What is a Nominee Director?
A nominee director is an individual appointed to act as a director of a company on behalf of another person or entity. Typically, a nominee director is used to fulfill the legal requirement of having at least one local director on the board, but not having any substantial influence in company decisions.
Hong Kong companies however, are allowed to have a board made entirely of foreign and remote directors, rendering the typical reason for appointing nominee directors moot.
In Hong Kong, there are also licensed Trust or Company Service Providers (TCSP) available that offer professionals to act as nominee directors.
Why Would I Need a Nominee Director If It’s Not Required?
Although not required, appointing a nominee director can allow you to maintain the confidentiality of your involvement in the company, using their name to fulfill the director requirement rather than yours. Furthermore, a local nominee director familiar with administrative matters in Hong Kong can help you fulfill your duties in your stead.
With that said, appointing a nominee director in Hong Kong often has more challenges than is worth the effort.
Pros and Cons of Hiring a Nominee Director
As mentioned prior, a nominee director can protect the foreign beneficial owner’s identity on record, and can represent the beneficial owner in administrative tasks, facilitated by the nominee director’s local knowledge.
On the flip side, an untrustworthy or inexperienced nominee director will be held accountable for any non-compliance and misconduct, which could lead to damage to the company’s reputation and their operations. Improperly set legal boundaries could lead to the nominee director abusing loopholes against the beneficial owner and the company. As a result, some banks may delay or outright refuse to collaborate with companies who are not transparent about their beneficial owners.
There is also a matter of the cost. A low-cost nominee director that costs around HKD 20,000 per year from a non-reputable service provider will often be rejected by banks when opening an account, while a high-cost nominee director can cost up to HKD 20,000 per month, in addition to the cost of Directors & Officers (D&O) liability insurance required to hire them, which can cost between HKD 7,000 to 13,000 annually.
| Pros | Cons |
| Enhanced Privacy and Confidentiality | Potential for Banking Complications |
| A nominee director’s name appears on public records, protecting the beneficial owner’s identity. | Some banks may conduct enhanced due diligence, potentially delaying or complicating the process of opening a corporate bank account. |
| Administrative Efficiency | Risk of Unreliability |
| The nominee director can help with administrative tasks and timely filings, freeing you to focus on other tasks. | If you choose an untrustworthy or inexperienced nominee, it could lead to compliance issues or damage to your company’s reputation. Nominee directors can still be held accountable for non-compliance or misconduct. |
| Local Knowledge | Potential Legal Misuse |
| An experienced nominee director can provide valuable insights only locals would know. | If legal boundaries are not properly established, it could lead to abuse of potential loopholes. |
| High Costs for Reliable Service | |
| A good nominee director costs on average HKD 15-20k per month, in addition to D&O insurance. | |
| D&O Liability Insurance | |
| Costs between HKD 7,000 to 13,000 annually |
How to Appoint a Nominee Director in Hong Kong
Documents Needed to Appoint a Nominee Director
Before you can officially appoint a nominee director, you must prepare documents crucial to setting the terms of the nominee’s role, as well as a fail safe that ensures the beneficial owner retains ultimate control over the company.
| Document | Purpose |
| Nominee Director Services Agreement | This legal contract outlines the scope of the nominee director’s duties, their limitations, confidentiality obligations, and the service fees, and serves as the foundational agreement between the nominee director and beneficial owner. |
| Letter of Indemnity | This document protects the nominee director from any liability arising from actions taken in good faith and within the scope of their agreed-upon duties, providing the nominee with a level of security while in their administrative role. |
| Undated Resignation Letter | Signed by the nominee director at the time of their appointment, this letter allows the beneficial owner to terminate the nominee’s directorship at any time, and is what gives the beneficial owner ultimate control over the company. |
| Power of Attorney (POA) | The POA grants the nominee directory the legal authority to act as the beneficial owner’s proxy . |
Process to Appoint a Nominee Director
- Select a licensed Trust or Company Service Provider to handle the appointment. The Companies Registry has a public list of trusted TCSPs you can refer to.
- Pass a board resolution approving the appointment of the nominee director, after which both the beneficial owner and the nominee director must sign the Nominee Director Services Agreement, letter of indemnity and power of attorney.
- File the Appointment with the Companies Registry via filing of the Form ND2A within 15 days of the appointment.
- Update the Register of Directors to include the newly appointed nominee director.
- After processing your form submission, you will receive notice from the Companies Registry confirming the director’s appointment and registration. Keep this confirmation on file as proof of the appointment’s validity and for your company’s records.
Summary
The benefit of a nominee director is that it can protect your identity in your Hong Kong company while representing you and your decisions when it comes to signing off on key business decisions. This benefit however, needs to be carefully weighed with the costs and risks involved. Recurring high costs and the high potential of rejection by banks could complicate business operations at the cost of privacy. While Yau and Wong does not provide Nominee Director services, we’ll clarify any questions you may have about the process and offer more palatable alternatives. Drop us a message!
