For certain reasons, the owners of a Private Company might decide to add or remove a director, or directors, from their company structure. Thanks to the simplified system that takes place in Hong Kong, this process is easy compared to other jurisdictions. Nevertheless, it is important to make the change process right to avoid future troubles, especially when there is only one director, which is the most common and simple company structure.
Since the acting directors have higher authority in a company structure, and they can sign on matters related to obligations, it is important to know the change process in the case a dispute arises, and it is in the best interest of the owners of a company to add or remove a person who is not acting up the position of the director or compliant.
In this article, we will focus on the Hong Kong change of director process and the related Companies Ordinance requirements. But first, we should briefly discuss this law in the next section.
Hong Kong Companies Ordinance
According to the Companies Ordinance, a Private Limited Company should have at least one director. Having one director in the company structure is also known as the Sole Director. When a company is incorporated, it is a fundamental requirement to nominate a person as a director. The first director of the company will continue to occupy this position until there is a change form submitted to the local authorities.
The Director requirements for Private Limited Companies
As for the requirements, any person who is 18 years old or above, no matter if he or she is not a Hong Kong resident, can occupy this position in a company. Furthermore, this person should not be blacklisted due to being involved in malpractices or being in bankruptcy. A company can have a corporate director in a Private Limited Company, as long as they also nominate a natural person to act as a director, meaning they will have at least two directors, one that is a company, and one that is a natural person.
It is important to mention that in some cases, a company might decide that a director might step down due to personal circumstances such as health concerns, or passing away or for management reasons such as ceasing his/her relationship to only carry out change internally. Any internal changes that fail to notify the local corresponding authorities in Hong Kong, in this case, the Companies Registry, will have no effect. This also applies to the case of a resigning director. will still hold the power to sign on behalf of the company for all the official forms and even in some cases the business accounts. This is why it is important to do the change process as soon as possible.
For more information, you can consult the following link from the Companies Registry on the Companies Ordinance.
Adding or Removing a Director
As we have mentioned at the beginning of the article, Hong Kong allows flexibility in many aspects of running a business or having a registered company with its simple systems. The company restructuring process is not an exception to this principle, and it is relatively easy.
As for all the matters related to the maintenance of compliance and communication with the authorities, there is a figure in your company that has the knowledge and expertise to help you go through the changes needed. This is the Company Secretary, and in the next paragraph, we will go over a brief introduction.
The Company Secretary is a figure that needs to be part of your company structure since it is the one that is responsible for making sure that your company is complying with the regulations and its operations are following the local law.
This position is to be held by a natural person or a legal person, an individual or a company, that holds the corresponding qualifications in Hong Kong. It is essential to mention that the person or entity that fills the position must be a resident of Hong Kong since it is mandatory by law.
Additionally, your designated Company Secretary can help you to keep you updated on the most recent changes in the company's regulations in Hong Kong, as well as can provide guidance in the changes that your company needs such as the change in the structure.
[Related article] What is a Company Secretary in Hong Kong?
Adding a director
To carry out a company restructure, some paperwork needs to be prepared in the form of a resolution, and it is to be signed by all the directors. In this case, a document known as the Director’s resolution should be prepared
Furthermore, the following information should be included in the mentioned resolution document, so the new directors can be added to your company structure:
- The effective date of the change: This will become the date when an individual will assume the role of director and the powers and responsibilities of the role will become effective. This same date will be used for all the company filings with the local authorities.
- Full name: It should be the same as the identity document. For example, passports for foreigners and Identity cards for Hong Kong residents.
- Permanent address: The usual residential address of the individual should be included in this section.
- Signed resolution: After the resolution, the document has been prepared with the intention of adding another individual with the role of the director and all the current directors must sign the form.
It is important to highlight that in this scenario we are assuming that there is no conflict between the directors and the same company owners, therefore the process can go smoothly. Additionally, there should be no conditions in the Articles of Association (AoA) that contradict adding more individuals as directors to your company.
After the resolution has been approved, the form ND2A, which is known as “Notice of Change of Company Secretary and Director (Appointment／Cessation)” should be submitted within 15 days of the resolution becoming effective. Normally, the process will take effect in 2 working days after submitting all the corresponding documentation to the Hong Kong Companies Registry. Moreover, the change of the new director will be reflected in the next Annual Return.
Removing a Director
In the case that there is a conflict between the director and the company, which happens in some cases due to working disputes or ceasing relationships and communication, the shareholders can decide to resolve to remove a director and appoint a new one. In this scenario, the director targeted to be removed has the right to appeal the resolution and reach an agreement with the shareholders.
Nevertheless, if an agreement cannot be reached, the case can be escalated to the Hong Kong court and a specialist will be able to be appointed to decide the case and remove all the powers of the director. The same form ND2A should be submitted to the Companies Registry to make the change effective.
In either of the scenarios mentioned, it is important that after the process has been finalised, all other relevant institutions should be notified of the change, such as the institution in charge of the business account to reduce the risks for the company itself.
As we have analysed in this article, the process itself to change directors in your company structure is simple in itself. However, it is a delicate matter since the director role holds so much influence over a company. It is always advisable to try to end a working relationship with a director in the most amicable way to avoid the scenario mentioned on the removal of a director. For matters such as this, it is always advisable to seek the advice of your Company Secretary, who can help you to go through this process.