The Duties and Obligations Of A Director in Hong Kong

Every Hong Kong company must have one director as a requirement. Directors have to perform several roles, for example, overseeing company’s operations on the behalf of its shareholders.

This post presents the core responsibilities of a director, some of the other factors you as a director should understand here.

Roles of a director

Fiduciary Duty to Shareholders

The company, as the directors’ fiduciary duty to shareholders is to manage the company for all of the shareholders’ benefit by acting with loyalty and care. This means that the directors should ensure the long-term success and sustainability of the company. As a result, this function involves in making decisions that try to balance shareholder value with the overall impact on the rights of other stakeholders like employees, customers, suppliers and the community.

Strategic Representation

The role of the manager as the face of the company is vital in that it serves as a medium between the company and its stakeholders, which are the shareholders, the board of directors, the regulators, and the public. Such strategy means presenting to the stakeholders the company mission, vision, and strategic objectives, as well as the actions that are aimed to support the business.

Administrative Oversight

The manager is accountable for commanding, administering, and controlling the company’s operations, encompassing managing day-to-day activities, allocating resources, and overseeing the proper delivery of business processes. For this to be achieved, the organization needs to establish the right structures for delegating responsibilities and supervising performance with risk mitigations in place.

Effective Leadership

The principle of performing and discharging duties must be properly demonstrated by the manager with some leadership qualities like decisiveness, integrity, transparency and accountability. Through the use of clear goals, the provision of guidance and support to employees, and the creation of a culture of creativity and unrelenting step-by-step improvement, the manager can make employees become confident and build the company’s success.

Legal Compliance

The fact that the company should run legitimately and be in accordance with the regulations is one of the most important things for building credibility and gaining the trust of stakeholders. The manager has to establish compliance policies, procedures and keep on monitoring them. Also, the manager has to implement measures to mitigate legal risks, and ensure ethical conduct in the organization by periodically reviewing the current situation.

Who can be a company director?

A company director should be: 

• Be at least 18 years old.
• Include at least one natural person as a director, ensuring direct human oversight.
• Have nationality
• Not requiring residency in Hong Kong, providing flexibility in directorship.
• Permit corporate directors for private companies not part of a listed group, enabling varied corporate structures.

A company director is suitable for one private company within a group of companies with at least one listed company as a member or affiliation.

Who cannot be a director?

Bankrupt or convicted of any malpractices

This category involves people who have been officially declared bankrupt by the court due to insolvency or who have been found guilty of committing fraudulent activities, breach of trust or any other major financial misconduct. This can result in such persons failing to occupy directorial positions which may in turn be a result of concerns about their capacity to responsibly manage the company’s affairs and assets.

Unsound mind

The people who are of unsound mind, this usually because of mental illness or incapacity, may have a deficit of the cognitive aptitude to carry out the obligations and responsibilities of a director to the fullest. This competency criterion is there to ensure that the directors are well equipped mentally to make sound judgments, manage company affairs and act in the best interests of the shareholders and the stakeholders which are critical to the organization.

Fail to attend board of director meetings regularly

The directors are required to attend board meetings on a regular basis, and they are expected to actively participate in the decision-making process, which is a crucial part of any key decisions made regarding the company’s strategic direction, operations and governance. Only attending the board meetings occasionally may suggest the absence of dedication or interest, and this can very much deter the board from its oversight responsibility and being effective.

Convicted for an indictable offense

People who have previously been found guilty of committing serious criminal offences, usually these are indictable offences or felonies, are likely to be disallowed for board director position. Henceforth, this criterion ensures the safety and reputation of the company by prohibiting staff with a criminal background from taking any responsibility and decision-making post in the organization.

Convicted for fraud and dishonesty

Directors must be exemplary in terms of their ethics and operate or conduct business with scrupulousness in all areas of their duties. It is a common practice to disqualify a person who has been involved in financial crimes and perhaps those involving deception and dishonesty to serve as directors because of the concerns of integrity and moral uprightness. The criterion of independence works to protect the interests of investors, employees, and other shareholders by making sure that company directors behave with the highest level of honesty and ethical principles.

Appointment of a director

A Hong Kong company can decide to have a director either through a passed by ordinary resolution or through the existing directors of the company if it is decided on by them.

The company must submit the information about appointing the director to the Companies Registry within 15 days after this task is completed.

Those documents are related to the appointment of a director

To finalize the appointment of a director, the Companies Registry typically requires the following documents:

The full name of the director

The following information must be provided about the person who will serve as director, including the complete legal name. It is imperative to do accurate and up-to-date communication so as to adhere to the regulatory requirements.

Passport information of the director

Such will involve essential elements like the passport number, the date of issuance and expiry, and the country of origin. A passport is mostly likely used for identity verification and for a director to confirm their nationality.

Residential address of the director

This entails the residential address where the director can be served with official communications. Including the residential address aids in establishing the director’s residential place and eases the Companies Registry’s communication with the person empowered.

Resignation of a director

• If the director resigns, the company has to give a notice of the resignation to the Registrar to the extent of the statutory provisions under section 645(4).
• The resigning director is required to give a notice of registration to the Registrar if he feels that the company is not going to comply with this requirement.
• The declaration should state (1fsje) Section 464(4)).
  • As to whether the resignation is stipulated in the articles of the company or by any agreement with the company about the need to give notice of registration to the company.
  • Whether the notice is so required and if notice has been so given in accordance with the requirement.
• If specification of the registration of a director of the company is mandated to be given in the memorandum of association of the company or in any agreement with the company the resignation would not have effect until the director in writing gives a notice of the resignation.
  • In line with what is required.
  • The provision is satisfied when the directorate resolution is signed and left at the registered office of the company.
  • This should be done by sending it in the form of hard copy or electronic copy.

Removal of a director

The dismissal of directors can be done by an ordinary resolution before the end of their term. The resolution should be passed at the general meeting involving all the shareholders and the director who is involved in the matter should be present and have the right to speak. In certain situations, for instance, when the director is declared bankrupt or mental incompetent, his position as a director will be terminated automatically. The company should inform the Registrar within 15 days if the company confirms the removal.

Register of directors

The Registration of Companies Ordinance stipulates under section 641(3) that a Hong Kong company is required to keep the Register of Directors at their registered office, a prescribed place or either in English or Chinese.

According to section 641(1), the directors register has to be kept either in Chinese or English.

For private companies, as outlined in Section 643, the register of directors must contain the following particulars for each director who is a natural person:

• Full name, such as maiden name, aliases, or other changes in the name.
• Residential address and current address at work.
• Hong Kong identity card number or passport number and issuing country if the passport is not held by the director.

In addition, for companies which are private, a company limited by guarantee, or a private company which is linked with a public company, the register must also include similar details as specified for companies limited by guarantee.

Further, as per the provisions of section 643, for the case of companies without any members and in which the director and the member are the same person, the register must include the particulars specified for such companies irrespective of the fact that the director and the member are the same person.

Power of directors

A director can exercise certain powers granted to them as outlined by:

The company’s articles of association

These are the internal rules and guidelines that set out how the running and managing of the company is done. The articles usually set out the powers, duties, and responsibilities of the directors and explain the procedures for making strategic decisions.

The Companies Ordinance (CAP 622) (CO)

This is the Ordinance responsible for the framework of the corporate law in Hong Kong. It gives them statutory powers and duties to enable directors to do management job, enter into contracts, and make decisions on behalf of the company.

Common law

The directors’ powers and duties are also guided by the common law principle which has been developed by judges and courts’ decisions. Common law clauses such as the duty of care, fiduciary duties and the duty to act in the best interest of the company and set out the limits and boundaries of the directors’ powers.

Shareholders’ agreement

In case there is an agreement among shareholders, it can equally contain the powers of directors in particular and can as well outline the rights and responsibilities of shareholders in general. The directors are also subject to the agreement on the terms of shareholders in the exercise of their powers.

Certain resolutions of its members

The directors are expected to exercise the powers conferred by resolutions passed by the company’s members (shareholders). This is done in accordance with the company’s constitution and the relevant provisions of the Companies Ordinance. The resolutions in these cases could include authorizations of such orders as appointment of executives, entering into significant transactions or amending the company’s articles of association.

The power of directors and their ability to delegate their power to others is subjected to:

• The company may include in the articles of association any of the limitations of the directors’ powers.
• Directors’ powers and duties are regulated by the Companies Ordinance (CO), which includes provisions outlining directors’ general duties and any matters reserved to the members by the CO. These duties and reserved matters are crucial aspects of corporate governance and guide directors in their decision-making and management of the company.
• Common law
• Shareholders’ agreement
• Some of the adopted resolutions 

Duties of a director

Following the Hong Kong Companies Registry, directors have duties to:

• Acting in good faith for the interest of the corporation is a must.
• Use power for the right reasons.
• Don’t abuse your mandate of decision-making or delegation of power without proper authorization.
• Behave prudently, carefully and adequately.
• Try to stay away from the conflict of interest between the self and the firm related matters.
• It is essential to avoid the situations where the company is favouring the interest of directors.
• Avoid abusing power
• Abstain from unauthorised uses of property.
• Avoid accepting any benefits offered by third parties.
• Conduct the business in compliance with the company’s charter.
• Keep proper account books

Fiduciary obligations of a director

The Conflict of Interests between a Company director and the company is a principle issue addressed. The directors in Hong Kong are required to act in good faith as regards to the company, not to use the powers for personal gains, avoid fettering their discretion and abstain from conflicts of interest.

The Companies Ordinance also states some restrictions that reflect the duties of a direction which include: 

• Disclosure of conflicts of interest – The director of a company should be impartial to the company and should not get involved in conflicting interests with the company.
• The limit on loans from the company to directors – Hong Kong company is not allowed to extend a loan to its directors.

Statutory duties

Duty to be careful, to do all that is needed to be done by exercise of skill and diligence.

Liabilities of a director

The C(WUMP)O provisions and the SFO requirements place obligations on directors.These include:

• The liability for firms and the criminal liability for individual executives under the C(WUMP)O for issuing a false prospectus are two examples of the civil and criminal liabilities.
• Through Parts XIII and XIV of the SFO, civil and criminal liability for engaging in misconduct offences in the market, such as insider dealing, false trading, price rigging, disclosure of prohibited trade information, stock market manipulation and the dissemination of false or misleading information.
• Civil liability for the act of making false or misleading public communications.
• Criminal liability which can be incurred by directors of listed companies under the SFO if they fail to promptly disclose their interests in shares and debentures of the listed companies.

Amongst many differences seen in the company laws of other jurisdictions that follow English law principles, Hong Kong companies acts do not comprise of provisions for holding directors and senior managers personally responsible for trading while insolvent.

Resident directors

The resident directors are appointed by a creditor or shareholders to maintain their true identity and keep it private. Before signing the contract, the resident director is going to sign the power of attorney (POA) and Declaration of Trust (DOT) that will empower the agent to control the company activities. However, the POA is going to limit the director in his actions to those ones that are being guided by the principal.

You do not have to be a resident of Hong Kong or a Hong Kong national to take on the role of a director in a company based in Hong Kong. As to the tasks and functions of the directors in HK, they resemble what others in other companies globally do by managing and directing the company in its best interest.

FastLane Group is a professional company secretary in Hong Kong providing all-rounded corporate services. We guide directors with their duties and responsibilities, making sure that they are in compliance with regulatory requirements. Our experienced team deals with directors’ appointments, resignations, and keeps record of the register. Through Fastlane, directors are well positioned to confidently manage legal complexities, place governance and compliance concerns at the back of their minds, and concentrate on the strategic leadership of their company. Contact us now.