HOTLINE 400-812-9877

Applicable Company Laws and Regulations in Hong Kong

Applicable Company Laws and Regulations in Hong Kong
 
As an international business and financial centre, Hong Kong has well-developed system of company law. The backbone of this system of laws is the Companies Ordinance, Chapter 32 of the Laws of Hong Kong, which was enacted in 1993. Many subsequent amendments have been made to the legislation. Also forming an important part of the law relating to companies in Hong Kong are common law and equitable rules built on judicial precedents in Hong Kong and England. Following 1st July, 1997, English law precedents will be of persuasive and not binding authority as will precedents from other common law jurisdictions.  
  
Incorporation of Hong Kong Companies
The incorporation of Hong Kong companies involves merely the submission to the Companies Registry of the Memorandum and Articles of Association, duly signed by at least one subscriber, and a Statutory Declaration made by the witness to the signatures of the subscriber, together with the requisite fess. Memoranda and Articles of Association, as well as documents for submission to the Companies Registry, may now be in English or Chinese. The incorporation process is simple, reasonably speedy. Meanwhile, Hong Kong has also done away with the ultra vires rule and the requirements that the business objects of companies be set out in detail in the Memoranda of Association. Therefore, the all-encompassing objects clause is accordingly a thing of the past.  
 
After incorporation, at least one director has to be appointed. Hong Kong has no residence requirements for its directors, and companies, whether local or offshore, may act as directors of other companies. The power of management of companies is almost invariably delegated to the directors by the Articles of Association (see Article 82 of Table A of the First Schedule to the Companies Ordinance). Directors owe statutory and common law fiduciary duties to their companies, and must act in good faith in the interests of their companies. Directors of public companies also have to comply with the requirement set out in the Listing Rules, the Code of Best Practice (if adopted by the company in question), the Securities Ordinance and the Code on Takeover and Mergers. Directors of financial institutions are subject to the requirements of the Banking Ordinance and code of conduct prescribed by the Hong Kong Monetary Authority. All directors must, of course, observe their respective companies‘ Memoranda and Articles of Association.  
 
Operation and Management of Hong Kong Companies
 In Hong Kong, a majority of listed companies do not have audit committees. The issue of corporate governance is receiving intense attention, both from the regulatory authorities and the professional and business communities, and one can expect to see further tightening of rules in this respect. Hong Kong companies must have at least one shareholder, based on a rather out-dated conceptual fiction, not shared by many jurisdictions, that it takes at least one person to for a company. Where there is only one owner for a company, at least one share has to be held by a nominee in trust for the beneficial owner. The usual practice in such circumstances is for the nominee to deliver to the beneficial owner a declaration of trust together with instrument of transfer and contract note executed by the nominee in blank as transferor. The interests of the beneficial owner are thus protected.    
 
Unlike many jurisdictions, there is no minimum capital requirement for Hong Kong companies. Although many companies, particularly listed companies, would have very substantial authorized and issued capital, it is common for companies to have authorized capital of HK$10,000.  Where companies are thinly capitalized, the funds required for the companies‘ activities and businesses are provided, if by shareholders, by way of shareholders‘ loan.
 
 There are various benefits in having shareholders‘ investments in their companies treated as loans rather than subscription monies for shares. Firstly, the Hong Kong Government levies a capital fee at 0.3% of the authorized capital, and there is no corresponding fee on shareholders‘ loans. Secondly, while dividends can only be declared out of profits and reduction in capital can only be made with court approval -- there is no restriction on repayment of shareholders‘ loans and payment of interest thereon. Thirdly, except subprime loans, shareholders‘ loans share the equal priority with liabilities due to unsecured creditors in terms of the company‘s repayment. Fourthly, shareholders‘ loans can, if desired, be collateralized by the company‘s assets. Fifthly, if properly structured there can be tax advantages derived from interest payments. Sixthly, where the company‘ assets are largely funded by loans rather than capital, the net asset value of the company is accordingly reduced and substantial savings in stamp duty can be achieved when shares in the company are transferred.    
 
Given that shareholders‘ loans are usually used as the principal internal means of financing a company‘s activities and businesses, transfer of shares in Hong Kong companies are usually accompanied by assignment of interests in shareholders‘ loans. For stamp duty saving purposes, it is advisable to use different entities to acquire the shares and the interests in shareholders‘ loans.
 
Liquidation of Hong Kong Companies
 A Hong Kong incorporated company may be wound up voluntarily by its shareholders or its creditors or may be wound up by the court or subject to the supervision of the court. Voluntary liquidation is a relatively simple procedure whereby a special resolution of the shareholders (requiring an affirmative vote of 75% of the shareholders present and voting in general meeting) resolving to liquidate the company and appointing a liquidator will be required. In the case of a winding up by shareholders, a Declaration of Solvency has to be made by a majority of the directors. Where a Declaration of Solvency is not made and filed with the Companies Registry, the winding up becomes a creditors‘ voluntary liquidation and approval by the creditors in general meeting is required.  
 
A company may be wound up by the court upon one of the following grounds:

(a) the company has by special resolution resolved that the company be wound up by the court;

(b) the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;

(c) the number of members is reduced below two;

(d) the company is unable to pay its debts;
 (e) the event, if any, occurs on the occurrence of which the memorandum or articles provide that the company is to be dissolved;

(f) the court is of the opinion that it is just and equitable that the company should be wound up.
 
While under the existing Companies Ordinance, the reduction of capital, schemes of arrangement and corporate restructuring by way of amalgamation all require approval by the court. The Consulting Report recommends that simple procedures without the necessity for court intervention or liquidation should be made available.
 
Company registered

Related articles
Copyright © 2016 Hong Kong RuiCheng accounting firm. All rights reserved.