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A nominee director is one of the most critical appointments for companies in Hong Kong.
For companies set up in Hong Kong, the appointment of at least one director is mandatory.
Many investors, especially those involved with offshore companies, prefer to keep their identity confidential, and that’s where a nominee director can come in handy.
Nominee directors are third-party directors that are appointed to conceal the identity of the actual director.
They can be a replacement for an investor or financial institution.
This article will look at ten FAQs about nominee directors in Hong Kong.
1 – What is the legal requirement of appointing a nominee director?
Given that Hong Kong ranks high on the list of ease of doing business and lives up to the moniker of the world’s freest financial hub, many investors hold shares in various Hong Kong Companies.
However, some investors may be unwilling to publicize the details of investment and their beneficial ownership in these companies.
On the other hand, the Companies Ordinance makes it mandatory for company owners to disclose their identities.
So the law allows for the appointment of nominee directors to protect the identity of the actual investor.
Appointing such a third-party director can also help foreign investors avoid a hefty tax slip.
It is also possible to appoint a nominee shareholder through a nominee shareholder service who can perform similar functions as a third-party director.
2 – What is the procedure for appointing a nominee director?
Since appointing such a director is to conceal the real investor’s identity, the process involves a few steps and the execution of certain documents.
These documents ensure that the nominee always acts on the directions received from the beneficial owner.
Here’s an overview of the documents executed for the appointment of a nominee director:
- Nominee director statement: this refers to a service agreement executed between the beneficial owner and nominee. This agreement states that the appointed nominee director has agreed to represent the company and act based on the instructions received from the beneficial owner.
- Power of attorney: This document is executed by the beneficial owner and evidences the transfer of power to the director. The rights to perform transactions, open bank accounts, execute documents, and other activities necessary for the proper functioning of the company are provided in this document.
- Resignation letter: This undated by signed letter is used for re-transferring the rights when such director is no longer required.
- Declaration of Trust: The appointment is based on trust between the beneficial owner and the director. The declaration of trust is in the nature of a confidentiality agreement that ensures the identity of the beneficial owner remains protected at all times.
Please note that these directors are not nominee shareholders.
However, in certain exceptional cases, even such directors may hold shares in the company for a limited period of time.
3 – What are the duties of such a director?
The primary duty is to protect the identity of the beneficial owner and act in their interest.
Other specific duties are as per the instructions received from the beneficial owner.
Typically, these directors are responsible for carrying out transactions, opening bank accounts, operating such accounts, executing legally binding agreements on behalf of the company, collecting rents, etc.
4 – Are beneficial owners completely protected after appointing a nominee?
Such a director’s job is to prevent personal information about beneficial owners from becoming part of public records.
In case the beneficial owner breaches the law, leading to investigations by tax and legal authorities, the director can hand over the Power of Attorney to establish the identity of the true owner.
5 – How is a shadow director different from a nominee director?
A shadow director has the power to provide instructions within the company.
However, such directors do not have any authority to enter into binding legal obligations on behalf of the company.
They do not enjoy any statutory protection available to other directors.
Shadow directors don’t participate in corporate governance decisions as they are not real directors of the company.
In fact, most shadow directors are unaware of their rights and obligations. Liability insurance for directors and officers of the company does not cover shadow directors.
As a result, any mistake can result in the personal liability of a shadow director.
6 – Are there any disadvantages of appointing these directors?
Appointment incurs a significant amount of costs.
Since this is a service provided by a company engaged in nominee services, it is taxed as per the usual tax regulations.
If the beneficial owners act as the company directors, these costs can be avoided.
You may also encounter some directors who refuse to execute certain agreements, especially if there are serious consequences attached.
For example, a company that undertakes speculative trade may find it challenging to get the nominee to sign.
7 – Is a third-party director responsible for making active business decisions for the company?
No, all decisions are taken in consultation with the beneficial owner and the terms of the documents executed.
A power of attorney only makes it easier for the third-party director to act as the agent of the beneficial owner and take those decisions it has been empowered to.
8 – Should I involve the nominee director in the management of my company?
You may consider allowing such a director to be involved with the management of the company.
This will ensure that the director performs all the essential duties of a company director while maintaining strict confidentiality about the owner’s identity.
9 – Who is eligible to receive the dividend income?
The dividend income is the right of the beneficial owner.
The documents executed for the third-party director’s appointment must ensure adequate safeguards to prevent the director from siphoning the funds.
10 – Can I open a bank account for my company with such appointments?
Over the years, banks have been cautious about opening accounts for those companies that have a nominee structure in place.
Most outrightly reject such proposals.
The astronomical cost of compliance is often cited as the reason.
Moreover, banks also fear if these accounts are used for illegal activities such as money laundering and tax evasion.
If you plan to solicit the services of a nominee director service and appoint a nominee, it must be done right when the company is in a formative stage.
Since the names of the third-party directors are included in the articles of association, you must know who they are.
Struggling to appoint the right nominee for your company?
Get in touch with our specialized team, who can guide you through the process of company formation and clarify your doubts about appointing a third-party director.
With Air Corporate by your side, you can focus on your business while we take care of the rest. Set up a consultation with us today and get started.
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