Reserve Director and Alternate Director
Setting up a private company limited by shares is the first step of starting a business in Hong Kong. If you are the director and the shareholder of your new company on draft, you have to be aware of the particular positions of your company, namely as Reserve Director and Alternate Director. Let’s have a look at their functional characteristics.
Reserve Director
If you set up a sole-director company, how can your company continue to run if you die in an unfortunate event? To tackle this adverse situation, you can complete the nomination of a Reserve Director of your company in advance.
According to section 455 of HK Companies Ordinance, a private company having only one director may nominate a natural person who is at least 18 years old as a reserve director to act in the place of the sole director in the event of his or her death. The nominated reserve director will automatically take the position of the death director, so the company preserves its continuity. On the contrary, the nominated Reserve Director ceases its nomination automatically when the company has appointed additional director(s); the number of directors is two or more.For example, the nominated reserve director will receive the same level of remuneration once he or she takes office from the deceased director.
Although the nomination is optional per law, the law can override anything in the company’s article. Per the law, your company can complete the procedure by passing a resolution at a general meeting and take effect accordingly.
The company must submit a Notice of Change of Reserve Director
(Nomination/Cessation) (Form ND5) to notify the Registrar of the Companies Registry within 15 days after the nomination/cessation of the appointment of the reserve director.
Here is the summary of the reserve director:
1/ Nomination (and cessation) of reserve directors is under section 455 of the Companies Ordinance (CO);
2/ Only the company with sole-director can nominate a reserve director;
3/ The reserve director must be a natural person of at least 18 years old;
4/ The reserve director becomes the director when the director dies.
5/ The nomination is not mandatory, but the Companies Ordinance has a provision in the procedures of nomination (and cessation) of the reserve director, despite anything in the company’s article.
6/ Reporting to the CR of any changes related to the reserve director is mandatory.
Alternate Director
Are you too busy to manage your company? If yes, there is a practical solution for you, namely the appointment of an alternate director. You may officially authorize an agent on your behalf to represent you, as an appointer, to carry out your duties and responsibilities. In other words, the appointed agent by you is an alternate director of your directorship during your absence or unavailability.
According to the HK Companies Ordinance, the limited companies are eligible in appointing alternate directors. However, whether the company allows the appointment of alternate directors is determined in the company’s articles. If your company’s articles do not include such expression, you are not able to appoint an alternate director.If you plan to enable the function of alternative in your company, the company’s articles are the only governing documents. The procedure for appointment an alternate director is set out in the articles. Commonly seen in other private companies, the appointing director can appoint any other existing director or person as his alternate by a resolution passed by the board of directors. The articles usually have included that an alternate director has the same rights as his or her appointer when the alternative director makes any decision.
As people usually deem an alternate director as the appointing director for all purposes, the liabilities arose to the directors and their alternate directors may be confusing to people outside of the company. Therefore, section 478 of the CO states that, firstly, the appointing directors are vicariously liable for acts of their alternate directors unless the company’s articles contain any provision to the contrary; secondly, the alternates are personally responsible for any illegal action or omission.
An existing director can be appointed as the alternate director to another director of a company. If this arrangement happens during a director meeting, the same director will have double voting power.
The company must submit a Notice of Change of Company Secretary and Director (Appointment/Cessation) (Form ND2A) to notify the Registrar of the Company Registry within 15 days after the appointment/cessation of appointment of the alternate director.
Here is a summary of alternate directors:
1/ Limited companies may include provision about using alternate directors;
2/ If the provision of alternate directors is present in the company’s articles, the articles should state the rights of the alternates and the procedure for their appointment and cessation. Otherwise, per section 478 of the CO, an alternate director is deemed to be the agent of the director who appoints the alternate director for every purpose;
3/ The articles must provide that the appointment and termination clause for alternate directors. Usually, passing respective resolutions by the board of directors is sufficient;
4/ Reporting to the CR of any changes related to the alternate director is mandatory.