Are you a sole director and shareholder of a Hong Kong company?
A board of directors generally exercise most of the powers of a company and in the case where there is only one director, that sole director is the only person who can exercise and authorize others to exercise such powers. That includes signing significant contracts to overseeing the day to day operations of a business. Many small and medium size enterprises in Hong Kong are operated by a sole director, who is also the sole shareholder. The advantage of this is that the company can be managed much more efficiently and can react to changes in the industry and market quickly.
However, if the sole director and shareholder unexpectedly dies, then the company will not have any director to exercise or authorize the exercise of its powers. Also, given that the sole director is also the sole shareholder, there will be no person capable of appointing a new director to act for the company. To deal with this, a grant of representation would have to be obtained from the courts to enable his or her successors to take the shares and then appoint a new director. In any event, there would be significant delays in effectively operating the company before such order or grant is obtained. Prior to such time, the company would not be able to produce any board resolutions as would generally be required by Hong Kong landlords as well as sign off on audited accounts.
The Reserve Director
One can plan ahead and avoid the above scenario by appointing a reserve director that will act in the place of the sole director in the event of his or her death. The nomination can be done even though no such provision is in the Articles of Association of the company. Once nominated and in the event of the death of the sole director and shareholder, the reserve director will act as the sole director of the company until such time another person is appointed as a director or he or she resigns. During this period, the reserve director will be vested with full powers and responsibilities of the sole director and shall comply with all duties of a director.
If this is something that you would like to know about in more detail, please contact Eddie Look of Tanner De Witt’s Corporate Commercial team.