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.