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2015.03.25 - Hong Kong: Tougher requirements for fulfilment of directors’ duties.

 

In 2012, Hong Kong adopted new corporate legislation being the Hong Kong Companies Ordinance 2012. Please see more at: http://www.ioserv.com/en/theor/publications/?id=4

The new legislation is intended not only to improve and streamline the registration procedure and companies operations but also to increase the extent of regulation and control of the incorporation and further operations of legal entities in this jurisdiction.

More attention is paid to the directors of companies and the fulfilment of their duties. In 2014, the Hong Kong Companies Registry published the guide "Director Duties" which listed the obligations of directors holding positions in Hong Kong companies. The following are the most important:

1. Duty to keep business/accounting records. The director must ensure appropriate keeping of the company’s business and accounting records.

The accounting records must be sufficient:

  1. to show and explain the company’s transactions
  2. to disclose with reasonable accuracy, at any time, the company’s financial position and financial performance
  3. to enable the directors to ensure that the financial statements comply with the Ordinance.

2. Duty to manage the company professionally and with competence. It is important to note that this means not only to arrange professional management of the company’s business transactions, but also to ensure full compliance with the standards established by the legislation, including the timely filing of the Annual Return with the Companies Registry, as well as the filing of tax returns by the relevant date with the Hong Kong Inland Revenue.

Since 2014 lawsuits initiated in connection with the late filing of annual returns or untimely filing of tax returns have become increasingly frequent. In such cases the director or his representative is summoned to court and the trial usually leads to a monetary fine being applied to the company.

If the director neglects his duties stipulated by Hong Kong Companies Ordinance 2012 and other legal enactments of Hong Kong he may be:

  1. subject to administrative penalties
  2. subject to criminal penalties
  3. disqualified from acting as a director of a Hong Kong company with no rights to be appointed as a director in other companies.

International Overseas Services comments:
The terms of the Hong Kong Companies Ordinance 2012 imposes a much higher responsibility on directors who fulfil their professional duties with regard to Hong Kong companies. The obligations especially relate to the annual renewal procedure which must be performed in a proper and timely manner.

Considering the abovementioned aspects, it is important for Hong Kong company owners to meet the annual company prolongation deadlines without delay and to maintain the legitimate corporate status of the company. In the event that the application for prolongation of the Hong Kong company is not received on time, the costs for bringing the company back to good standing will be considerably higher than under the earlier legislation.

An important rule is an obligation to keep accounting records. Similar standards have been effective for a long time in almost every country including the classic offshore jurisdictions. Under the new Hong Kong Ordinance the compliance with this principle will be controlled more closely than before.

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