25 March 2021
Reserve V.S. Alternate V.S. Nominee Director, what are the differences?
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 1987. With over three 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.
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.
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.
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:
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.
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.
In summary if you are running a one-man company in Hong Kong and are currently of thinking about ways to continue your business in case unforeseen circumstances there are way you can go about structuring your ready so you’re ready for anything. Below we have created a summary for Alternative Directors and nominee Directors. For more information about incorporating your company in Hong Kong please contact Primasia through our website:
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Primasia Corporate Services is a Hong Kong based corporate services provider that has been supporting its clients in Asia for over three decades. Among several of our services, Primasia Hong Kong (Primasia) offers our clients Online Accounting Xero services, China Company Formation services, Virtual CFO services, MPF Filing services, Profit tax filing services, Employment return filing services, Wholly Foreign Owned Enterprise (WFOE) incorporation and registration services etc. One of our services which we are proud to be offering our clientele is our investment visa HK and working visa Hong Kong services.
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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 1987. With over three decades’ worth of experience and knowledge in the field, we have been able to successfully incorporate our clients in top business locations across […]