What Directors Need to Know: A Simple Guide to Hong Kong Company Directors' Responsibilities and Liabilities

If you're a company director in Hong Kong, understanding your responsibilities is critical. The rules come from several sources like company rules, legal cases, and laws. If these duties are ignored, directors could face serious consequences, including legal action or even being banned from serving as a director. This guide breaks down what you need to know to stay on the right side of the law.

What Do Directors Do?

Directors are responsible for managing a company in a way that benefits all shareholders. Their duties fall into two main categories:

• Fiduciary Duties: Acting in good faith and in the best interests of the company.

• Duties of Care and Skill: Performing their roles with the necessary knowledge and attention.

  
  

The legal language around these duties can be tough to understand, but this guide simplifies the key points so you can stay informed.

Key Responsibilities of a Director

1. Acting in Good Faith

   Directors must always act with honesty and consider what’s best for the entire company, not just a few shareholders.

   
   

2. Using Powers for the Right Reasons

   The powers directors have should only be used for the company’s intended purposes. If a director misuses their power for personal gain, they could face serious legal issues.

   
   

3. Not Delegating Responsibilities

   Directors can’t hand off their responsibilities to someone else unless the company rules or specific resolutions allow it. They must use their own judgment in decision-making.

   
   

4. Care, Skill, and Diligence

   According to Section 465 of the Companies Ordinance (Cap. 622), directors must exercise care, skill, and diligence in their work. In simple terms, they must do their job properly.

   
   

5. Avoiding Conflicts of Interest

   Personal interests must not interfere with the company's interests. If a director has a potential conflict, they must disclose it openly.

   
   

6. Handling Transactions Properly

   If a director has a personal stake in a deal, they must follow the legal requirements before the company can proceed with the transaction.

   
   

7. Not Exploiting Their Position

   Directors should never use their role to gain a personal advantage at the expense of the company.

   
   

8. Not Misusing Company Property

   Directors must not use company property or information for personal purposes without the company’s consent.

   
   

9. Refusing Unauthorized Personal Benefits

   Directors should avoid accepting gifts or benefits from third parties related to their role unless they have the company’s approval.

   
   

10. Following Company Rules

    Directors must comply with the company’s constitution and any resolutions passed by the company.

    
    

11. Keeping Proper Accounting Records

    Directors are responsible for ensuring that the company’s financial records are accurate and up to date.

    
    

Why Compliance Matters

All of these duties are equally important. Directors should treat them as guidelines, but remember, specific situations may require them to act differently based on legal advice. If directors are ever unsure about their responsibilities, it’s wise to seek legal advice.

Helpful Resources for Directors

If you're feeling overwhelmed, don’t worry. There are plenty of resources available to help directors better understand their duties:

• The Companies Registry: Offers guidelines for directors.

• The Hong Kong Institute of Directors: Provides detailed resources through its Guidelines for Directors.

• The Corporate Governance Code: Published by the Hong Kong Stock Exchange, this code helps listed companies improve their management practices.

  
  

Final Thoughts

Being a director comes with a lot of responsibility, but it’s also an opportunity to contribute to the success of a company. By understanding and following the rules, directors can fulfill their legal duties while positively impacting the company’s future.

Although the responsibilities of a director are complex, you don't have to face them alone. If you are unsure about your duties or need guidance, Benchmark can help. We provide professional company secretarial (com sec) services to ensure you meet your obligations and understand potential risks. Contact us at info@benchmarkconsults.com now to make your role as a director smoother and less stressful!