Nominee Director in Hong Kong – The Ultimate Guide You’ll Ever Need

Companies in Hong Kong are required to have at least one director who is a natural person of any nationality (and not simply a corporation) to oversee the operation and take responsibility for the company’s affairs.

You may find it common that many directors choose to conceal their identity for various reasons and hire another person to act in their role, which is called a nominee director.

In this article, let’s explore the reason for having a nominee director, what they do, how they are appointed, and what you should be aware of during the process.

Overview of nominee director in Hong Kong

Generally, a nominee director refers to a natural person(i.e., an individual) who takes the directive role to protect the identity of the real company’s director.

A nominee director is unequal to a regular director, even though they have the same responsibilities. In most cases, the nominee does not have executive authority and will need to consult for approval before making decisions.

Despite being strictly non-executive, they can still oversee the company, undertake agreements, and ensure that the company is operating within the law.

Who can be the nominee director?

In legal terms, a nominee director must be a citizen or permanent resident of Hong Kong or have an Entrepass work visa.

Being chosen as the representative of the business, a nominee director must be someone who has the experience, responsibility, and professionalism. They have to do what is best for the company, assisting it in achieving its goals.

What are the responsibilities of nominee directors in Hong Kong

A nominee director does not have any power to make decisions, their role is purely administrative, and their main function is to ensure that the company complies with all relevant regulations and to take any necessary actions in the event of a legal dispute.

In Hong Kong, nominee directors are commonly used in private companies and family businesses. They play an important role in ensuring that the company is run efficiently and in accordance with the law, and can provide peace of mind to shareholders who may not have the time or knowledge to perform directors’ duties themselves.

Nominee directors must comply with a number of legal requirements, such as filing annual returns and company accounts and must also maintain adequate records of the company’s activities.

They may be held liable for any breaches of the law that occur in the course of their employment, so it is important that they take all necessary precautions to protect the company’s interests.

Despite their important role, nominee directors are often overlooked and undervalued. They play a crucial role in maintaining the good governance of companies and should be given the respect they deserve.

Pros and cons of appointing a nominee director in Hong Kong?

Pros

There are 2 key reasons why business owners choose to appoint a nominee director – confidentiality and tax advantages.

• Confidentiality

In certain cases, you may not want to disclose your involvement in the company, with the purpose to protect yourself from any potential legal issues or harassment, or you simply do not wish to make known publicly your interests, investments, or direct relationships with a company.

Nominee directors provide a high degree of confidentiality that helps you remain anonymous from the public gaze while meeting your statutory compliance.

• Tax advantages

If you’re a foreigner wanting to set up a company in Hong Kong, you’ll likely be worried about losing a chunk of your income due to taxation. Although the tax rates in Hong Kong are not as high as in other countries, you still want to avoid paying extra taxes.

Having someone else as a director will reduce the tax burden for you so that you can get more income from the company.

Cons

Nominee directors may sound beneficial to your business, but there are potential drawbacks to that, including business disruption and bank account opening.

• Business disruption

Despite acting the role on your behalf, most nominees directors don’t want to be involved in unwanted risk or face serious consequences regarding the company’s affairs.

As such, the nominee may express unwillingness to perform necessary tasks if they sense some risky or speculative ventures leaving them vulnerable, this can disrupt the business process, create inconvenience for both parties, and even cause you loss.

At the end of the day, this problem can be mitigated by an effective agreement between you and your nominee director, you should also make sure that the agent is willing to sign all the essential documentation before you hire them.

• Bank account opening with nominee structure

Several banks may refuse or make it difficult to open bank accounts if you appoint a nominee director, due to high compliance costs and risks. The anonymous nature of the nominee director, despite being legitimate, may raise suspicion for banks as they fear the business owners employ this practice for tax evasion or money laundering purpose.

How to appoint a nominee director?

Key consideration before appointing a nominee

Before going into detail about how to appoint a nominee director, there are a few key things you need to consider to make making the best decision for your company.

• The nominee director should be trustworthy and reliable
• They should have the relevant experience and knowledge to act as a director of the company
• They should be willing to take on the liabilities of the company
• There should be a written agreement between the shareholders and the nominee director setting out their roles and responsibilities

Some documentations that you need to prepare in the nominee director appointment process include:

• A shareholder’s resolution appointing the nominee
• The nominee director’s declaration of acceptance of the appointment
• A letter of indemnity between the nominee and the shareholders

Steps to appoint a nominee director

Once all the documents have been prepared, you can follow the 3-step process below to appoint your nominee director:

Step 1: Draft an agreement

The nominee should enter into a contract with the shareholders of the company. This is to ensure that they understand their roles and responsibilities as nominee directors.

The agreement should also set out the remuneration that they will receive, the duration of their appointment, and any other rights and obligations that they have.

Step 2: File with the Companies Registry

A nominee director form should be filed with the Companies Registry in Hong Kong. This must be done within one month of the nominee director’s appointment.

Step 3: Receive confirmation

Once the form is filed, the nominee director will receive confirmation of their appointment from the Companies Registry.

Shadow director and Nominee director: What’s the difference?

Despite the similar status as a company’s director, there are distinct differences between a nominee director and a shadow director.

A nominee director is officially appointed by the company’s directors to serve as their stand-in and manage any corporate affairs.

Contrastingly, a shadow director is an individual who has significant power to influence the company’s decisions, without being formally appointed to the board of directors.

Even though they may not be officially designated as board members, shadow directors are recognized by the law and have equivalent responsibilities to standard directors. These include but are not limited to:

• Ensuring that the company is compliant with all legal requirements
• Making sure company accounts are accurately kept and up to date
• Filing documents with the Companies Registry
• Managing a company’s finances responsibly
• Safeguarding shareholders’ interests and protecting their investments

A person might be considered a shadow director if, for example, he/she regularly negotiates on behalf of the company or takes responsibility for a whole area of the business.

The name and contact information of the nominee director will appear in the public record of the Companies Registry. Whereas a shadow director’s identity will remain unknown, except to the company, and thus is not legally required to be disclosed.

 Conclusion

When it comes to appointing a nominee director for your Hong Kong company, it is important to be aware of the benefits and drawbacks of this decision.

Appointing a nominee director can provide you with some added protection against public exposure and scrutiny from the authorities. Yet, you may find it difficult to open a business bank account under the nominee structure.

Before making a decision, it is important to consider these factors and consult with an experienced corporate service provider. If you decide that a nominee director is a right choice for your business, then it is important to choose someone with the right skills and experience.