During the registration of a business in Hong Kong, all companies are required to have at least one director on the board at all times. Since board members choose to remain anonymous, to meet this requirement, they hire nominees’ services. These services provide them with a nominee director for the business.
The provided nominee director will act as the replacement of the real director of the business who chooses to be anonymous. The true director will still take forms of risk and direct involvement. A nominee director is used for hiding the true director’s identity from the records and has strict non-executive roles. This article will tell you about a nominee director in Hong Kong, his duties, the advantages of having one, and the steps to appoint a nominee director in Hong Kong.
Nominee Director Hong Kong
A nominee director is a non-executive director who is appointed for protecting the identity of the true director. Hong Kong requires a business to have at least one director at all times during the process of formation. To fulfill this criterion, there is an option of appointing a nominee director. Those who want their identity to be concealed and remain confidential prefer to use this option.
Nominee director in Hong Kong – Overview
In Hong Kong, a nominee director is a non-executive director appointed to conceal the identity of the real director. The nominee director can replace a financial institution, an investor, or any person. In some cases, a separate business can hold the position of a nominee director. In Hong Kong, some investors prefer to keep their investments confidential and hire a nominee company that provides them with nominee shareholder services.
Since such individuals are hired to represent the business, they are required to exercise professionalism. They have to do what is best for the business, assisting it in reaching its goals. The appointed person needs to be a citizen or permanent resident of Hong Kong or have an Entrepass work visa.
Why appoint a nominee director in Hong Kong?
There are many reasons why an investor in Hong Kong would like to keep their identity confidential. But, a certain level of transparency is expected as it is illegal to be entirely concealed while forming a company in Hong Kong.
Investors choose nominee director services because of the high level of confidentiality and privacy that it gives the members of the board. Another reason why foreign investors choose a nominee director in Hong Kong is due to taxation. Depending on their country of origin’s laws, there is a huge chance that they will lose a major part of their income to tax. The use of a nominee director in Hong Kong can prevent this loss.
Duties of a Nominee Director in Hong Kong
A nominee director can only perform the activities that they have been given the responsibility to or specifically instructed to do by the owner of the Hong Kong business. These are the nominee director duties:
- Entering Agreements
- Managing business-related issues
- Opening and operating of Bank accounts
- Collecting the Debt
As stated above, one of the biggest responsibilities of a nominee director is to provide the business director privacy and keep their information confidential. But it is important to state that this is not done to negate or avoid the risks and liability of the real director. It only hides the information of the actual director from public records and not from government records and authorities.
The appointed nominee director cannot make any decisions related to the business and cannot act on their own terms. Before the nominee director makes a decision, he has to consult the actual director based on what he is permitted to do and ascertain his next action. In specific cases, the nominee can allow the director to sign all the essential documentation and agreements and make operational business decisions. In this case, the nominee director in Hong Kong becomes a representative or an agent of the company.
Most businesses in Hong Kong that hire nominee directors allow them to have a role in the management actively. By giving nominee director duties, they can fulfill most of the tasks of the business director. The third-party (nominee director) has permission to sign contracts and agreements, make essential decisions, and manage and open company bank accounts. But the third party can not handle dividends as the income from dividends is transferred directly to the beneficial owner.
Pros and Cons of Appointing Nominee Director
Many investors choose to appoint a nominee director depending on their preferences. But appointing a nominee director has its pros as well as its cons. Here are some of them:
Using a nominee director is highly beneficial for those investors and business owners who do not want to disclose their investment portfolio. They take advantage of the privacy and confidentiality that comes with the option. Hong Kong is popular for being an offshore jurisdiction, but not in its entirety. For company formation, the city requires that a certain level of disclosure and transparency be maintained.
Another reason that directors choose this option is taxation. Such is true for foreign investors. According to their country of origin, income earned from businesses in Hong Kong can be taxed heavily. Foreigners who invest in Hong Kong hire a nominee director to avoid such taxation laws of their country.
The main downside of hiring a nominee director is that the actual director who works from the shadows will have a hard time proving that they are the real owners of the business. Since some directors do not sign on documentation as they believe it can affect them, they do not have hard evidence of their ownership.
If any investor or company engages in such risky ventures, the nominee director services agent won’t permit them to sign any documents leaving them vulnerable. This is why if you choose to have nominee director services, make sure that the agent is willing to sign all the essential documentation before you hire them.
Steps to Appoint Nominee Director in Hong Kong
Here are some steps to appoint a nominee director in Hong Kong:
Nominee director statement
The business owner or investor appoints the nominee director through a legally binding contract called the nominee director statement or service agreement. If you go through a service provider, they should arrange the agreements signed by the nominee director and the real company director. It should be clearly stated in the document that the nominee director will only act on the instructions of the real director. Also, the nominal director can not make decisions that the actual director does not give. The transfer of power will be complete once the document is signed. You should get the nominee director statement before appointing a nominee director in Hong Kong. This is the mutually agreed-on statement by the owner of the business and the nominee director to be hired.
Power of attorney
You will need a document declaring the power of attorney for you to perform any designation of power. This document will clearly state all the operations and activities to be handled by the nominee director. Some operations might include signing agreements, managing bank accounts, and debt collections, among others.
Sign resignation letter
In a majority of the cases where a nominee director is hired, the actual directors/investors ask the nominee director to sign a resignation letter with a blank date to ensure they still have control. If the nominee director wants to resign or the actual director wants to cease services, the directorship of the business will be transferred back without fail.
Note: The letter should be filled and signed without the date.
Sign declaration of trust
A declaration of trust is a document that both parties sign in order to establish trust in the relationship. Both the parties will be obligated to maintain privacy and not disclose any detail about the trust relationship.
One other thing to keep in mind throughout steps to appoint a nominee director in Hong Kong is the costs of services. You should check all the costs before you choose the agent and commit to the process.
Ready to Form Your Business in Hong Kong
The option of a nominee director in Hong Kong will suit your business if you want your personal information to be confidential, or you want to avoid huge taxes from your country of origin and still have control over your business in Hong Kong. If you are thinking of appointing a nominee director in Hong Kong for your business, make sure that it is done during the early stages of the formation.
Are you ready to form your company in Hong Kong? Startupr is a platform backed by professionals that helps you incorporate your business, obtain a Hong Kong office address, file your annual return, and provide you with accounting services.
Startupr is not providing Nominee services. This article is just for an informative purposes.