By Vlad Cuc, specialist in company formation matters
The capital of a Hong Kong company represents the assets employed to carry out its business activities. The capital of a Hong Kong company will usually be divided into share capital and loan capital. The share capital is represented by the money shareholders have contributed with to the company’s capital and the loan is the represented by the money the company has borrowed from banks or other financial institutions. In Hong Kong, only companies limited by shares are required to have a share capital. The share capital is represented by shares.
Our experts in company formation in Hong Kong can provide complete details about the share capital according to the type of company as well as other information on the transferability of shares and the treatment of the share capital in special situations (for example, in case of amalgamated companies).
Below, we provide several details about the minimum share capital requirements, when applicable, for those who open a company in Hong Kong.
We invite you to watch a video about the share capital requirements in Hong Kong:
What is a share according to the Hong Kong Company Act?
The shares represent a personal property of the shareholder that can take the form of money or another type of asset. Shares can be transferred according to the Companies Law in Hong Kong. All information about the shares and share capital must appear in the Memorandum or Articles of Association of a company in Hong Kong. The ownership of shares is stated by the issuance of a share certificate. The share certificate will contain information about the number of shares a company member has.
The new Hong Kong Company Ordinance classifies shares into ordinary, preference or preferred and redeemable preference shares. All shares allow its owner certain rights such as voting rights, rights to profits made by the company or the right to receive the amount of money invested in the company in case the company is liquidated.
Some of the issues regarding shares, as defined in the Companies Ordinance, are the following:
-transferability: shares may be transferred in the interest of a shareholder, however, only according to the company’s articles of association and as per the company type.
-value: there is no nominal value for shares in a Hong Kong company, as per the new Companies Ordinance.
-ownership: a shareholder may receive a certificate that proves the number of shares he holds in the company.
-allotment of shares: the company director may exercise his powers to allot shares as well as to convert the security into shares in the company.
-reduction of share capital: this can only be performed in some cases, and our team specialized in Hong Kong company formation can provide more details, as needed.
The restrictions that may apply to the reduction of capital are in place for the purpose of protecting the interest of the creditors. Further restrictions according to the law can refer to share buybacks, although in general companies are allowed to buy back their shares. Listed companies can buy back their shares by means of a contract which had been authorized by a special resolution.
Investors who wish to know more about share transfers and types can reach out to our agents who specialize in company registration in Hong Kong.
Is there a minimum share capital in Hong Kong?
According to the Companies Law, there is no minimum share capital required for companies in Hong Kong, except for companies requiring special permits or licenses such as insurance companies, bank, financial institutions and traveling agencies. These types of companies are required a certain share capital that is regulated by the relevant authorities.
Although there are no mandatory requirements for a minimum authorized capital for Hong Kong companies, most legal entities start with a minimum amount, for example, 10,000 HK$. The shares typically used have a value of 1.00 HK$ each. A company’s share capital can also be denominated in a foreign currency; however, it will be more difficult to change the currency after the company is incorporated. A minimum issued or paid-up capital will typically have a value of one share of 1 HK$.
Investors who open a company can choose between several types of shares, most commonly ordinary shares, preference shares or redeemable preference shares. The common rights attached to a class of shares include the right to vote during general meetings, the right to dividends and the right to obtain capital after the company is wound up.
What are some of the provisions for share management within a company as per the Companies Ordinance?
The Companies Ordinance provides important information on the treatment of shares as well as the share capital for Hong Kong companies. One of the issues presented therein refers to the numbering of shares:
each share in a company is distinguished by a number, except when all the issued shares are paid up in full and rank equally for all purposes or when all the issued shares in a class are fully paid up and rank equally for all purposes.
no shares need to have a distinguishing number as long as they remain fully paid up and rank equally for all purposes; the same applies for newly issued shares, provided that they satisfy the condition for being paid up in full and for ranking, as mentioned before, in no more than 12 months from their issue date.
A member can provide proof for the shares he holds by means of a title to the shares. This is a certificate issued by the company that states the number of shares of that particular member. The certificate of proof of share ownership in the absence of contrary evidence.
How are shares allotted, issued and transferred?
The company director can, in accordance with the relevant sections of the Companies Ordinance Part 4, allot shares or grant rights with company approval. The director can exercise this power wither to allow shares or to convert any security into share sin the company. A key issue for this to be possible is for the company to give approval in advance for these actions by means of a resolution. The power of the director in regards to the shares of the company can be for a particular activity, a one-time allotment or for the general exercise of power to allot shares. Moreover, the right can be subject to certain conditions or, alternatively, it can be unconditional.
The director’s ability to perform this act can be revoked or it can be subject to a change/variation at any time also through a resolution. There are two cases in which a company director is allowed to allot shares or grant rights after an approval expired: when the shares are allotted under an offer, agreement or option that was granted by the company before the approval expired or when the approval might require the effective allotment of shares after the director’s approval had expired.
Limited companies in Hong Kong are required to submit to the Registrar a return or allotment of shares within one month after it takes place. This is done in a specified form and will include a capital statement with the following information: the number of allotted shares, the name and address of the allotees, the amount of the capital increase, of applicable after the allotment. When shares are allotted as fully paid up (with or without capitalization), the return will include information on the amount paid on each share and the particulars of the company resolution that authorized the capitalization of the allotment.
Hong Kong limited companies that do not comply with the requirement to deliver an adequate return within one month after the allotment may be subject to a Court application for an extension of the period, as indicated by the Court. This extension is only possible when the Curt believes that the compliance failure took place by accident or inadvertently or if it determines that it is equitable to extend the said period.
In general, failure to register the allotment is considered an offence committed by the assigned individual (the responsible person in the company) and it is subject to level 4 fine, with an additional penalty of 700$ applicable for each day during which the offence continues further, if applicable.
Another particular issue to consider regarding the shares of a Hong Kong company is their transfer. This is possible only when the company has registered an adequate instrument of transfer. The action is lodged with the company by either the transferee or the transferor and within two months from this date the company must register the transfer or submit a notice or refusal to the transferee and the transferor. The parties have the right to request a statement for the refusal and in this case the company must send such a statement within 28 days from the receipt of the request. A transfer of shares can take place through a personal representative of the deceased when the said representative was a registered holder of the share when the instrument of transfer was executed.
The transfer of shares/that of an instrument of a transfer of shares needs to be certified by the company. This means that the said instrument of transfer bears the words “certificate lodged” or the translation thereof in Chinese as well as the proper signature.
What are the changes regarding the share capital in Companies Ordinance?
In June 2014, the Hong Kong Companies Act has undergone certain changes, some of these changes targeting the share capital of companies. Among these changes, one of the most important is the abolishment of the authorized share capital and the nominal value of shares. The authorized share capital was the maximum amount of money a company could raise when issuing shares. The nominal par value of a share represented the minimum issue price for one share in the company.
An important issue that needs to be taken into consideration is the reduction of the share capital. Investors who open a company in Hong Kong can do so in two ways:
•through a court confIrmation;
•when the reduction is supported by the directors of the company (when making solvency statements).
The second option was introduced in the new Companies Ordinance and directors can commence the process by signing a solvency statement form that will support the reduction. Moreover, the company will need to pass a special resolution within 15 days after the aforementioned statement was signed. The reduction will need to be announced in the Gazette as well as by means of issuing a notice to the creditors. When a creditor opposes this resolution, he may apply for court cancellation within five weeks after it was passed. When no such cancellation is in place, the company is required to submit after the five-week period and no later than seven weeks a return of reduction of capital of there is no court application. This form is submitted to the Registrar. The capital reduction takes place when this final form is recorded by the Registrar.
Another issue to take into consideration is the increase of the share capital. One special situation is defined in the new provisions included in the Companies Ordinance. This refers to the capital increase for a court-free amalgamated company. Two or more companies can be amalgamated and continue to operate as a single corporation without having to undergo court procedures. They can then operate changes to the share capital.
Investors who open a company in Hong Kong and wish to know more about the capital reduction or increase process can reach out to one of our agents.
Hong Kong offers a good regulatory regime along with a low tax policy. Foreign investors are allowed to own 100% of a company and there are no nationality restrictions. The situation for company formation in Hong Kong is highlighted below with the help of several statistics:
-the total number of companies incorporated in 2017 was 1,383,946 (at the end of the year), an increase of 42,723 companies compared to the previous year.
-out of the total number of companies registered in 2017, 51,002 were incorporated using the e-registry portal, the online one-stop-shop for company registration.
-in 2018, there were 1,162 regional headquarters in Hong Kong, from where the business operations in Mainland China were also coordinated, in addition to those in Hong Kong.
-out of the regional offices registered in Hong Kong in 2018, 434 parent companies were from the United States of America, followed by 421 from Japan.
For detailed information about the share capital and amendments brought to the Companies Act, you can contactour specialists in company incorporation in Hong Kong.
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