Guidelines on the Duties of Directors of Hong Kong Company
(Source: Hong Kong Companies Registry, January 2004)
In general the responsibilities and liabilities of directors
derive from various sources, including the constitution of
the company, case law and statute law. If a person does not
comply with his duties as a director he may be liable to civil
or criminal proceedings and may be disqualified from acting
as a director.
Although case law sets out and elaborates on most of these
significant principles, it tends to be complex and inaccessible.
The objective of these guidelines is to outline the general
principles for a director in the performance of his functions
and exercise of his powers.
All directors should read these guidelines which are also
readily accessible on the websites of the Companies Registry, the Hong Kong Stock Exchange, the Securities and Futures Commission,
the Official Receiver’s Office and the Hong Kong Monetary
Authority. Hard copies are also available at their offices.
Companies should give a copy of these guidelines to new directors
irrespective of whether they organize induction training for
directors. In addition, directors are also encouraged to refer
to more detailed reviews of the role and duties of directors
in law. For example, the Hong Kong Institute of Directors
has issued the Guidelines for Directors (1995) and the Guidelines
for Independent Non-Executive Directors (2000). Directors
should also refer to the Code of Best Practice issued by the
Stock Exchange of Hong Kong to improve the manner in which
their companies are managed.
It is important to note that the statements in these guidelines
are principles only and are not intended to be exhaustive
statements of the law. Furthermore, statute or case law could
require certain forms of conduct under specified circumstances.
If directors are at all in doubt about the nature of their
responsibilities and obligations, they should seek legal advice.
The general principles of directors’ duties
Principle 1: Duty to act in good faith for the benefit
of the company as a whole
A director of a company must act in good faith in the best
interests of the company. This means that a director owes
a duty to act in the interests of all its shareholders, present
and future. In carrying out this duty, a director must (as
far as practicable) have regard to the need to achieve outcomes
that are fair as between its members.
Principle 2: Duty to use powers for a proper purpose for
the benefit of members as a whole
A director of a company must exercise his powers for a “proper
purpose”. This means that he must not exercise his powers
for purposes that are different from purposes for which they
were conferred. The primary and substantial purpose of the
exercise of a director’s powers must be for the benefit
of the company. If the primary motive is found to be for some
other reasons (e.g. to benefit one or more directors and to
gain control of the company), then the effects of his exercise
of his power may be set aside. This duty can be breached even
if he has acted in good faith.
Principle 3: Duty not to delegate powers except with proper
authorization and duty to exercise independent judgement
Except where authorised to do so by the company’s memorandum
and articles of association (the “constitution”)
or any resolution, a director of a company must not delegate
any of his powers. He must exercise independent judgement
in relation to any exercise of his powers.
Principle 4: Duty to exercise care, skill and diligence
A director of a company must exercise the care, skill and
diligence that would be exercised by a reasonable person with
the knowledge, skill and experience reasonably expected of
a director in his position. In determining whether he has
fulfilled this duty, the court will also consider whether
he has exercised the care, skill and diligence that would
be exercised by a reasonable person with any additional knowledge,
skill and experience which he has.
Principle 5: Duty to avoid conflicts between personal interests
and interests of the
A director of a company must not allow personal interests
to conflict with the interests of the company.
Principle 6: Duty not to enter into transactions in which
the directors have an
interest except in compliance with the requirements of the
A director of a company has certain duties where he has a
material interest in any transaction to which the company
is, or may be, a party. Until he has complied with these duties,
he must not, in the performance of his functions as a director,
authorise, procure or permit the company to enter into a transaction.
Furthermore, he must not enter into a transaction with the
company, unless he has complied with the requirements of the
The law requires a director to disclose the nature of his
interest in respect of such transactions. Under certain circumstances
the constitution may prescribe procedures to secure the approval
of directors or members in respect of proposed transactions.
A director must disclose the relevant interest to the extent
required. Where applicable, he must secure the requisite approval
of other directors or members.
Principle 7: Duty not to gain advantage from use of position
as a director
A director of a company must not use his position as a director
to gain (directly or indirectly) an advantage for himself,
or someone else, or which causes detriment to the company.
Principle 8: Duty not to make unauthorised use of company’s
A director of a company must not use the company’s property
or information, or any opportunity that presents itself to
the company, of which he becomes aware as a director of the
company. This is except where the use or benefit has been
disclosed to the company in general meeting and the company
has consented to it.
Principle 9: Duty not to accept personal benefit from third
because of position as a director
A director or former director of a company must not accept
any benefit from a third party, which is conferred because
of the powers he has as director or by way of reward for any
exercise of his powers as a director. This is unless the company
itself confers the benefit, or the company has consented to
it by ordinary resolution, or where the benefit is necessarily
incidental to the proper performance of any of his functions
Principle 10: Duty to observe the company’s memorandum
and articles of
association and resolutions
A director of a company must act in accordance with the company’s
constitution. He must also comply with resolutions that are
made in accordance with the company’s constitution.
Principle 11: Duty to keep proper books of account
A director of a company must take all reasonable steps to
ensure that proper books of account are kept so as to give
a true and fair view of the state of affairs of the company
and explain its transactions. To avoid breaching the fraudulent
trading provisions in section 275 of the Companies Ordinance
(Cap. 32), a director must not allow the company to incur
further credit knowing that there is no reasonable prospect
of avoiding insolvency.