Company directors are an essential part of Hong Kong companies and according to the Hong Kong Companies Ordinance, is a required position. While the details surrounding the appointment of a company director and the eligibility requirements associated with this position are well documented, the responsibilities are not often highlighted. In this article, we explain a typical Hong Kong director’s duties and responsibilities and the consequences around failing to adhere to them.
In This Article You Will Learn
2.1 Make decisions for the benefit of the company and its owners
2.2 Observe the company’s Articles of Association
2.3 Evaluate the performance of the company’s executives and managers
2.4 Report to shareholders about the company’s activities
2.5 Maintain proper accounting books
1. What Are Company Directors And What Do They Do
Company directors are individuals that are responsible for the management of a company on behalf of its shareholders. Company directors maintain a fiduciary responsibility to these individuals to act in good faith, and in their best interests.
Typically, a Hong Kong director’s duties and responsibilities vary from company to company and are derived from the business needs. Regardless, all Hong Kong company directors are expected to adhere to general principles which encourage the fulfilment of their job responsibilities in a certain manner.
2.1. Make decisions for the benefit of the company and its owners
A Hong Kong company director must determine the long term strategic objectives and policies of their company and ensure that these objectives are met. These decisions are typically made by voting on proposals brought forth by the company’s CEO. It is through these decisions that a company director can ensure that the company and its owners are benefitting from the company’s actions.
To be able to make these decisions, company directors have the continuous obligation to acquire and maintain sufficient knowledge of the company’s business as this acquired knowledge will allow them to properly carry out their duties.
It should be noted that the relationship between a parent company and its subsidiary can put a company director in a difficult situation as the relationship between these two entities can create a conflict of interest in the director’s actions. In this scenario, a company director owes his duty primarily to the company to whose board he is appointed to.
2.2. Observe the company’s Articles of Association
A director of a Hong Kong company must always act in accordance with the company’s Articles of Association, which is a form of document that defines the company’s operations and business purpose. This document also outlines processes and corporate governance, such as how directors may be appointed and the handling of financial records. Most importantly, the Articles of Association commonly details the specific job responsibilities of the company directors.
2.3. Evaluate the performance of the company’s executives and managers
Firstly, company directors do not necessarily oversee the everyday business operations of a company, that task is left to a company’s executives and managers. However, company directors may evaluate whether the company is meeting its long term strategic objectives by evaluating the performance of the management staff.
A company director may evaluate management staff via the following:
- Performance in meeting set business goals and objectives
- Monitor the company’s performance reporting for its staff
- Review individual business decisions made by management to ensure that all decisions were made in accordance with the agreed strategies and policies
- Ensure proper corporate governance is maintained
2.4. Report to shareholders about the company’s activities
In accordance with Section 452(3) of the Companies Ordinance, Hong Kong company directors are statutorily required to annually publish a directors report which outlines the state of the company’s business operations.
The director’s report must be approved and signed by the company’s Board of Directors and presented to the shareholders, alongside the annual audited company financial report, at the company’s Annual General Meeting.
A directors report must contain the following information:
- A business review that describes the principal risks and uncertainties facing the company, particulars of important effects that have occured since the beginning of the financial year and future plans
- Details of any shares / debentures issued
- Details of any equity-linked agreements entered into by the company
- The amount of donations made by the company and its subsidiaries
- Recommended dividend
- Disclosure of any permitted indemnity provision
- Reasons for a company director’s resignation (if a company director has in a financial year resigned from their position)
2.5. Maintain proper accounting books
Company directors are responsible for the management of a company on behalf of its shareholders, and as such, have a duty to ensure that the company remains compliant with all the legal obligations and regulatory requirements the company is subjected to – this includes financial reporting.
Company directors are required to take all reasonable steps to ensure that the company’s financial statements are annually audited. Upon each successful audit, the Board of Directors must sign and approve of the newly completed audited financial statements.
The annual audited financial statements will be provided to shareholders alongside with the director’s report. Therefore, the prompt completion of both sets of documents will not only provide shareholders with a true and fair representation of the current state of affairs of the company, but will also help explain any developments that have occurred.
3. Company Director Non-Compliance
Every company director, and officer of a company, has the responsibility to ensure that the company has complied with all provisions stated in the Companies Ordinance. To the extent that a company director fails to comply with these provisions, the company and every responsible person will be liable to prosecution and fines.
While the maximum level of fine that companies may be subject to vary depending on the offence committed, serious regulatory offences under the Companies Ordinance can result in possible imprisonment.
Company directors hold vital roles within a company. Not only is the long term success of a company dependent on the quality of their company directors, but the confidence of the company’s shareholders are as well. FastLane is a licensed Hong Kong company secretary that has extensive experience in advising SMEs on their company director responsibilities. Please contact the FastLane Group for help!