A guide on director's duties in Hong Kong
4 minute read
The company constitution, the statute law, and the case law govern the responsibilities of a company director in Hong Kong. The law lays down the director’s duties in Hong Kong that they must comply with. A director is encouraged to attend regular seminars, training sessions, conferences, and forums on matters of risk management and corporate governance ethics.
A director who does not comply with the law is liable to civil and criminal proceedings and may be disqualified from the post. It is, therefore, important that a company director is abreast of the latest changes in statutes, corporate governance practices, and the laws governing their duties and obligations so they can perform at their best conduct and discharge their duties effectively.
Principle 1: Act in good faith
Every director is responsible to act in the best interest of the company shareholders so as to benefit the company as a whole. In carrying out a director’s duties in Hong Kong, they must exercise independent judgment with due diligence and reasonable care while showing regard for the interests of employees. A company director is responsible to act in good faith to foster a relationship with clients, customers, and suppliers. He/she should take an active interest in the company’s affairs and assess the impact of the business operations on communities where the business operates.
As far as practicable, a director must not hesitate to consider the need to achieve fair outcomes between members.
Principle 2: Use power for a proper purpose
Every director must execute powers in accordance with the terms for which they have been granted. This means he/she must not exercise power for any other purpose for which it has not been designated. The exercise of power must be in accordance with the Articles of Association and for the benefit of the company. A director must not exercise power for any other reason, such as gaining control of the company or deriving personal benefits.
A director’s duties in Hong Kong is to use power and position for the benefit of the company and shareholders.
Principle 3: No delegation of power without proper authorization
A director must refrain from delegating power without proper authorization. Unless it is specifically mentioned in the articles of association and company memorandum that a director can delegate some of his powers in specific matters, he/she is required by the law to exercise independent judgment.
Principle 4: Exercise care, skill, and due diligence
The company law requires a director to exercise reasonable care and due diligence in matters of company affairs. The director is expected to exhibit care, skill, and diligence of a reasonably diligent person.
Principle 5: Avoid conflict of interest
There should be harmony between the interests of the company and the director’s personal interests. A director must refrain from making any decision in their personal interests at the cost of the interests of the company. In case of conflict of interest, personal interests should take a backseat. The director’s decision must be motivated by the interests of the company and its shareholders.
The director must try to avoid a conflict of interest between their personal interest and company duties. According to the law, one of the director’s duties in Hong Kong is to reject any benefits from a third party that might come to them.
They are required by law to declare their direct or indirect interest in conducting a proposed transaction. Where applicable, the approval of other directors and members is a must when it comes to disclosing and acting on an interest.
Principle 6: Avoid transactions favoring directors’ interest at the cost of the company
A director must act in accordance with the Articles of Association. In compliance with the law, it is important to disclose the nature of interest with regard to any transactions. A director must not enter into a transaction in which he has the material interest and the company is a party until he has complied with the duties.
One of the director’s duties in Hong Kong is to comply with the requirements of the law in order to enter into a transaction with the company.
Principle 7: Not trying to abuse power
A company director has a duty not to exercise powers as a director to gain any advantage from his/her position, which might be a detriment to the interest of the company.
Principle 8: No unauthorized use of property
A director must refrain from the unauthorized use of the company’s property or information in his personal interest. He/she must not try to derive benefit from any opportunity that comes to his notice as a company director unless the uses or benefits are disclosed in a general meeting and have the consent of the shareholders.
Principle 9: No personal benefit from third parties
Unless the company confers a benefit to the director or former director, he/she must not show a willingness to accept any personal benefit from a third party.
It is one of the director’s duties in Hong Kong to reject any personal benefits that might be conferred on him by a third party because of his powers or position as director. He/she may accept any such benefit only if they have got the company’s consent by an ordinary resolution. A director may be eligible for any benefit that might accrue from his performance of any of the functions in that position.
Principle 10: Act in accordance with the company's law
A director is under the obligation to act in accordance with the constitution, memorandum, and articles of association that govern the company. He/she cannot act against the resolutions laid down by the constitution.
Principle 11: Keep proper accounts books
It is the responsibility of a company director to ensure timely and proper maintenance of accounts books. Timely updates of accounting records give a fair picture of the company’s state of affairs and transaction history.
Additionally, it is also one of the director’s duties in Hong Kong not to allow further credit if they are aware of potential insolvency. According to the Companies Ordinance, if a company director fails to do so, it will be a breach of Section 275 fraudulent trading provisions.
In Hong Kong, a minimum of one director is allowed or unlimited number of directors. To be a director in Hong Kong, the director can be of any nationality and does not have to be living in Hong Kong.
Directors have to be at least 18 years of age and must not be convicted for malpractices or be bankrupt. Directors can also be shareholders and the board meetings can be held at any part of the world.