• Nominee Director in Hong Kong

On 3 Mar 2014, the Government of Hong Kong’s Companies Registry saw the implementation of the new Companies Ordinance (CO) came into operation. Under the new CO, Cap. 622 Section 457(2), every private Hong Kong company must always have, at least one company director on its board, who is a natural person i.e., an individual. The intention is to enhance transparency and accountability.

Failure to comply with this direction of the new CO is an offence committed by the company and every responsible person of the company with each being liable to a fine of HK$100,000 and a further fine of HK$2,000 each day during the period of continuing offence.

Existing private Hong Kong companies registered under the old Ordinance are required to comply having long past the given grace period and new companies will be registered under the new Ordinance which will require them to comply during the registration process.

So, what happens if the board members/ investors in Hong Kong wish to keep their investments confidential or their identities anonymous? Can they nominate an individual to represent them instead? If so, what is the requirement for this individual and what can this person do in his/ her nominated role as a director of the business? Can a Nominee Director also serve as a Regular Director of a Hong Kong company?

The following sub headers will shed light on these queries in addressing the main question as to whether a Nominee Director can serve as a Regular Director of a Hong Kong company:

What is a Nominee Director?

In Hong Kong, Singapore and other offshore jurisdictions, local statutory laws demand that information of shareholders and directors in company registry be made public. This means their names and addresses are made searchable by anyone.

Specifically for Hong Kong private companies, it is a statutory requirement for one director that is a natural person of any nationality (and not simply a corporation) be named and registered. This is not an ideal requirement for those who wish to remain anonymous for various reasons and do not wish to make known publicly their interests, investments, or direct relationships with a company.

The answer for those in this predicament lies in a ‘Nominee Director’.

A natural person i.e., an individual can be nominated as a ‘Nominee Director’ and delegated the management of day-to-day business affairs under the strict instructions of business owners. A Nominee Director’s roles, responsibilities and obligations can be spelled out and stipulated in a ‘Nominee Service Agreement’; an agreement that not only highlights the duties of the Nominee Director but also protects the business owners from any misconduct on the part of their nominated director.

The Nominee Director for a Hong Kong private company must be a natural person if this is the first director’s appointment. Only when a natural person director is appointed then can the company appoint a Corporate Director.

Roles of a Nominee Director

A Nominee director is usually provided by professional service firms to fulfill legal obligation in setting up a company. They have the same roles and responsibilities as a normal director. For example, both are responsible for the statutory books and filings of the company, they also have to manage annual fillings and annual general meetings. Therefore, professional services will have a liability when providing nominal directors to clients. Selecting a Nominee Director is the early stage of company setting up in Hong Kong. Thus, its is crucial and you may decide whom to appoint as the nomiee director after having a discussion with our corporate specialist from Paul Hype Page.

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Advantages of using a Nominee Director

The main reason for a Nominee Director appointment is the legal solution it provides that allows for statutory compliance while at the same time facilitates the high degree of confidentiality and privacy to board members that they so desire.

Another common reason for appointing a Nominee Director is taxation. This is especially true when involving foreign investors, who depending on their home country’s tax law, may lose a chunk of their income due to taxation. A Nominee Director can help to avoid this.

Disadvantages of using a Nominee Director

  • For Nominee Director

    • Undertaking of Risky Ventures
      Signing of formal documents with serious consequences poses unwanted risks to Nominee Directors especially if speculative or risky ventures are involved, and especially considering if the decision to enter such a venture or the management of it is not theirs to make or perform.
    • Disruption to Business Progression
      Unwillingness for a Nominee Director to undertake (to sign for) all required and necessary transactions when the need arises disrupts operational or business progress and creates inconvenience for both parties.
    • Bank Account with Nominee Structure
      In accordance with the recommendations of the Hong Kong Monetary Authority, some banks refuse or make it increasingly difficult to open bank accounts with nominee structure due to high compliance cost and risks. The request for anonymity under such structure, despite being legitimate, raises suspicious for banks for fear that such structure may be used for tax evasion or money laundering purposes.

At the end of the day, nominee directors may sound beneficial, there are cons to that. It creates an extra layer to the company business operations which may be due to the inefficiently, dishonestly on the business management.Some of these risks can be mitigated through an effective Service Agreement that defines all limitations and indemnities as well as other documents such as Power of Attorney and Declaration of Trust.

In a Nutshell

A Nominee Director allows for confidentiality to be attained for those who wish to remain anonymous from the public gaze while at the same time allows for statutory compliance to be met. The reasons for requiring such anonymity are the business owners’ so long as the country’s laws are respected.

However, can a Nominee Director also serve as a Regular Director of a Hong Kong company?

The answer is yes as all the directors are regarded as the same to fulfill their duties and responsibilities of the company. The Nominee Director is not treated as an independent director but can be empowered to undertake agreements and make important business decisions or even fulfill all of the tasks a Regular Director usually performs. This representative is dedicated to present the Hong Kong Company in its best light while protecting the true director’s confidentiality as obligated by the Declaration of Trust. However, this role is ultimately a strictly non-executive one as the Nominee Director will need to consult for approval rather than making any decisions alone. At the end of the day, appointing the right nominee director needs to be extra careful and, in the situation, where you are unsure, our Paul Hype Page advisor is happy to discuss with you on your business journey in Hong Kong.

What is a Nominee Director in Hong Kong? FAQs

How can business owners ensure full control over their company when using a Nominee Director?2021-04-14T01:50:38+00:00

It can be done through proper execution of nominee service agreement between the nominated person and the business owner, where interests of both parties are protected. The nominated director (or shareholder) does not participate in business management and acts only in accordance with instructions of the business owner.

Is it legal to use a Nominee Director?2021-04-14T01:49:56+00:00

It is completely legal to use nominee service and quite common in cases when anonymity from the general public needs to be attained and/ or local statutory compliance needs to be

Does the requirement for private companies to have at least one director who is a natural person apply to non-Hong Kong companies registered in Hong Kong?2021-04-14T01:48:49+00:00

No. The requirement only applies to Hong Kong local private companies.

Are existing private companies registered under the Old Ordinance expected to comply with the requirement of having at least on director who is a natural person under the new CO?2021-04-14T01:48:04+00:00

Pursuant to sections 89(1) and (2) of Schedule 11 to the new CO, a grace period of 6 months after the commencement date of the new CO were given to companies registered under the old Ordinance to comply with the new requirement. Appointment of new directors should already have been reported to the Registrar of Companies (‘the Registrar”) in the specified form within 15 days pursuant to section 645 of the new CO.

What is the purpose of the new CO requirement for Hong Kong private companies to have at least one director who is a natural person?2021-04-14T01:40:06+00:00

The purpose is to enhance transparency and accountability of directors.

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