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By Vlad Cuc, specialist in company formation matters
A nominee director in Hong Kong is a non-executive director appointed for the purpose of protecting the identity of another company director. Because the Hong Kong company formation procedures require the appointment of at least one director, the option to appoint a nominee director for a Hong Kong company is preferred by those who want to keep their true identity confidential.
A nominee director can take the place of another person, investor or of a financial institution. In some cases, another company in Hong Kong can be appointed a nominee director. Our company formation agents in Hong Kong can help you incorporate a company and appoint its nominee director.
The nominee director and the nominee shareholder services are often used in conjunction. It is understandable that these are appropriate for those investors in Hong Kong who wish to maintain their investments confidential, irrespective of the reasons. This is required because Hong Kong is a jurisdiction that requires the company owners to disclose their identities.
The main purpose of the nominee is to protect the identity of the beneficial owner. Several documents are to be signed for the purpose of the appointment and they will include a power of attorney that allows the appointed individual of company representative to handle all of part of the director’s attributions.
We invite you to watch a video about using nominee directors in Hong Kong:
What are the advantages of using nominee director services?
Using nominee director services can be highly beneficial for those company owners who do not wish to disclose their entire investment portfolio. Thus, the primary benefit of using nominees is the fact that they allow for the highest degree of privacy and confidentiality for business activities. Hong Kong is a popular offshore jurisdiction, however, it is not an offshore center in the true sense of the word, like other jurisdictions, because it does require a certain level of transparency and disclosure for the purpose of company formation in Hong Kong.
Apart from privacy, taxation can be another motive for foreign investors in Hong Kong to use nominee director services. Depending on the taxation laws in their country of origin, the income derived from a Hong Kong business could be taxed and, in the situation in which the investor wishes to avoid this, he can appoint a nominee director. One of our Hong Kong company formation agents can give you complete information about the taxation principles in the Special Administrative Region and the existing double tax treaties that may allow for a reduction or exemption of double taxation for those who derive income from multiple sources, one of them being Hong Kong.
How is the nominee director appointed in Hong Kong?
A nominee director in Hong Kong is appointed by the company owner via a specific document that guarantees the fact that the nominee will act only upon the instructions received from the beneficial owners. The transfer of power is made between the two directors, and the nominee hands back the control of the company to the real owner through a general power of attorney. Nominees are usually appointed using a separate agreement.
In order to use a nominee director several agreements and documents are prepared beforehand:
- the nominee director statement: this is a service agreement between the beneficial owner and the new nominee, stating the fact that the appointed individual agrees to represent the company and acting on behalf of and under the instructions of the beneficial owner;
- the power of attorney: this is a legal document through which the actual transfer of power of accomplished; it states the clear rights: the right to perform transactions, open bank accounts, perform management activities, etc.;
- a resignation letter: signed by the nominee director but undated; it is used to re-transfer the rights in case the nominee services are no longer needed;
- the declaration of trust: essentially a confidentiality agreement between the individual acting as the nominee and the beneficial owner through which the latter ensures that his identity is not exposed when performing the Hong Kong company registration.
In most cases, the nominee director will not need to own shares in the company. However, if the situation shall arise, he or she must be able to secure the ownership of shares in a limited amount of time. Our Hong Kong company formation representatives can help you with this issue if the case should arise and help you prepare any document for the appointment of the nominee director.
What are the duties of a Hong Kong nominee director?
The nominee should represent the beneficial owner’s best interests. In most cases, a nominee director or shareholder in Hong Kong will perform only those activities he or she has been instructed or empowered to do. Nominee directors in Hong Kong will make any necessary business transactions, manage the various business issues, open bank accounts and operate them, enter into agreements, collect debts or rents and others.
Nominee directors in Hong Kong offer the option of a certain degree of privacy but the purpose is not to avoid showing the identity of the owner to governmental authorities. This is not the equivalent of avoiding liability and it is merely used to hide the identity of the company’s owner from the public records.
Resorting to nominee director services can indeed provide important benefits, however, there are certain aspects regarding direct and indirect company management that need to be thoroughly considered by investors. One of the first issues that are worth mentioning are the costs involved: of course, appointing a nominee director is a service that will include annual taxes, as per the package established with the company that offers the service. These costs would not appear if the beneficial owner would also act as company director. However, the tax issues mentioned above could very well add up and represent another expense on the part of the company owner. This is a situation worth exploring, especially when the costs for company management in Hong Kong are of importance for the investor.
The appointed third-party director is not making active business decisions. This means that he does not act on his own terms and as he considers. Instead, he only makes those business decisions directed by the true beneficial owner. In some cases, for allowing the true owner to rightfully act when making the decisions, he can appoint himself as the representative or the agent of the company. In this way, he would not be obtaining direct income from owning the company but he would still remain the one to act in the best interest of the company. This means that the beneficial owner himself would still be the one to sigh all of the company agreements, employment contracts and others. This is an option, however, when the company owner wishes to remain truly anonymous, this option does not meet the criteria.
In most cases, it is advisable to allow the nominee director to occupy an involved role in the management of the company. By doing so, he would be fulfilling most if not all of the functions commonly take in by a company director, thus allowing for thus highest degree of confidentiality. In this situation, the appointed third party is commonly involved in all of the business decisions and signs contracts, makes important business decisions, he has control over the bank account and has the right to open other bank accounts and handle matters as needed. Of course, the dividend income is still transferred to the beneficial owner and the appointed third party does not appropriate the dividends himself. He follows the clear instructions from the beneficial owner and he has a fiduciary duty towards the rightful company owner in Hong Kong.
When using nominee director services, this is a choice that has to be made from the early Hong Kong company formation stages. This is because the name or names of the nominees will be the ones included in the company’s articles of association. One of our agents can help you draw up the company’s constitutive documents in this situation.
You may choose to appoint a nominee director or a nominee shareholder after a discussion with one of our company formation agents in Hong Kong.
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