A Complete Guide to Selecting a Nominee Director
If you are in the midst of registering your company, you would have come across the option to choose a nominee director, instead of having yourself as company director during the registration process. However, you may be wondering what are the advantages of having a nominee director and why most people choose not to reveal their names in the public search registry of the Companies Registry.
In this article, we will cover the reason for nominating a nominee director, what you can expect from hiring one, how to get started with choosing your nominee, and what is needed during the process.
Why Appoint a Nominee Director?
It’s part of being compliant with Hong Kong’s laws.
Before you can successfully register your company in Hong Kong, you have to comply with the Companies’ Ordinances to have at least one individual director sit on the company’s board at all times. This means that if you wish to choose a nominee director, it should be done in the early stages of company formation. The nominee director’s name will then appear on your company’s corporate documents instead of yours.
It is ideal that the nominee director for your company in Hong Kong is allowed to work in Hong Kong legally. This person can be a citizen, permanent resident or someone with a work pass with legal rights to work in Hong Kong.
There are 2 major reasons why business owners sometimes choose to appoint a nominee director. If you fit into either category, you may wish to consider a nominee director as well.
- You do not want to disclose your involvement in the company
Not only can you appoint a nominee director for yourself, other board members can also choose to use a nominee director if they wish to. One of the reasons why nominee directors are rising in popularity is because of the high degree of confidentiality it gives in return. There are many different reasons why directors and shareholders prefer to remain anonymous, especially so in Hong Kong, where a certain level of disclosure is still needed.
- You want to avoid unnecessary extra taxes
Taxation is a troublesome matter, particularly for foreign investors. If you are a foreign investor or business owner wanting to open a company in Hong Kong, you will be worried about the income loss due to taxation. Although the tax rates are relatively low as compared to other countries, most investors would like to avoid paying extra or double taxes.
Having someone else’s name as a director will reduce the tax burden for you, so that you can profit more from your company. Not to worry though, using a nominee director is not to avoid liability for yourself in difficult business situations, but to hide the actual director’s identity from the public eye.
However, if you find tax and money issues to be a concern, we are able to help with our accounting services to reduce taxes legally.
For Foreigners Opening a Company Locally
Yes, foreigners who wish to open a company in Hong Kong can appoint nominee directors too. The nominee will act on behalf of the actual investor or business owner.
If a foreigner incorporated a company in Hong Kong but does not have a local person who can act as a director of the company, the foreigner can “hire” a person to act as a director.
What Can I Expect a Nominee Director To Do?
One thing to always remember is that the nominee director only serves as a representative in actual business operation. In other words, he or she should not be liable for any actions taken for the company. The actual director must be the one in charge of all instructions and be in full control of all company decisions. Thus, it is important that you are hands-on with company operations to ensure that things are going in the right way you want.
Thomas has appointed a nominee director for his company. Nevertheless, Thomas is always not around to make important decisions for the company. When the company faces a crisis, he does not take action to solve the problem. As such, the nominee director does not know what to do, and might decide to resign from the company leaving the company to plunge into bad debts eventually.
In this case, the nominee director is not liable for the company’s downfall. It would be the actions, or rather, lack of action, on the part of Thomas that caused his business to fail, and he is fully liable. He cannot push the blame to the nominee director as the nominee is simply carrying out his instructions.
The nominee director should:
- Act on behalf of the director who does not wish to be disclosed with written consents from the actual director
- Strictly follow instructions from the actual director
- Not act on his or her own wishes at all times
How Do I Select a Nominee Director for My Company?
A nominee director is appointed by the business owner or investor through a document that is legally binding, usually called the service agreement or nominee director statement.
If you are going through a service provider, they will arrange for the agreements to be signed by you and the nominee director. The document must state that the nominee strictly can and will only act on instructions from the actual director, and cannot make decisions that were not requested for. Once this specific document is signed, the transfer of power is completed.
Eric is the director of company ABC. He appoints a nominee director through a service company. Eric then has to draw up a specific document which must state that the nominee can only act upon his instructions. Once both Eric and his chosen nominee director has signed the document, the nominee director can then work as company ABC’s director in Eric’s name. The nominee director’s name will also be listed in company ABC’s corporate documents and in Companies Registry’s public search record.
Power Transfer - How It Works
A power transfer must be carried out by cessation, meaning the end or termination, of nominee service agreement and declaration of trust through the designated document, mutually agreed by both parties - the nominee director and the actual director.
If in any case, the nominee decides to stop working in the company, or if the company does not require the services of the nominee director, full control will be handed back to the actual director.
A nominee director has been working in company ABC for a period of five years. Now, the nominee decided to resign from the company. Under the contract, all power that the nominee director had will be given back to Eric, until he finds another nominee director. Likewise, if company ABC does not require the nominee director’s services anymore, Eric will regain full control of the company.
5 Things You Need Before Appointing a Nominee Director
Nominee Director Statement
This statement is mutually agreed upon between the company owner or director and the nominee director who is being hired. The statement gives the nominee the right to act on behalf of the actual director.
Power of Attorney
To perform any designation of power, you’ll need a document declaring power of attorney. The document will state all the activities or operations that the nominee director can handle. This might include opening bank accounts, signing agreements, debt collection and other essential activities.
Undated Resignation Letter by the Nominee Director
In order to ensure that the actual director still has control over his company, most companies will ask the nominee director to sign a resignation letter with a blank date upon hiring. In any case when the company director decides to cease the services of the nominee, or if the nominee wishes to resign, directorship to the company will be transferred back to the actual director without fail. This resignation letter should be filled out and signed, but not dated.
Trust Declaration
A declaration of trust is a document that is signed by the nominee director and the actual director to establish trust relationships. Both parties have the obligation not to expose the name or any information about the trust relationship.
Costs to Cover Nominee Services
Of course, the nominee director service will come at a cost. Companies who wish to hire nominee directors should check and be sure of the costs involved before committing to the process.
Keep in mind that if you are contemplating hiring a nominee director, you should always make your choice in the early stages of your company formation. We think that the option for a nominee director will benefit most if you do not want your personal information disclosed to the public but still want to have full control of your company.
Tip
If you are interested in opening a company in Hong Kong and are still unclear about the steps needed for company incorporation in Hong Kong, you can take a look at our simple guide here. We are more than willing to help you with the process. Furthermore, we can help with corporate secretarial tasks for your Hong Kong company while you concentrate on launching and growing your business.
