Hong Kong

What is the main source of law authorising this entity form?

The main sources of laws authorizing private companies limited by shares are the new Companies Ordinance and its subsidiary regulations.

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

A private limited company has a separate legal personality. It is owned by its shareholders and acts through its directors.

(Maximum) period of existence

It enjoys a perpetual life unless action is taken to terminate its existence through a liquidation, winding-up, deregistration or striking off.

Governing document(s)

A private limited company is governed by its constitutional documents, which include the Memorandum of Association (under the old Companies Ordinance) and Articles of Association (under the new Companies Ordinance).It may adopt any or all of the model articles provided under Companies (Model Articles) Notice (Cap. 622H) (Model Articles), which include the following mandatory articles:

the company name;
the statement that the liability of its shareholders is limited;
the statement that the liability of its shareholders is limited to any amount paid on shares held by the shareholders; and
the capital and the initial shareholdings.

Liability of incorporators / shareholders

The shareholders and the directors play different roles in a private limited company. The shareholders have the rights to attend and vote at general meetings, receive the audited accounts with the directors' report and the auditor's report and receive dividends (if so provided under the Articles of Association and declared by the directors).

(Governing) bodies

The board of directors is responsible for managing the company and the directors have the duty to act in good faith for the interest of the company, including exercising powers to call meetings and pass board resolutions.

Other particularities

N/A

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

A private limited company has an objects clause in its constitutional documents. If there is an objects clause, the company must not do any act that is against the objects set out therein. Subject to the above, there is no prohibition against international transactions and restructurings.

Can this type of entity be publicly listed or held?

Only a public company can be listed on the Stock Exchange of Hong Kong and invite the public to subscribe to its shares. A private company can change to a public company by altering its articles and delivering the following documents to the Companies Registry within 15 days from the date on which the alteration takes place:

Notice of Change of the Company's Status (Form NAA4); and
a certified true copy of the annual financial statements prepared for the financial year immediately before.

The Notice of Change of the Company's Status must be signed by any of the directors or the company secretary.

Can this type of entity be used for a non-profit or charitable organization?

It is possible to apply for a charitable status under section 88 of the Inland Revenue Ordinance (Cap. 112), under which the company may be exempted from profits tax. It is, however, more common to use a company limited by guarantee as a vehicle for a non-profit or charitable organisation because of its limited liability status, the lack of any requirement for guarantors to contribute towards the initial working capital and the lack of share capital.

2 INCORPORATION/FORMATION/ORGANIZATION

Give a brief summary of the process of incorporation, formation, or organization:

Incorporation

To incorporate a private limited company, the founding members deliver the following to the Companies Registry in electronic copy or in hard copy:

Incorporation Form (Form NNC1);
a copy of the Articles of Association; and
the relevant fees which are currently HK$1,545 (if delivered in electronic copy) / HK$1,720 (if delivered in hard copy).

Incorporation Form

The Incorporation Form must contain the company name, the registered address, details of the founder members, the directors and the company secretary and details of the share capital. It must be signed by any one of the founder members and contain a statement of compliance, i.e. that it has complied with all the relevant requirements under the new Companies Ordinance. Further, each of the founder directors must state in the Incorporation Form (to be delivered at the time of incorporation) or in a separate form (to be delivered within 15 days of incorporation) that they have consented to be directors upon incorporation.

Articles of Association

If an application is made electronically, the electronic certificates will be issued within an hour upon receipt of documents and payment of application fee (HK$1,545). If an application is made in person, the certificates will be available for collection within four working days upon receipt of documents and payment of application fee (HK$1,720).

Business registration

Under the Business Registration Ordinance (Cap. 310), if a company is involved in any business (including any form of trade, commerce, craftsmanship, profession, calling, or other activity carried on for the purpose of gain), its shareholders or directors must apply for business registration within one month from its date of commencement of business. The applicant must submit a completed Notice to Business Registration Office (Form IRBR1) for the company and pay prescribed business registration fee and levy to the Companies Registry. Depending on the type of business registration certificate (one-year or three-year), the registration fee will range from HK$250 to HK$3,950.

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

N/A

Minimum number of incorporators / shareholders and residency requirements

A private limited company must have at least one shareholder. The shareholders can be natural persons or corporate bodies. There is no requirement as to the place of ordinary residence or incorporation for such shareholders.

Minimum number of directors (or other applicable officers) and residency requirements

A private limited company must have at least one director who is a natural person. Provided that it is not a member of a group of companies of which a listed company is also a member, it may elect a corporate body as a director. If the director is a natural person, there is no requirement as to his or her residence but he or she must be at least 18 years of age. Further, the director must not be an undischarged bankrupt nor a subject of a disqualification order. Where the director is a corporate body, there is no requirement as to its place of incorporation.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

There is no requirement regarding the minimum amount of paid-up capital or the opening of a bank account.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

The incorporating members, directors or shareholders are not required to be physically present in Hong Kong. There is a residency requirement for only the company secretary. If the company secretary is a natural person, he or she must ordinarily reside in Hong Kong. If the company secretary is a body corporate, its registered or principal office must be in Hong Kong. As such, for overseas persons, it may be advisable to engage a local professional firm, such as a law firm, an accounting firm, or a company secretary company, for the incorporation and management of the company.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

All businesses that are registered under the Business Registration Ordinance (Cap. 310) will be given a business registration number, which is assigned by the Inland Revenue Department upon registration and will be used as the tax identification number.

3 REGISTERS

What is the title of the applicable company registry?

All companies in Hong Kong are overseen by the Companies Registry, which is a government department under the Financial Services and the Treasury Bureau of the Government of Hong Kong.

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:

As set out in Question 8, a private limited company must file an Incorporation Form (Form NNC1) and a copy of its Articles of Association with the Companies Registry upon incorporation.

Registers

After incorporation, the company must maintain the following registers and update them when there is any change in particulars:

All the registers are available for inspection by a shareholder without charge or by any other person upon a request made pursuant to the Company Records (Inspection and Provision of Copies) Regulation (Cap. 622I) and upon payment of the prescribed fees.

The Register of Members is the prima facie evidence of share ownership in the company. The company must enter in the Register of Members (i) the names and addresses of its shareholders; (ii) the date on which a person is entered in the register as a shareholder; (iii) the date on which a person ceases to be a shareholder; (iv) the shares held by each shareholder; and (v) the amount paid or agreed to be considered as paid on the shares of each shareholder. The company must update the Register of Members within 2 months after it receives notice of any of the particulars above.

The company must enter in the Register of Directors (i) for a natural person, his or her name, usual residential address and correspondence address and identification number; and (ii) for a body corporate, the corporate name, and the address of its registered or principal office.

The company must enter in the Register of Company Secretaries (i) for a natural person, his or her name, correspondence address, and identification number; and (ii) for a body corporate, the corporate name, and the address of its registered or principal office.

A person has significant control over the company if he or she has the right to exercise, or actually exercises, significant influences or control over the company, such as holding more than 25% of the issued shares directly or indirectly.

The company must enter in the Register of Significant Controllers (i) for a natural person, his or her name, correspondence address, identification number, the date on which he or she becomes a registrable person and the nature of his or her control over the company; and (ii) for a specified entity, its name, address of its principal office, its legal form and the law that governs it, the date on which it becomes a registrable entity and the nature of its control over the company.

The company must enter in the Register of Charges (i) every charge specifically affecting property of the company; (ii) every floating charge on the whole or part of the company's property or undertaking; (iii) the amount secured by the charge; (iv) a description of the property charged; and (iv) except in the case of bearer securities, the names of the persons entitled to the charge.

Other filings with the Companies Registry

The company must file an Annual Return (Form NAR1) with the Companies Registry every year within 42 days after the anniversary of the date of the company's incorporation.

Further, the company must file a Notice of Change of Company Secretary and Director (Form ND2A) with the Companies Registry if a director or a company secretary is appointed or ceases to hold office within 15 days from the date of the appointment or cessation and update the relevant register.

The company must also file a Notice of Change in Particulars of Company Secretary and Director (Form ND2B) with the Companies Registry if there is any change in the particulars of a director or a company secretary within 15 days after the change in the particulars and update the relevant register.

Such filings are available for inspection through the Integrated Companies Registry Information System (ICRIS). The latest policy from the Government of Hong Kong is that searchers must provide their personal information (including name and identification information), state their purpose, and pay the prescribed fees before conducting searches on ICRIS.

Financial statements and reports

As set out in Question 23 below, the directors shall lay the director's report, the auditor's report, and the financial statements of the company before the annual general meeting for each financial year. Such financial statements and reports are not available for public inspection. They are only available for inspection by a director, or a person authorised under a court order.

Liquidation and insolvency

Any person may, upon request, search the company winding-up records at the Official Receiver's Office. A more common practice is, however, to engage a search agent and to conduct litigation and winding-up searches.

4 GOVERNANCE

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The board of directors has the responsibility to ensure ongoing compliance with a range of basic statutory requirements, including:

statutory filing and reporting requirements;
maintenance of statutory records;
convening annual general meetings and general meetings;
maintaining proper books of account;
presenting audited accounts to shareholders; and
reporting the company's financial accounts at annual general meetings.

Further, the board of directors has the responsibility to manage the company's business and affairs. Specifically, the Model Articles (which may or may not be adopted by the company) provide that the business and affairs of the company are managed by the directors. Such business and affairs include:

allotment and issuance of shares;
appointment of directors to fill casual vacancies or to maintain the required minimum number of directors;
appointment and removal of company secretary; and
use of common seal.

At law, directors are treated as fiduciaries. The main equitable fiduciary duties are:

duty to act in good faith in the interests of the company;
duty to exercise powers for proper purposes;
duty to avoid conflicts of interests;
duty not to make secret profits; and
duty not to misappropriate company assets.

Apart from the above, directors are also under a statutory duty to exercise due care, skill and diligence under the new Companies Ordinance.

How are the members of the executive body appointed, dismissed and replaced?

Appointment of directors

The first directors must be named by the founding members on the Incorporation Form (Form NNC1). Subsequent directors may be appointed by the shareholders in general meeting. Further, the Articles of Association may empower the board of directors to appoint additional or replacement directors. If the Model Articles are adopted, any director appointed by the board will only hold office until the next annual general meeting and will have to be re-appointed.

Retirement/removal of directors

The Model Articles provide six circumstances under which a director's office is vacated:

ceasing to be a director;
becoming bankrupt;
becoming mentally incapacitated;
resigning from his or her office;
being absent from meetings without permission for more than six months; or
being removed from office by ordinary resolution of the shareholders.

If the Articles of Association empower the board to compel a director to resign through a written request of his or her co-directors, the director must resign.

Reporting requirements

As set out in Question 15 above, any appointment or removal of directors must be notified to the Companies Registry in writing (Form ND2A) within 15 days from the date of appointment or cessation of office. Further, the Register of Directors must be updated to reflect the change.

Is it possible to appoint corporate directors or must all directors be natural persons?

A private limited company that is a member of a group of companies of which a listed company is a member may not have any corporate directors. Other private limited companies can have corporate directors, but they must have at least one director who is a natural person.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

Non-executive directors are not required for private limited companies. It should be noted that the corporate laws in Hong Kong do not differentiate between executive or non-executive directors. They share the same duties and responsibilities. Private limited companies have a one-tier board.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

General meetings

As discussed in Question 4 above, shareholders make decisions through voting at general meetings. A general meeting can be called by directors (at or without the request of members), by shareholders or by the Court. Subject to the Articles of Association, a general meeting can be called in the following ways:

If the board is empowered to call a general meeting, shareholders with 5% or more of the total voting rights may request a meeting.
If the directors do not call a general meeting within 21 days of receiving the request, the requesting shareholders (or any of them representing more than 50% or more of the voting rights of all of them) may call a general meeting themselves.
If the board is not empowered to call a general meeting, two or more shareholders with 10% or more of the total voting rights may call a general meeting in the same manner as the directors.

The company laws in Hong Kong provide for two types of members' resolutions, namely ordinary resolutions, and special resolutions. Certain decisions must be passed by ordinary resolutions, which require the support of more than 50% of the votes cast by the shareholders present and voting. Examples include appointing and removing a director or the auditor. Certain decisions must be passed by special resolutions, which require the support of at least 75% of the votes cast by shareholders present and voting. Examples include changing the company name, changing the Articles of Association, and authorising a reduction in share capital. If a provision in any Ordinance or the Articles of Association refers to a resolution but does not specify what type, the reference to a resolution means an ordinary resolution.

Decision making without meetings

A written resolution is a resolution in writing that can be passed without holding a meeting. Under the new Companies Ordinance, anything that may be done through an ordinary or a special resolution passed at a shareholders' meeting, with the exception of removing an auditor or a director before the end of his or her office, may be done by a written resolution. A written resolution is passed when all of the shareholders entitled to vote have signified their agreement to it.

Annual general meetings

A private limited company is required to hold its annual general meeting within nine months from the end of its accounting reference period. The directors must lay a copy of the reporting documents before the annual general meeting, including the company's financial statements, the directors' report, and the auditor's report. The company is not required to hold its annual general meeting under the following circumstances:

everything that is required or intended to be done at the meeting is done by a written resolution and a copy of the reporting documents is provided to each shareholder on or before the circulation date of the written resolution;
the company has passed a resolution dispensing with the holding of annual general meetings and no shareholder has required the holding of an annual general meeting; or
the company only has one shareholder.

Notice

Notice of a general meeting, including an annual general meeting, must be given to every director and every shareholder (and the company's auditor) in hard copy form or in electronic form or through publication on a website. The notice must specify the date, time and place of the meeting, the general nature of the business to be dealt with at the meeting, the notice of the resolution intended to be moved (if a resolution is intended to be moved at a meeting). Annual general meetings must be convened by at least 21 days' notice in writing unless a shorter notice period has been agreed by all the shareholders entitled to attend and vote at the meeting. All other general meetings must be convened by at least 14 days' notice in writing unless a shorter notice period has been agreed by a majority in number of the shareholders having the right to attend and vote at the meeting, which represents at least 95% of the total voting rights.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Quorum

The Articles of Association set out the quorum requirements. Generally, subject to the Articles of Association, the quorum required for a general meeting is two shareholders (or their corporate representatives) present in person or by proxy. An exception is when the company only has one shareholder. In that case, the quorum is that shareholder in person (or its corporate representative) present in person or by proxy.

Majority requirement

The doctrine of majority rule applies such that decisions of shareholders are made by the majority and are binding on the minority. As set out in Question 20, an ordinary resolution will require approval of 50% or more of the votes cast by shareholders present and voting, whereas a special resolution will require approval of 75% or more of the votes cast by shareholders present and voting.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

Private limited companies are not subject to any special governance regimes.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

For each financial year, the directors shall lay before the annual general meeting the director's report, the auditor's report, and financial statements that:

give a true and fair view of the financial position of the company as at the end of the financial year;
give a true and fair view of the financial performance of the company for the financial year; and
comply with the applicable accounting standards.

Under the Companies (Accounting Standards (Prescribed Body)) Regulation (Cap. 622C), the accounting and auditing standards are issued by the Hong Kong Institute of Certified Public Accountants (HKICPA). The company must keep accounting records that are sufficient to show and explain its transactions, to disclose with reasonable accuracy its financial position and financial performance, and to enable the directors to ensure that the financial statements are following the relevant laws and regulations. Such accounting records must be kept at the registered office of the company or any other place that the directors think fit and must be open to inspection by the directors at all times without charge. On application by a director of a company, the Court may by order authorise a person to inspect the company's accounting records on the director's behalf.

Is the entity permitted to determine its own financial year?

A company's first financial year begins and ends on the first and last days of its accounting reference period or another date within 7 days before or after the end of the period as specified by the directors. As stated in Question 20, an accounting reference period begins on the date of incorporation and ends on the primary accounting reference date, i.e. a date falling within 18 months from the date of incorporation as specified by the directors. The directors of a company may specify a new accounting reference date in relation to the company's current or previous accounting reference period, and every subsequent accounting reference period, upon the filing of the Notice of Alteration of Accounting Reference Date (Form NAC4).

Is the entity subject to any statutory (external) auditor obligations?

Every company is statutorily required to appoint an auditor for each financial year. The auditor must not be an internal auditor.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

As set out in Question 25, a private limited company is statutorily required to appoint an external auditor. The auditor shall carry out investigations and prepare an auditor's report for the financial statements laid before the company in general meeting and any other financial statements circulated, published or issued by the company. The auditor's report must state whether the financial statements have been properly prepared in compliance with the new Companies Ordinance and whether they give a true and fair view of the company's affairs. Further, a private limited company is statutorily required to appoint a company secretary. If the company secretary is a natural person, he, or she must ordinarily reside in Hong Kong. If the company secretary is a body corporate, it must have its registered office or a place of business in Hong Kong.

5 OWNERSHIP INTERESTS

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

The "ownership interests" in a private limited company are represented by the share capital, i.e. the total amount of funds provided by shareholders to the company in return for their shares in the company. The interests are normally referred to as “shares.”

Are different classes of ownership interests possible? If so, what are some examples of different classes?

It is possible to have different classes of shares, examples being (without limitation):

ordinary shares – shares that do not have preferential rights and have residual rights to surplus profits and surplus assets in a winding-up;
preference shares – shares that carry a fixed right to dividends annually, a right to receive dividends before ordinary shareholders and/or priority in the return of share capital in a winding-up; and
redeemable shares – shares that can be bought back from the shareholder at the option of the company or the shareholder after a certain period or on a fixed date.

What documentation is required for the transfer of ownership interests?

A transfer of shares involves a disposal of the shares from an existing shareholder (transferor) to a new shareholder (transferee). Where the transfer effects a transfer of both legal and beneficial interests to the transferee, the transferor and the transferee will have to execute an instrument of transfer (subject to stamp duty of HK$5) and bought and sold notes (subject to ad valorum stamp duty of 0.26% of the value of the shares). Where the transferee adopts a nominee arrangement, the legal and beneficial interests will be transferred to the nominee who acts as a trustee for the ultimate beneficial owner. Please refer to Question 33 for details.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

If the share transfer is effected in Hong Kong, the bought and sold notes must be stamped no later than two days after the transfer. If the share transfer is effected overseas, the bought and sold notes must be stamped no later than 30 days after the transfer. The company must update the Register of Members within 2 months after it receives notice of the particulars concerning the share transfer. In the absence of evidence to the contrary, the Register of Members is the proof of the ownership of shares. The company must then cancel the old share certificates and deliver the new share certificates to the transferee within two months from the date on which the duly stamped transfer is lodged with the company.

Are there any applicable stamp duties imposed when transferring ownership interests?

The stamp duties currently for a transfer of shares include HK$5 stamp duty on the instrument of transfer and 0.26% of the value of the shares shown on the bought and sold notes.

How are shares issued? (including information on payment obligations, registration requirements)

Issue of shares upon incorporation

The first shareholders are the founder members whose names are stated in the Articles of Association. Their shares are deemed to have been issued at the date of registration of the company.

Issue of shares after incorporation

A company can issue further shares either to its existing shareholders or new shareholders subject to the maximum number of shares stated in the Articles of Association. In the case of existing shareholders, shares can be offered to them under either a pro rata offer or a non-pro rata offer. A pro rata offer involves an offer of shares in proportion to the existing shareholdings. It is commonly referred to as rights issue, which can be renounceable or non-renounceable. Under a renounceable rights issue, if the shareholder does not wish to take up the shares, he or she is able to renounce the shares in favour of a nominee. Under a non-renounceable rights issue, only the shareholder is entitled to take up the shares. A non- pro rata offer involves an offer to issue shares other than on a pro rata basis. Under the new Companies Ordinance, the directors must not without the prior approval of the company in general meeting exercise any power to allot shares unless the offer is made pro rata to the shareholders of the company. The approval can be given in form of an ordinary resolution so that there is a particular power to allot shares. Alternatively, standing approval can be given by shareholders so that there is a general authorisation to issue shares until the next annual general meeting.

Payment obligations

No duty is charged on the issuance or allotment of shares. However, the company must file the Return of Allotment (Form NSC1) with the Companies Registry within one month of the allotment.

Registration requirements

The company must update the Register of Members within two months of the issuance or allotment of shares. As set out in Question 30, in the absence of evidence to the contrary, the Register of Members is the proof of ownership of shares.

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

Non-cash consideration

Shares may be allotted for cash or non-cash consideration. Where shares are allotted for non-cash consideration, the company must deliver a Return of Allotment (Form NSC1) to the Companies Registry for registration within one month after the allotment. The company must state the amount paid or regarded as paid on each share, the amount remaining unpaid or regarded as remaining unpaid on each share (if any), the particulars of the contract for sale or for services, or other consideration. As shown from the Return of Allotment, such non-cash consideration may include legal or equitable estates in freehold property, leasehold property, fixed and moveable plant and machinery, goodwill and benefit of contracts, patents, designs, trademarks, licences, copyrights, book and other debts, shares, debentures, and other investments. The value of the non-cash consideration is calculated by the company and reported to the Companies Registry. It is a criminal offence if the person filing the Return of Allotment knowingly or recklessly makes a statement that is misleading, false or deceptive therein.

Nominee arrangement

There are two types of interests in shares. The legal interest is vested with the registered shareholder. The beneficial interest is vested with the beneficial owner of the shares, who may or may not be the registered shareholder. It is possible for a shareholder to avoid being shown on the Register of Members through a nominee arrangement. Under such an arrangement, the ultimate beneficial owner owns the beneficial interest while the nominee owns the legal interest. The nominee will be regarded as a shareholder of the company for all practical purposes. Where a nominee arrangement is in place, the parties must execute an appropriate form of declaration of trust. As such, the nominee will act as the trustee. It should be noted that the nominee's relationship with the ultimate beneficial owner is a private matter. Under the Companies Ordinance, no notice of any trust may be entered in the Register of Members or receivable by the Companies Registry.

Types of share capital

There are different types of share capital:

fully paid share capital;
partly paid share capital; and
unpaid share capital.

Fully paid share capital refers to the amount of issued capital paid up or credited as paid up by the shareholders. Unpaid capital refers to the amount of the issued capital which has not been paid by the shareholders. It is possible to have partly paid share capital where the shares are issued on terms that only part of the issue price needs to be paid at the time of issuance. The shareholder is liable to pay the unpaid amounts at any time when called for by the company, or by the liquidator where the company is in liquidation. If the terms specify that payments are to be made in fixed instalments on specified dates, then the liability to make the payments will arise without the need for a call to be made.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

Reduction of share capital

A private limited company may reduce its capital in any of the following ways:

extinguishing or reducing liability on any shares in respect of share capital not paid up;
with or without extinguishing or reducing liability on any of its shares, by

cancelling any paid-up share capital that has been lost or no longer represented by available assets; or
repaying any paid-up share capital in excess of the company's wants.

Reducing share capital is subject to the requirement that the company must not reduce its share capital if it will result in no shareholder holding shares other than redeemable shares. The procedure for a company to reduce its share capital is:

by special resolution supported by a solvency statement; or
by special resolution confirmed by the Court.

Under the court-free procedures:

all the directors must sign the solvency statement in support of the proposed reduction;
the company must obtain shareholders' approval by a special resolution;
the company must publish notices with relevant information in the Gazette and newspapers and must register the solvency statement with the Companies Registry;
any creditor or non-approving shareholder of the company may, within five weeks after the special resolution is passed, apply to the Court for cancellation of the resolution; and
the company must deliver a return in specified form (Form NSC19) no earlier than five weeks but no later than seven weeks to the Companies Registry.

Under the court procedures:

a company may pass a special resolution for reduction of share capital and apply by petition to the Court confirming the reduction;
a creditor of the company is entitled to object to the reduction of share capital if any of the debt or claim would be admissible in proof if the company were to commence being wound up;
the Court must settle a list of creditors entitled to object;
the Court may make an order confirming the reduction of share capital on any terms and conditions it thinks fit;
such an order may not be made unless the Court is satisfied that each of the creditor's consent has been obtained or each of the creditor's debt or claim has been discharged, has been determined or has been secured;
if the Court makes such an order, the company must deliver the following documents to the Companies Registry within 15 days after the Court makes the order, or alternatively after the proceedings are ended without determination by the Court:

an office copy of the order;
a minute that states (a) the amount of the share capital; (b) the total number of issued shares in the company; (c) the amount of each share; and (d) the amount paid up and the amount (if any) remaining unpaid on each shares; and
a return in specified form (Form NSC 20).

The reduction of share capital takes effect when the return is registered by the Companies Registry.

Buy-back of share capital

A private limited company may fund buybacks out of its share capital subject to a solvency requirement if authorized by special resolution. The procedures are similar to those in relation to reduction of share capital. The buybacks must be made no earlier than five weeks but no later than seven weeks after the special resolution is passed, unless otherwise ordered by the Court.

Financial assistance

A private limited company may provide financial assistance for the purpose of acquiring shares in the company subject to satisfaction of the solvency test and one of the following three procedures:

Financial assistance less than 5% of the shareholders' fund in aggregate - A company may give financial assistance if the assistance, and all other financial assistance previously given and not repaid, is in aggregate less than 5% of the shareholders' fund. The giving of the assistance must be supported by a solvency statement and a resolution of the directors in favour of giving the assistance. The assistance must be given not more than 12 months after the solvency statement is made. Within 15 days after giving the assistance, the company must notify its shareholders of the details of the assistance.
Approval by all shareholders of the company - A company may give financial assistance if it is approved by written resolution of all shareholders of the company. The giving of the assistance must be supported by a solvency statement and a resolution of the directors in favour of giving the assistance. The assistance must be given not more than 12 months after the solvency statement is made.
Approval by an ordinary resolution - A company may give financial assistance if it is approved by an ordinary resolution. The giving of the assistance must be supported by a solvency statement and the board must resolve that giving the assistance is in the interests of the company. The company must send to each shareholder at least 14 days before the resolution a notice which contains all information necessary for the shareholders to understand the nature of the assistance and the implications of giving it for the company. The assistance may only be given not less than 28 days after the resolution is passed and not more than 12 months after the day on which the solvency statement is made. Shareholders holding at least 5% of the total voting rights or shareholders representing at least 5% of the total shareholders of the company may, within the 28-day period, apply to the Court to restrain the giving of the assistance.

Under the old Companies Ordinance, financial assistance does not apply to employee share schemes. Under the new Companies Ordinance, financial assistance for employee share schemes are allowed if it is given in good faith in the interest of the company for the purposes of enabling or facilitating transactions to acquire the beneficial ownership of shares for the employees.

Any requirements with respect to distributions to shareholders?

The return shareholders receive for their investment is given in form of dividends. Dividends may only be paid in accordance with the Articles of Association and out of profits available for distribution. Unless the Articles of Association provide otherwise, shareholders do not have a legal entitlement to dividends whenever the company has profits. The directors have the discretion to decide whether, and to what extent, dividends should be paid each year. The procedure for paying dividends is determined by the Articles of Association. Usually, the directors will recommend an amount of dividends to be paid and the company will make the declaration of dividends at the general meeting.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

The shareholders can enter into a Shareholders' Agreement any time whether before or after incorporation. The company can also become a party to the Shareholders' Agreement. The Shareholders’ Agreement can supplement the Articles of Association. Where there is inconsistency in their terms, the Shareholders’ Agreement can provide that it shall prevail. As stated in Question 15 above, the Articles of Association are available for inspection through ICRIS. A Shareholders’ Agreement, however, is a private document and its terms are not available to the public.

6 COSTS AND TAXES

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

The typical annual maintenance fee will include:

filing of the Annual Return (Form NAR1) (HK$105);
renewal fee for the Business Registration Certificate (HK$250); and
where a professional firm is engaged, the provision of any corporate services fee.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

The profit tax rate is 8.25% on assessable profits up to HK$2,000,000 and 16.5% on any part of assessable profits over HK$2,000,000, subject to any waiver that may be granted by the Government of Hong Kong in the financial year.

7 SPECIFIC MATTERS WHICH ARE IMPORTANT OR UNIQUE TO THIS JURISDICTION

Summary of any specific matters, e.g. recent or prospective major legal developments

We are not aware of any anticipated changes to authorising law.

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Chris Williams

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Disclaimer:

© 2022, Howse Williams. All rights reserved by Howse Williams as author and the owner of the copyright in this chapter. Howse Williams has granted to Multilaw non-exclusive worldwide license to use and include this chapter in this guide and to sublicense Lexis Nexis, a division of RELX Inc. and its affiliates certain rights to use and distribute this Guide.

The information in the Global Business Entities Guide provides a general overview at the time of publication and is not intended to be a comprehensive review of all legal developments nor should it be taken as opinion or legal advice on the matters covered. It is for general information purposes only and readers should take legal advice from a Multilaw member firm.

Publication Date: October 2022