Shareholder Obligations, Director Duties

Hong Kong maintains a low barrier of entry in respect of company formation. The city imposes few restrictions during the company formation process but notably maintains requirements pertaining to the key positions to be held within a company. In accordance with the Hong Kong Companies Ordinance, a Hong Kong company must have at least one director and one secretary. However, shareholders are also an integral part of Hong Kong companies and are found as commonly as a director or secretary. In this blog, we will detail the key responsibilities and duties for these three roles.

1. Company Director
Company directors are individuals who are elected or appointed to a company’s board of directors. These individuals are elected to manage a company’s business and affairs on behalf of the company and its’ shareholders.

1.1. Company Director – Responsibilities and Duties
As Company directors are responsible for the management of the Company on behalf of its shareholders, they maintain a fiduciary responsibility to act in good faith and in the best interest of the company and its shareholders. Such responsibilities involve ensuring the company’s business operations are aligned with the set goals and direction

The Hong Kong Companies Registry has outlined 11 general duties that a company director must adhere to in the execution of their role: Company Directors who are deemed to have failed in performing their duties as stated by the Companies Registry may be subject to legal proceedings and may be disqualified from their position as Company Director.

1. Duty to act in good faith for the benefit of the company as a whole;
2. Duty to use powers for a proper purpose for the benefit of members as a whole;
3. Duty not to delegate powers except with proper authorisation and duty to exercise independent judgement;
4. Duty to exercise care, skill and diligence;
5. Duty to avoid conflicts of interest between the company and themselves;
6. Duty not to enter into transactions in which the company directors have an interest except in compliance with the requirements of the law;
7. Duty not to not abuse the position of Company Director;
8. Duty not to make unauthorised use of company’s property or information;
9. Duty not to accept personal benefit from third parties conferred because of position as a director;
10. Duty to observe the company’s constitution and resolutions;
11. Duty to maintain accounting records

2. Company Secretary
A company secretary is NOT a clerical assistant. A company secretary holds a senior position in your company and is appointed by the directors of the firm. The company secretary is not only responsible for working and interacting with the directors and shareholders of the company but is also responsible for communicating with the government and regulatory bodies (e.g. the Registrar of Companies, IRD, SFC, and the Stock Exchange of Hong Kong) to ensure that the firm complies with regulations.

2.1. Company Secretary Requirements
For all Hong Kong incorporated companies, the Company Secretary can be an individual or even a company. In the case that the company appoints an individual as a secretary, they must be a resident in Hong Kong. If a company is appointed as the company secretary, it is compulsory to have a registered office or a place of business in Hong Kong. The first company secretary from the date of incorporation of a company needs to be set out in the Company’s incorporation form.

A director of a company may be the company secretary of the company in the case that he is not the only director of the company.

2.2. The Importance of Company Secretary
Company secretaries are responsible for ensuring statutory compliance with regulations through the provision of professional guidance and advice to their companies. Such responsibilities also include ensuring that all legal documents and filings are punctually submitted to avoid penalties.

To receive all government correspondence

Assist in the preparation and filing of the Annual Return

Manage shareholders and directors registrations

Conduct records of directors’ appointments and resignations

Prepare agendas and minutes of board meetings and annual general meetings

Assist in shares issuance and transfer

Verify company deregistration

Maintain the statutory book

You may also appoint a company secretary to assist you in incorporating a company. (FastLane is a Hong Kong licensed Trust Corporate Services Provider (TCSP Licence No. TC000758))

3. Company Shareholders
A company shareholder is any individual, company or institution that owns at least one share of a company’s equity. In owning equity of a company, shareholders become beneficial owners of the company and receive entitlement to any profits generated. The quantity and value of the shares held dictate the decision-making power of a shareholder and holds significant influence over their profit compensation.

3.1. Company Shareholders – Responsibilities and Duties
Typically, shareholders are not involved in the daily operations of a company. Shareholders’ main responsibility is to pass resolutions brought forth at general board meetings by voting in their capacity as shareholders. Often, the strength of a vote will be determined by the proportion of the company’s shares held by each shareholder.