Shareholders and company directors are in charge of running a company. The role of a director is to oversee the management and accounts of the business. They have to find out if the company is making any mistakes; if so, they have to rectify it. They are also to keep a check on the preparation of reports. The company director also has to participate in the board of directors’ meetings to help it reach a collective decision. Company directors are appointed by the shareholders so that they can manage the daily affairs of the company. The members of the board of directors are also delegated certain powers.
Private companies in Hong Kong employ executive and non-executive directors. As well as these, there are other types of directors who carry out various duties and responsibilities.
Types of Directors and Their Roles
- Executive Director: The executive director is responsible for the daily business activities; the executive director makes the decisions that have an effect on the day-to-day operations of the company.
- Non-Executive Director: These directors are not involved in the daily operations of the business, but they provide a third-party perspective in the decision-making process. Non-executive directors are experts in the industry as they advise on various aspects of the business.
- Reserve Director: Companies in Hong Kong which possess a single shareholder and a sole director have authority to appoint a reserve director. In any case, if the sole director is absent or dead, the reserve director can take decisions on behalf of the sole director. However, there is no such provision under the Companies Act stating that the reserve director has the permission to act in the place of the sole director if the sole director becomes mentally unstable.
- Managing Director: The other directors appoint the managing director of the company who looks after the daily chores of the company. The managing director is also known as the Chief Executive Officer. As directors do not receive any salary from the organization, they appoint an MD who can look after the workings of the company in the absence of other directors.
- De Facto Director: They are not officially appointed as the director but act as directors in place of other directors. De facto directors possess the same responsibilities and liabilities as official directors do.
- Shadow Director: These directors do not have any official title but still influence the decisions of the board of directors.
It is necessary to acknowledge the basic requirements by which one needs to abide in order to become the director of a company.
Requirements to Become a Director
- Every private company in Hong Kong that is limited by shares must possess at least one director. A Hong Kong public company and a company that is limited by guarantee both must have at least two directors.
- There are no nationality or residency requirements regarding directors unless such is mentioned in the Articles of Association.
- The director does not have to be a shareholder.
- In Hong Kong, a corporation can be a director of a private company. However, there should be at least one more director who must be a human.
- A corporation cannot be the director of a public company or private company, nor can it be a director of a company that is limited by a guarantee.
- The director who is a human must be above the age of 18 years to hold this position.
These are some of the basic requirements for becoming the director of a Hong Kong company. There are also several provisions involved in appointing the director of the company. Directors in Hong Kong are appointed in the following manner:
- The shareholders, through an ordinary resolution, select the elected directors. According to Article 88 (1) of the Articles of Association, the number of directors must not exceed six.
- The appointment of directors is done at an annual general meeting or an executive general meeting. The company’s first directors are named in the Articles of Association.
- If there is any casual vacancy to be filled, the board of directors can appoint the directors if the number has not exceeded the number stated in the Articles of Association. In this instance, the appointment can be approved in the next AGM or EGM, but a formal confirmation must be issued to the newly appointed director.
- The retired director can also fill up the vacancy in case the members of the company are not able to find a suitable director.
- According to Section 77 of the SFO or Chapter 571 of Laws of Hong Kong and the Article 88 (4) provided in the Articles of Association, the Financial Secretary can appoint any person as the director, but the number of government-appointed directors must not exceed the number of elected directors. The government-appointed directors are not subject to shareholders’ election and re-election.
Provisions Involved in Appointing Directors
Some regulations are involved in appointing the directors. They are as follows:
- The public disclosure of the identity of the directors should be made.
- Within 15 days of the appointment, a notice must be filed with the Registrar of Companies.
- If the director appointed is a natural person from abroad, the director’s residential address, correspondence address, identity card number, and the passport issued by the director’s home country must be presented.
- Every Hong Kong company has to keep the register of its directors, and members of the public are entitled to inspect it. This register will not only have the name of each director but their personal particulars that were notified to the Registrar of Companies.
- The person who becomes the director of the company has a statutory duty to provide personal particulars.
Directors’ Duties During Annual General Meetings
Directors’ duties consist of fiduciary duties and duties of care, skill, and diligence.
- Fiduciary Duties: These duties remain uncodified and include:
- Exercising the powers for a proper purpose
- Acting in good faith and in the interest of the company
- Not making secret profits
- Avoiding any conflicts arising amongst personal and professional interests
- Not extending credit to directors
- Duties of Skill, Care, and Diligence: The directors must carry out the work with reasonable care, skill, and diligence. The directors need to meet the standard set according to their background and to meet the expectations of the company’s customers.
Foreigners and Becoming the Director of a Hong Kong Company
The director can be any person and possess the nationality of any country unless the contrary is mentioned in the Company’s Articles of Association. There are no local resident requirements which are mandatory. The foreigners can operate their offices from offshore locations as well. A minimum of one director is required; an unlimited number of directors are allowed. The director must be above the age of 18 years and not convicted of any malpractices or thefts.
Directors do not have to be shareholders of the company. Companies also have to appoint a company secretary who cannot be a shareholder or director of the company. The responsibility of the CS is to look after the records and statutory books of the company.
The essential requirements that are required to appoint directors in a Hong Kong company have thus been discussed. Foreigners who want to start a business in Hong Kong have to take these requirements and duties into account. The directors in Hong Kong have various sets of responsibilities they have to carry out in AGMs and EGMs.