Do you need a nominee director in Hong Kong?

Every Hong Kong private limited company must appoint at least one director who is a natural person. There is no residency requirement: a sole director living anywhere in the world satisfies the rule. Founders nonetheless reach for nominee arrangements, usually for one of two reasons: to keep their name off a public register, or to give the company a local face for banking.

Neither reason survives much scrutiny, and understanding why saves a lot of expense.

What a nominee director actually is

A nominee is appointed to the office of director and holds it on behalf of someone else, typically under a service agreement and an indemnity. The critical point is that the register does not record the arrangement. To the Companies Registry, the auditor, the bank and any counterparty, the nominee is simply a director, with the full statutory duties that attach to the office.

Those duties are real: to act in good faith in the company's interests, to exercise reasonable care, skill and diligence, to avoid conflicts, and to approve the financial statements. A director who signs accounts they do not understand has not discharged that duty, and the private indemnity does not change the statutory position.

Three roles that get confused

A reserve director may be nominated by a sole shareholder who is also the sole director, to take office if that person dies. An alternate director acts temporarily in place of an appointed director. A nominee director holds the office substantively on another person's behalf. Only the third raises the control and disclosure questions, but the terms are used interchangeably in marketing material.

Privacy is largely unavailable anyway

Hong Kong requires companies to keep a significant controllers register, identifying the natural persons who ultimately own or control the company. It is not a public filing, but it must be kept at a designated location in Hong Kong and produced to law enforcement on demand.

Banks go further. Onboarding requires identification and verification of every ultimate beneficial owner regardless of who appears as director, and the bank will want to understand why a nominee is in place. Rather than accelerating account opening, an unexplained nominee typically slows it, since the bank now has a control question to resolve before it can proceed.

Where it is legitimate

There are proper uses. A group that needs local signing capacity in the window between an executive leaving and a replacement arriving. A fund or trust structure where the sponsor is deliberately separated from the operating entity for governance reasons. A joint venture where an independent director sits on the board by agreement.

In each case the arrangement should be documented in writing, indemnified in both directions, limited in scope, minuted at board level, and reviewed annually. It should also have an end state: a nominee arrangement that has simply persisted for six years usually indicates that nobody revisited the original problem.

The alternative to consider first

In most cases the better structure is a founder appointed as director, with a Hong Kong licensed company secretary and registered office handling the statutory work: maintaining the registers, filing the annual return, preparing board resolutions, and keeping the significant controllers register.

That combination satisfies every statutory requirement, keeps control with the people who actually run the business, presents cleanly to banks and auditors, and costs less than a nominee service. It is also far simpler to unwind if the structure changes.

Our corporate team will walk through that option before proposing anything else, and we are licensed as a trust or company service provider to carry out the secretarial work.

Additional original detail

Primasia is a Hong Kong based company incorporations service provider, which has been supporting both existing and potential clients here locally and overseas from across the world since 2002. With over two decades’ worth of experience and knowledge in the field, we have been able to successfully incorporate our clients in top business locations across Asia. All about Reserve Director , Alternative Director , and Nominee Director .

Hong Kong offers a very business-friendly environment for employment, both for the recruitment of local staff and for the relocation to Hong Kong of overseas staff. In addition, Hong Kong offers a pool of multilingual, skilled labour with a strong work ethic. Because of our employee-friendly rules, management/labour disputes involving individuals are rare and strikes are virtually unknown to Hong Kong.

When setting up companies in Hong Kong, the most used company structure is the private company limited by shares. A private limited company in Hong Kong requires at least one director and one secretary. If a company has only one director, the director cannot be he secretary of the company at the same time. However, setting up a Hong Kong company especially a private company limited by shares is the first step to starting a business domestically or overseas. IF you are the director and the shareholder of your new company on draft, you have to be aware of the particular positions of your company. These are namely as Reserve Director, Alternative Director, and Nominee Director. In this article we will go over their meanings and their functions.

Reserve Director

Imagine if you set yourself own company as a sole-director company. What happens to your company if you as the director fall ill and is unable to carry out your responsibilities as director? To tackle this issue and adverse a potential problem, you can complete a nomination of a reserve director of your company in advance. According to section 455 of HK Companies Ordinance:

‘A private company having only one director may nominate a natural person who is at least 18 years old as a reserve director to act in the place of the sole director in the event of his or her death. The nominated reserve director will automatically take the position of the dead director, so the company preserves its continuity. On the contrary, the nominated Reserve Director ceases its nomination automatically when the company has appointed additional director(s); the number of directors is two or more.’

Because of this, the nominated reserve director will receive the same level of remunerations once they take office from the decreased or unable party. Although the nomination is optional per law, the law can override anything in the company’s article bylaws. Per the law, your company can complete the procedure by passing a resolution at a general meeting and take effect accordingly. To assign a reserve director, the company must submit a Notice of Change of Reserve Director . (Nomination/Cessation) (Form ND5) to notify the Registrar of the Companies Registry within 15 days after the nomination/cessation of the appointment of the reserve director.

Alternative Director

Are you preoccupied with other matters to manage your company? if your answer is yes, there is a practical solution available. This is appointing an alternate director. You may officially authorize an agent on your behalf to represent you as an appointee to carry out your duties and responsibilities. In other words, the appointed agent by you is an alternate director for your directorship during your unavailability.

According to the HK Companies Ordinance, companies limited by shares are eligible in appointing alternate directors. However, whether the company allows the appointment of alternate directors is determined in the company’s articles. If your company’s articles do not include such expression, you are not able to appoint an alternate director. If you plan to enable the function of alternative in your company, the procedure for appointing an alternative director is set out in the articles. This process is commonly seen in other private companies; any other existing director or individual as his or her alternative by a resolution motion passed by the company’s board of directors. These articles usually have included that an alternative director has the same rights and responsibilities as the individual that has appointed them when making any decisions.

Alternative directors are usually a director for all purposes in the company. Their liabilities around the directors and their alternative directors may be confusing to people externally to your company. Therefore, according to section 478 of the CO ‘Appointing directors are vicariously liable for acts of their alternate directors unless the company’s articles contain any provision to the contrary; secondly, the alternates are personally responsible for any illegal action or omission.’

existing director can be appointed as the alternate director to another director of a company. If this arrangement happens during a director meeting, the same director will have double voting power.

Nominee Director

As per Hong Kong company law, there is no official position named ‘nominee director’. However, it is a popular terminology across the field about company formation and incorporation. So, what are its advantages and disadvantages:

Advantages

As a company incorporation and registration firm , we can clearly see a correlation of our clients being more afraid of the number of their key details being exposed and put in the public eye especially when the individual takes the role of director or shareholder of a Hong Kong company (discover all about payroll outsourcing in Hong Kong ).

This is especially the case since the Hong Kong registry need your name, residential address , and passport information which will be live and available for public access after that information is given. Using a Nominee Director would allow you to appoint a proxy or an agent in your place allowing the nominee to act as their company’s members on their behalf as a to create some privacy from the public eye.

The nominee functions like a business contract between an appointer and a nominee. He or she lends his name to the appointer to act as a member of the company for a previously agreed fee. In addition, a legal document named ‘Power of Attorney’ (POA) states that the nominee will hand over all their power and responsibility of being a member of the company back to the original appointer. This will only be on the direct direction of his appointer.

Disadvantages

Although the law does not ban the involvement of the nominee in any business activity both the director nominee and the original appointer are facing similar relatable risks.

The nominee is still responsible for the offence as the consequences of their actions regardless of Power of Attorney. This means the appointers lacks the measures to monitor their nominee’s activities. If the nominee breaches the POA for there personal gain, such as selling the company’s shares without the proper instructions, the appointer has poor legal ground to the company shares back from the buyer. This is because the appoint nominated the nominee to be in that position and the nominee is on technicality a official member of the company according to the governments records.

At least, the appointer’s identity is not confidential to the law enforcement and the financial institutions. This is due to the enactment of Significant controller on a company and company due diligence. According to Hong Kong company law for Significant Controllers Regime, the company is also responsible for the recording of every natural person who is holding 25% or more of the power of benefit in the company.

This contact information and status for the controllers are stored in a document internally at the company, this is called Significant Controllers Register.

This document is available for inspection by law enforcement upon request. The nominee in question has to express its position and the identity of his appointer.

Otherwise the nominee is legally responsible for the apparent omission of the appointer on the Significant Controllers register form, who in this situation is the real controller within the company.

Under an appointer-nominee arrangement, the nominee is never taking part in the activities of the company, so he is not eligible to represent the appointer to complete the due diligence process, resulting in rejection of account opening or termination of the existing account (check our Cloud accounting services ). Fulfilling with the FIs, the appointers inevitably unveil themselves as the controllers behind the nominee.

Alternative Directors Nominee Directors

Limited companies may include provision about using alternate directors. If the provision of alternate directors is present in the company’s articles, the articles should state the rights of the alternates and the procedure for their appointment and cessation. Otherwise, per section 478 of the CO, an alternate director is deemed to be the agent of the director who appoints the alternate director for every purpose. The articles must provide that the appointment and termination clause for alternate directors. Usually, passing respective resolutions by the board of directors is sufficient. Reporting to the CR of any changes related to the alternate director is mandatory. Nomination (and cessation) of reserve directors is under section 455 of the Companies Ordinance (CO) Only the company with sole director can nominate a reserve director. The reserve director must be a natural person of at least 18 years old. The reserve director becomes the director when the director dies. The nomination is not mandatory, but the Companies Ordinance has a provision in the procedures of nomination (and cessation) of the reserve director, despite anything in the company’s article. Reporting to the CR of any changes related to the reserve director is mandatory.

If you wish to set up a company in Hong Kong, Primasia would be more then happy set up and incorporate your business in Hong Kong. With our expert assistance, establishing a company in Hong Kong is an easy process. Your business could be up and running in less than a week! Please visit our website here for in-depth details, including setting up different types of businesses, minimum requirements for company registration, an approximate timeline for incorporation (approximately 3-5 business days), opening a company bank account and more. Or you can email us at info@primasia.hk or call 852 2882 2088.

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