Company directors are an essential part of Hong Kong companies and according to the Hong Kong Companies Ordinance, it is a position that must be occupied. While the details surrounding the appointment of a business director and the requirements associated with this position are well documented, the responsibilities are not often highlighted. In this article, we explain a typical Hong Kong director’s duties and responsibilities, and the consequences of failing to adhere to them.
|TLDR: Company directors play a vital role in a company’s success. The Hong Kong Companies Registry has outlined 11 general duties that a company director must follow during their term. The top five duties are: make decisions for the benefit of the company and its owners, observe the company’s Articles of Association, evaluate performances of the company’s executives and managers, report to shareholders about the company’s activities, and maintain proper accounting books.|
What you will learn:
Who Are Company Directors And What Do They Do
Company directors are individuals responsible for the management of a company on behalf of its shareholders. Business directors maintain a fiduciary responsibility to the shareholders of a company to act in good faith, and in their best interests.
Typically, a Hong Kong director’s duties and responsibilities vary from company to company and are derived from the business needs. Regardless, all Hong Kong business directors are expected to adhere to general principles which encourage the fulfillment of their job responsibilities in a certain manner.
What are the requirements an individual must fulfill to be appointed as a company director?
- 18 years old or above
- At least one director is a natural person
- No restriction in nationality
- No need to be Hong Kong residents
What type of business entity needs to appoint a Company Director?
Public company: 2 Directors
Company limited by guarantee: 2 Directors
How to Appoint or Remove a Company Director?
A company can appoint a director through passing an ordinary resolution or existing directors’ decision. The company should inform the Company Registry within 15 days once any confirmation for the appointment.
Companies may have an ordinary resolution passed at a general meeting to remove a business director before the end of the director’s term. The company should also inform the Company Registry within 15 days once any confirmation for the removal.
What Are The Duties and Responsibilities of A Company Director?
The Hong Kong Companies Registry has outlined 11 general duties that a company director must adhere to in the execution of their role. Company Directors who are deemed to have failed in performing their duties as stated by the Companies Registry may be subject to legal proceedings and may be disqualified from their position as Company Director.
The 11 General duties of a company director are as follow:
- Duty to act in good faith for the benefit of the company as a whole;
- Duty to use powers for a proper purpose for the benefit of members as a whole;
- Duty not to delegate powers except with proper authorization and duty to exercise independent judgment;
- Duty to exercise care, skill and diligence;
- Duty to avoid conflicts of interest between the company and themselves;
- Duty not to enter into transactions in which the company directors have an interest except in compliance with the requirements of the law;
- Duty to not abuse the position of Company Director;
- Duty not to make unauthorized use of company’s property or information;
- Duty not to accept personal benefits from third parties conferred because of position as a director;
- Duty to observe the company’s constitution and resolutions;
- Duty to maintain accounting records
Making decisions for the benefit of the company and its owners
A Hong Kong business director must determine the long-term strategic objectives and policies of their company and ensure that these objectives are met. These decisions are typically made by voting on proposals brought forth by the company’s CEO. It is through these decisions that a company director can ensure that the company and its owners are benefitting from the company’s actions.
To be able to make these decisions, company directors are required to have the continuous obligation to acquire and maintain sufficient knowledge of the company’s business, as this acquired knowledge will allow them to properly carry out their duties.
It should be noted that the relationship between a parent company and its subsidiary can put a business director in a difficult situation due to conflict of interest in the director’s actions. In this scenario, a company director owes his duty primarily to the company to whose board he is appointed.
Observe the company’s Articles of Association
A director of a Hong Kong company must always act in accordance with the company’s Articles of Association, which is a document that defines the company’s operations and business purpose. This document also outlines processes and corporate governance, such as how directors may be appointed and the handling of financial records. Most importantly, the Articles of Association commonly details the specific job responsibilities of the company directors.
Evaluate the performance of the company’s executives and managers
Firstly, company directors do not necessarily oversee the everyday business operations of a company, that task is left to a company’s executives and managers. However, business directors may evaluate whether the company is meeting its long-term strategic objectives by evaluating the performance of the management staff.
A company director may evaluate management staff via the following:
- Performance in meeting set business goals and objectives
- Monitor the company’s performance reporting for its staff
- Review individual business decisions made by management to ensure that all decisions were made in accordance with the agreed strategies and policies
- Ensure proper corporate governance is maintained
Report to shareholders about the company’s activities
In accordance with Section 452(3) of the Companies Ordinance, Hong Kong company directors are statutorily required to annually publish a directors report which outlines the state of the company’s business operations.
The director’s report must be approved and signed by the company’s Board of Directors and presented to the shareholders, alongside the annual audited company financial report, at the company’s Annual General Meeting.
A directors report must contain the following information:
- A business review that describes the principal risks and uncertainties facing the company, particulars of important effects that have occurred since the beginning of the financial year, and future plans
- Details of any debentures/shares issued
- Details of any equity-linked agreements entered into by the company
- The number of donations made by the company and its subsidiaries
- Recommended dividend
- Disclosure of any permitted indemnity provision
- Reasons for a company director’s resignation (if a company director has in a financial year resigned from their position)
Maintain proper accounting books
Company directors are responsible for the management of a company on behalf of its shareholders, and as such, have a duty to ensure that the company remains compliant with all the legal obligations and regulatory requirements the company is subjected to – this includes financial reporting.
Business directors are required to take all reasonable steps to ensure that the company’s financial statements are annually audited. Upon each successful audit, the Board of Directors must sign and approve of the newly completed audited financial statements.
The annual audited financial statements will be provided to shareholders alongside with the director’s report. Therefore, the prompt completion of both sets of documents will not only provide shareholders with a true and fair representation of the current state of affairs of the company, but will also help explain any developments that have occurred.
Company Director Non-Compliance
Every company director and officer of a company has the responsibility to ensure that the company has complied with all provisions stated in the Companies Ordinance. To the extent that a company director fails to comply with these provisions, the company and every responsible person will be liable to prosecution and fines.
While the maximum level of fine that companies may be subject to vary depending on the offence committed, serious regulatory offences under the Companies Ordinance can result in possible imprisonment.
How can FastLane help?
After reading this article, hopefully you will have a clearer understanding of the liabilities and duties of a Business Director. Company directors hold vital roles within a company. Not only is the long term success of a company dependent on the quality of their business directors, but the confidence of the company’s shareholders are as well. You are required to appoint directors and shareholders if you would like to set up a company in Hong Kong. FastLane is a licensed Hong Kong company secretary that has extensive experience in advising SMEs on their company director responsibilities.
In addition to being your company secretary, FastLane also provides services such as accounting, statutory audit and tax filing, company formation, and more. We hope to provide a one-stop solution for businesses to grow bigger and improve operational efficiency in business operations. Please contact us if you need further assistance.