Loans to Directors in Hong Kong: What the Companies Ordinance Allows, and How to Record Them

By Di Ma, Project Manager 29 OCT 2026 · 5 MIN READ

In a small company, the line between the director's money and the company's money can get blurred: a personal bill paid from the company account, cash taken out ahead of a dividend, a "loan" to tide a director over. The Companies Ordinance has firm rules on lending to directors. Here's what they say, and how to keep the books right.

The rule: no loan without the members' approval

Under section 500, without the prescribed approval of its members, a company must not:

make a loan to one of its directors, or to a company controlled by a director (one where the director controls more than 50% of the votes, or whose board follows the director's instructions); or
give a guarantee or security for a loan someone else makes to them, such as the director's personal bank loan.

This applies to every company, private ones included. Loans to a director of the company's holding company need the holding company's members' approval too. Wider rules, covering quasi-loans and loans to the director's family and connected entities, apply only to public companies and their subsidiaries (sections 501 and 502).

Getting approval

The approval is a members' resolution passed before the loan is made (section 496). With it, every member must be sent a memorandum setting out:

the nature of the transaction;
the amount of the loan;
what it's for; and
the extent of the company's liability under it.

In a company where the director is the only shareholder, that's a short written resolution, but it still has to exist, and it has to come first.

The exceptions

No approval is needed in some cases. The main ones for a small company:

Small amounts (section 505): all loans and similar transactions to the director together don't exceed 5% of the company's net assets, based on the last annual financial statements sent to members, or 5% of called-up share capital if none have been sent yet.
Company expenses (section 506): funds to meet expenditure for the company's purposes, or for the director to perform their duties, such as a travel advance.
Intra-group lending (section 512): loans between companies in the same group.
Others with their own conditions: defence costs in proceedings about the company (repayable if the director loses), a home loan within strict limits, leasing goods or land on arm's-length terms, and loans made in the ordinary course of a lending business.

How big is the 5% exception? (illustrative)
Company	Basis	5% limit
Trading company, net assets HK$800,000 in its last accounts sent to members	Net assets	HK$40,000
New company, no accounts sent yet, share capital HK$10,000	Called-up share capital	HK$500

The 5% limit is smaller than people expect. For a new company that hasn't yet sent accounts to its members, it's based on share capital, so with HK$10,000 of capital the limit is HK$500.

The overdrawn director's current account

Most loans to directors in small companies aren't planned. They happen when the director's current account swings from the company owing the director to the director owing the company: personal spending on the company card, withdrawals before a dividend is declared, salary drawn before it's approved. Once the director owes the company money, it is in substance a loan to the director, and the rules above apply.

The usual ways to clear it: the director repays it, a dividend is properly declared out of distributable profits and set off against it, or salary or fees are approved and run through payroll (and the employer's return).

If the rules are broken

Voidable: the loan or guarantee can be avoided by the company, unless the money can no longer be recovered, the company has been compensated, or an innocent third party's rights would be affected (section 513).
Personal liability: the director concerned, and certain others listed in the section, must account to the company for any gain and indemnify it for any loss.
Affirmation: a loan made without approval can be affirmed by a members' resolution within a reasonable period afterwards (section 514).

Disclosure in the accounts

Section 383 requires the notes to the financial statements to give prescribed information about loans, quasi-loans and other dealings in favour of directors and the companies they control. Your auditor will ask about any balance owed by a director, so the documents should be ready: the resolution or the exception relied on, the amount, and the repayment terms (see the audit process).

The bookkeeping

A separate account for each director's balance, so it's clear who owes whom.
Every movement booked: advances, repayments, personal spending, approved salary or fees, and dividends set off.
Shown as an asset ("amount due from a director") when the director owes the company, and as a liability when the company owes the director.
A note of the approval or the exception, with the documents.

The Certanta client portal, balance sheet of the fictional demo company Harbourfront Trading Ltd: assets including bank accounts, trade receivables and inventory; liabilities including trade payables and the director current account; and equity of share capital, retained earnings and profit for the period. — In the demo company the director's current account is a liability: the company owes the director. If it swung the other way, it would be a loan to the director.

How Certanta helps

The director's current account reconciled monthly, so a swing into overdrawn shows up straight away, not at the year end.
Director-paid and personal items booked to the right side, from receipts uploaded from a phone.
Ask your books. "What does the director owe the company at 30 September?" is a question for the AI assistant in your portal.

Frequently asked questions

Can a Hong Kong company lend money to its director?

Only with the prescribed approval of its members, a resolution passed before the loan with a memorandum to every member, unless an exception applies (Companies Ordinance, section 500). The same applies to guaranteeing a loan made to the director by someone else.

What is the 5% exception for loans to directors?

Under section 505, no approval is needed if all relevant loans and similar transactions to the director together do not exceed 5% of the company's net assets, as shown in the last annual financial statements sent to members, or 5% of its called-up share capital if none have been sent.

Is an overdrawn director's current account a loan?

When the director owes the company money, the balance is in substance a loan to the director, so the members' approval rules and their exceptions apply.

Do the rules apply to private companies?

Yes. Section 500 on loans, guarantees and security applies to every company. The wider rules on quasi-loans and loans to connected entities apply only to public companies and their subsidiaries.

What happens if a company lends to a director without approval?

The loan is voidable at the company's instance, and the director and certain others listed in the section must account for any gain and indemnify the company for any loss (section 513). The members can affirm it within a reasonable period afterwards (section 514).

Do loans to directors have to be disclosed?

Yes. Section 383 requires the notes to the financial statements to include prescribed information about loans, quasi-loans and other dealings in favour of directors and the bodies corporate they control.

Know the director's balance every month

Certanta keeps the director's current account reconciled every month, so you see straight away if it moves from owed-to-the-director to owed-by-the-director.

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This article summarises Division 4 of Part 11 and section 383 of the Companies Ordinance (Cap. 622) as published on e-Legislation on 29 October 2026. It is general information, not legal or tax advice. The exceptions have detailed conditions; take advice before the company lends to a director or guarantees a director's borrowing.