Hong Kong company Directors and Shareholders’ Duties
Estimate time to read: 5 min
Being a director is, or so they say, as glamorous as it is cumbersome. Let’s look at the responsibilities of directors in Hong Kong and attempt to determine how much risk this respectable job title comes with.
The roles of a company director in Hong Kong are regulated by the company constitution, procedural law, and case law. In Hong Kong, the legislation sets down the responsibilities of the director that they must deal with. Daily workshops, training courses, conferences, and forums on topics of risk management and corporate governance ethics are encouraged by a director.
If you are trying to start up a business in Hong Kong and name a director, this article would be especially useful.
A director is responsible for civil and criminal proceedings and could be removed from the job if he does not comply with the legislation. Therefore, a business director must be mindful of the current developments in statutes, corporate governance procedures, and regulations regulating their roles and responsibilities so that they can properly execute and discharge their duties to their fullest.
Table of contents
Who is a director?
An enterprise is a mixture of money, land, personnel, and legal obligations. Someone needs this “machine to run”. A director is a legislative officer who runs a company, serves its needs, and works hard to make it succeed. Shareholders nominate executives.
In Hong Kong, company law notes that a limited private company must have at least one owner. This law would not extend to guarantee-limited public corporations and firms who ought to have at least two directors.
A corporation may have a board of directors composed of several members, instead of one or two directors. Both executive and non-executive directors are subject to the same responsibilities and are responsible for the company’s management and activities jointly and independently.
What are the directors’ duties?
All directors bear those roles. These duties are usually governed by different sources, such as:
- the case law;
- the articles of association (constitution) of a company,
- the shareholders’ (members’) resolutions.
- the Companies Ordinance;
- the common law;
When a director fails to fulfill their responsibilities, he or she is responsible for civil or criminal action and may be prohibited from serving as a director.
The duties of a good director in Hong Kong should include:
1. Act in good faith
The director is responsible for working in the best interests of the owners of the company to support the company as a whole. They must exercise impartial judgment with due diligence and fair caution while carrying out a director’s duties in Hong Kong while demonstrating respect for the needs of employees. To cultivate a partnership with consumers, clients, and vendors, a business director is responsible for behaving in good conscience. He/she must maintain an active role in the affairs of the organization and determine the effect of corporate activities on the societies where the company resides.
A director must not pause, as far as possible, to consider the need to achieve equal results among participants.
2. Use power for a proper purpose
Only for the reason for which they were intended could a director use their control. Their key focus is to support the association. If they intend to help themselves or to get hold of the business, it is a violation of duty.
The positive will and fair conviction of a director that their decisions would help the company do not preclude them from responsibility for a power infringement.
To forestall a takeover bid, a director issues shares. He feels he is working in the best interests of the business. But the right to issue shares was given to him only to collect money for the venture. This suggests that he inappropriately exercised his authority and abused his position as a manager.
3. No Delegation of Power Without Proper Authorization
In a corporation, a director has nearly unlimited power. Only the stakeholders have more power and can limit the authority of the director through association articles or resolutions. Members of the board of directors can divide the duties or set up committees to make the right decisions on certain issues. They will also name a managing director or a CEO who can guarantee the company’s day-to-day management.
Without permission from a director, a board of directors, or shareholders, no one but a director can exercise their powers. Terms of proper permission are typically specified in the papers of the corporation or a shareholder resolution. If allowed, a director can delegate some of his minor functions to the senior management of the organization, for example.
A director can rely on professional assistance from hired professionals when making a decision. They are nevertheless not bound by the guidance of the authorities and must exercise critical judgment. It is just the director who makes the final decision and they are held accountable for all of the damage that happens.
4. Exercise care, skill, and due diligence
A director is expected to manage the business with fair concern. They must, in other words, hold and use:
- The general knowledge, capacity, and expertise that can fairly be expected of a person in the role of a director;
- Taking into account their real qualifications and educational history, the general understanding, competence, and expertise of the individual manager.
Informs of social relations, corporate law allows a director to show good caution and due diligence. A sufficiently conscientious person is expected to exhibit the director’s treatment, ability, and diligence.
5. Avoid conflict of interest
A director must prevent circumstances in which they have to choose between personal benefit and the needs of the company.
A director cannot create a competing corporation and operate against the enterprise where they are working. Nor may he illegally hold a managerial role in two firms in the same sector or have relatives who work with a direct rival.
A director must report the problem to the shareholders and fellow directors if a conflict of interest occurs.
6. Avoid Transactions Favoring Directors’ Interest at The Cost of The Company
Following the Articles of Association, a director must act. It is necessary to reveal the existence of the interest concerning any transaction following the regulations. Unless he has agreed with the responsibilities, a director does not enter into a contract in which he has the material interest and the business is a party.
In Hong Kong, one of the directors’ responsibilities is to comply with the law’s conditions to enter into a transaction with the company.
7. Not Trying to Abuse Power
As a director, a company director has a responsibility not to exert powers to achieve any benefit from his/her position, which may be a drawback to the company’s interest.
8. No Unauthorized Use of Property
A director must refrain from improper use in his interest, of the company’s property or knowledge. Until the uses or advantages are disclosed in a general meeting and have the shareholders’ permission, he/she does not seek to gain benefit from any incentive that comes to his attention as a business owner
9. Do not accept any personal benefit from third parties
Since they are a director, a director or a retired director must not consider the privileges, gifts, and bribery that anyone gives them. It’s also not okay if you are given a stake of their business by a prospective contractor or asked to spend a weekend in exchange for something at their villa in the Bahamas.
A director can, however, accept these advantages if the shareholders let them.
10. Act following The Company’s Law
A director has to behave in compliance with the company’s governing constitution, memorandum, and articles of association. He/she is powerless to act against the legally defined resolutions.
11. Keep accounting records
A company director must ensure that the corporation maintains accounting books in a timely and correct manner. These documents must genuinely represent the company’s financial position and its history of purchases.
If they know the business is close to insolvency, a director does not take out a loan. Otherwise, there might be theft charges against them.
Being a director is not easy to do. Aside from making serious decisions every day if anything goes wrong, they must still bear in mind the legal repercussions they can face.
On the other hand, if you only remain faithful to the organization, it seems easy to comply with the specifications
In any event, before undertaking the duties of a manager, make sure to get organized.
And don’t forget that a company secretary is needed by every director to help him handle the firm.