subjective and objective elements. When we determine whether the director has fulfilled his duty, we consider what a reasonable person would do in such circumstances. At the same time, we would also consider his personal background, including knowledge and experience. For example, if the director is an experienced legal practitioner, we may expect him to meet a higher standard for legal matters of the company.
Principle 4: Duty not to delegate power
Director shall not delegate his power unless the articles of association allow. Alternatively, he should obtain prior approval from the board. Director shall always make an independent judgment. If he does not understand a certain issue, he should exercise his power to seek proper advice.
So who can be a director?
Any person, who is 18 years old or above, can be appointed as a company director. Nationality is not a consideration. A foreigner can have 100% control of a Hong Kong company. It is not necessary to have a local director.
How to appoint a director in Hong Kong?
A Hong Kong company can appoint a person as a director by passing an ordinary resolution or by a decision of the existing directors. The Company is required to inform the Companies Registry within 15 days after the date of appointment. To complete the appointment, the Companies Registry usually requires the following information:
- Full name of the director
- Passport information of the director
- Residential address of the director.
How to remove a director from the company’s board?
In general, the company can remove a director from the board by an ordinary resolution. In some special circumstances, the person shall also cease to be a director immediately. For example, if the person becomes bankrupt or mentally incapacitated, he shall no longer act as the company director.
If a Hong Kong company confirms to remove a director, the company shall notify the Companies Registry within 15 days after the removal.
How to resign as a director?
There may sometimes be a dispute between directors and the company. For example, the company runs out of the fund or the director spots an ethical issue which the majority is unwilling to rectify. The director can submit a resignation to the board. At the same time, the director shall fill in the Form ND4 to notify the Companies Registry of his resignation.
All the above filings have a prescribed time frame to follow. If the default is made in delivering the notices, the maximum penalty is HK$25,000 for each breach together with a daily default fine of HK$700. The company and every responsible person of the company, i.e. every director and manager of the company, are liable to prosecution. Hence, if you have doubts when and how to do the filings, it is the best to contact Get Started HK maintenance team for assistance.
Cap. 622 Companies Ordinance – Hong Kong e-Legislation. (n.d.). Retrieved July 18, 2019, from https://www.elegislation.gov.hk/hk/cap622