Is a Resident Director required for a company in Hong Kong?

Varun Hariharan

23 Nov, 2020

All companies require having minimum amount of directors. This would be in compliance with the requirements of the respective local laws.

Hong Kong is one of the largest financial centres in the world. Hence, this will attract lot of talent from different areas. Many investors will want to set up establishments such as companies and partnership firms.

A company or a limited liability company is a legal entity whose status is separate from the directors and shareholders of the organisation. These companies require having a resident director. A resident director is an individual who fulfills all the requirements relating to resident in Hong Kong.

How do companies carry out transactions under contracts?

Under the commercial sphere, companies are considered artificial legal persons under relevant regulations.  As artificial entities, companies can either purchase properties or enter into contracts. However, negotiation and entering into contracts is not carried out by companies. On behalf of companies, agents would carry out different forms of transactions.

Agents are the directors and shareholders of the company that carry out respective transactions on behalf of the company. Hence directors would have the authority to enter into contracts on behalf of the company. The authority that is enjoyed by directors would either be classified as apparent authority or the express authority.

What is the main regulatory authority for Resident Director in Hong Kong?

The primary regulatory authority for Companies Legislation in Hong Kong is the Companies Ordinance (Cap 622). This ordinance regulates the formation of companies and the procedure in which a company operates in Hong Kong.

Apart from this, the appointment of resident director in Hong Kong is also regulated by this ordinance.

Resident Director is an individual who is either a local resident of Hong Kong or an international worker. Compliance has to be met for appointing a resident director in Hong Kong.

The appointment of directors is governed by section 459 (1) of the Companies Ordinance of Hong Kong. 

The following criteria have to be followed for appointment of a director in Hong Kong:

• Under section 459(1) of the company’s ordinance, a resident director can be appointed by a company.
• The individual has to attain the age of majority while he is appointed. Apart from this, the individual has to be of sound mind.
• Under section 459(2) any appointment of a resident director which goes against the provision of section 459(1) is void.
• Apart from this, all companies whether they are private or public have to appoint directors in compliance with section 460 of the companies’ ordinance of Hong Kong.

If the above requirements are complied with, then the director can act for a company.

How to satisfy the criteria of a resident director in Hong Kong?

In order to satisfy the criteria of a resident director in Hong Kong, the following criteria has to be satisfied:

• The director has to satisfy the requirements under section 459 of the companies’ ordinance of Hong Kong. This requires the director to be competent to carry out work in accordance with the requirements of the company.
• Apart from this, the resident director has to be appointed in accordance to the provisions of the companies’ ordinance in Hong Kong.
• The appointment of a director has to be in accordance with the provisions of section 460 of the companies’ ordinance.  The appointment of a director would be a mandatory requirement for a public company and a private company. 

The following has to be complied with when appointing a director:

• In the general meeting or shareholders meeting in a company, the motion or resolution for appointment of director must be taken.
• This resolution for appointing the director must contain an agenda for the appointment of directors.
• The members in the meeting have to take a vote for the resolution for the appointment of directors.
• Without this, no director can be appointed by the company. This comes under section 460(2) of the companies’ ordinance of Hong Kong.
• Apart from this, the director has to comply with the requirements of the companies’ ordinance.

Board of Directors

The Board of Directors of the company take all the decisions on behalf of the company. The board will comprise of different forms of directors. These directors will include non-executive directors, executive directors, independent directors, and resident director.

All the acts of the company are taken by the board of directors. Hence if the company wants to conduct a particular transaction, a resolution has to be passed in the board meeting. After this resolution is cleared in the board meeting, it must be passed by the general meeting of the company.

A resident director can also form a part of the board of directors and act as per the decisions which are made by the board.

What are the requirements to become a resident director in Hong Kong?

The following are the requirements to meet the eligibility criteria to become a director in Hong Kong:

Satisfy the requirements of the Companies Ordinance (Cap 622) – In order to be eligible to be considered for the position of a resident director, the applicant and the company must fulfill all the requirements which satisfy the eligibility. This would also include fulfilling the requirements as per section 459 of the Companies Ordinance (Cap 622). The director has to be appointed as per the provisions of the ordinance. The director must be a major to be appointed by the company. Apart from this, the director must not have any form of disqualification.

Qualifications- Any director must satisfy the requirements and meet the qualifications which are prescribed by the company. This is not compulsory as it may not be a mandatory requirement for a particular company. Hence, on a case to case basis the qualification criteria for a director would matter for a particular company.

No form of Criminal Convictions– Directors should not be disqualified under any law in force. Any form of disqualification would not allow the individual to act as a director of the company.

Requirement of a particular country– Certain jurisdictions such as Hong Kong, Singapore and Ireland require a company to have either a domestic or foreign individual to be a resident director. To fulfil the above requirements the individual has to be a permanent resident of a particular jurisdiction and have a local address for correspondence. To be competent, the individual has to be a resident of the country.

One Director for Private Limited Company- Directors are required for all forms of entities. This will include a private limited entity and a public limited entity.

As per the Companies Ordinance of Hong Kong, private limited companies are required to have only one director. This requirement comes under section 454(1) of the companies’ ordinance of Hong Kong. Under section 454(2) any individual whose name comes on the incorporation document is deemed to be considered the first director of the company.

Reserve Director- A private company under section 454 of the companies’ ordinance of Hong Kong requires appointing only one director. Under section 455 of the companies’ ordinance, a company being a private limited company can pass a resolution or a motion in the appointment of a reserve director. This reserve director should only satisfy the requirement to be an alternative, in case of incapacity of the sole director or the death of the sole director. The appointment of the reserve director must be in accordance to the provisions of the companies’ ordinance.

Public Company- More than one director can be appointed to handle the affairs of a public limited company. Public companies require having more than one director to carry out affairs of the company. This requirement comes under section 453 (1) of the companies ordinance of Hong Kong.

Company Limited by Guarantee- Any company that is limited by guarantee must only have one director. The requirement of a company limited by guarantee to have only one director comes under section 453(1) b.

Company cannot be a Director- As per the Companies Ordinance of Hong Kong, a company (private limited or public limited) company cannot be appointed as a director. Such provision is present under section 456 of the companies’ ordinance in Hong Kong.

Under this provision, the following are not allowed to be resident director in Hong Kong:

• Any form of public company;
• Any form of private company that belongs to a member of a group or subsidiary of a public company; and
• Any form of company formed which is limited by guarantee.
• Under section 456(2) the companies’ ordinance of Hong Kong strictly does not allow any form of body corporate to be appointed as a director.

Natural person- Under the companies’ ordinance of Hong Kong, a company has to have at least one director as a natural person. Hence to fulfil the above requirement, a private company should have only a natural person as a director. However a public company can have natural persons. Under no circumstance can a company be allowed to have company as a resident director.

Hence, companies that want to carry out operations have to appoint only legal persons as directors.

Documents of Directors must be delivered to registrar- The documents of directors have to be delivered to the registrar to fulfill the requirements. This provision is present under section 67 of the companies’ ordinance of Hong Kong.

Foreign Directors- Companies are allowed to appoint foreign directors. However, the appointment of foreign directors must be in compliance with the relevant rules under the Companies Ordinance.

Does a Resident Director have any duties?

The definition of a resident director would have the same meaning of a director under the companies’ ordinance of Hong Kong.  A director is defined to manage the affairs of a company. This definition is present under the companies’ ordinance of Hong Kong. Hence the duties of a resident director would be the same as a normal director.

Duty of Care- The principle of duty of care has been evolved from common law courts in the UK. This term has evolved from the famous case of ‘Donoghue v Stevenson^[1]’ which is considered under the law of torts. Under this principle of duty of care, a director has to ensure that care is taken when handling the affairs of the company.  This would include any circumstance or transaction which is taken in the benefit of the company.

Fiduciary Duties- Directors have fiduciary duties under the Companies ordinance of Hong Kong. To understand the fiduciary nature, it is important to analyse the relationship between the trustee and the beneficiary. A trustee manages the trust property for the fiduciary. Similarly the director has to manage the affairs of the company for the benefit of the stakeholders. Here the stakeholders of the company will be the ultimate fiduciaries of the company.

Good Faith- It is the ultimate duty of the director to act in good faith for the company. Good faith here means doing anything in the interests of the company. For example, if the director enters into any transaction which benefits the company, then such transaction would be considered under the principles of good faith for the company. However, if the transaction entered into by the director goes against the principles of good faith, then such transaction would be null and void.

No Conflict of Interests- Any resident director must not have any conflicts of interests. Conflict of interest is understood as a clash of two or more important interests of an individual. If there is a clash in interests of an individual resident director, then integrity must be used to analyse which comes as a priority over the other interest. For example, a company has a director, who is also appointed as a partner for a service firm. If the company enters into a contract with the service firm, and if the interests of the director cross each other then such is known as a conflict of interest.

Conclusion

Read our article:Appointment of Directors under Companies Act, 2013