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Company Law

What is company law? It is the law in relation to the governance of companies in the context of company incorporation, directors and shareholders. Company law is governed by the 'Companies Ordinance' Cap 32 in Hong Kong. A company is a legal entity that is separate from its owners or shareholders and is formed by filing certificates or articles to the Company Registry. Companies are governed by shareholders, who elect directors, who elect officers to run the company.

Introduction

For individuals wishing to set up a business in Hong Kong they must first choose a company name in order to differentiate themselves from other registered companies. However, as simple as this may sound, there are restrictions on what company name you can use. For example a company cannot register a name that already appears in the Registrar's index of company names or the same as that of a body corporate incorporated under the Ordinance. The name is also subject to other certain restrictions, it can not use a company name that, in the opinion of the Chief Executive, would constitute a criminal offence or think it is offensive or contrary to public interest. 

If a company registers a name which included a registered trade mark of another business, it would be open to an action for infringement of such trademark. It is therefore good practice to request your solicitor to inspect the trade marks register before applying for registration. 

When incorporating a company, a 'memorandum of association' must be created. Its historical principal function was to set out its reason for existence and to regulate its dealing with outsiders. A memorandum of association contains the name of the company; the registered office; the objects of the company (i.e. what its purpose is set out to do); the liability of the members (i.e. whether it is a limited company) and also the authorised share capital of the company. 

Pursuant to the Companies Ordinance, a Hong Kong company must be issued with a least one director, one secretary and at least one shareholder. Most companies will be created with share capital. In turn, those companies must be created with shareholders, although as previously mentioned, it is possible to open up a company with only one shareholder. A company's share capital must have nominal, financial value attributed to them. The relevant shareholder will normally agree to pay the company an amount at least equivalent to the nominal value of the shares subscribed for. 

A company must have an 'articles of association'. This represents the main constitutional document of a company and regulates the company's internal affairs. The articles contain provisions that relate to directors' powers, proceedings at members' meetings, conduct at board meetings etc. 

The Companies Registry will examine documents that have been submitted in application to incorporate a company. On approval of the name and documents, a certificate of incorporation will then be issued to show that the company has been incorporated on a particular date. This is known as the 'certificate of incorporation'. From this date onwards, the company then becomes a legal entity for all intents and purposes. 

After incorporating a company, board meetings should be conducted so that the approval of any service (employment) contracts, the allotment of shares over and above those allocated in the memorandum can be discussed. Auditors should also be appointed to the company, along with bankers.

If you wish to set up a company in Hong Kong you may find the below information useful:-

Company Requirements

The most common way of forming a company is to buy a shelf company and then to modify it to one's own purposes. The process for forming a company from scratch is detailed below, however, some believe it is a more expensive and time-consuming option than buying 'off the shelf' and can take from three to six weeks to establish. A company requires:-

  1. A minimum of one shareholder who may be corporations but not necessarily being resident in Hong Kong.
  2. A minimum of one director, who may also be the shareholder as above.
  3. A company secretary, who unlike the directors and shareholders, must be resident in Hong Kong. (This function can be taken up by a solicitor who will comply with the necessary statutory procedures and duties)
  4. A qualified auditor, who will review the company's financial position and audit the financial statements for presentation to members at the annual general meeting.
  5. A registered office in the same country as that of incorporation. (A solicitor's office can be used if needed).

Any company is a legal entity that owns the business with which the organisation has been created to undertake and which employs the people who work in that organisation. It has a completely separate legal personality that allows it to perform, and be acted against, just as if it were an individual person.

Types of Companies

Private Companies

They have three major restrictions;

  1. They are restricted with regards to the rights of its members to transfer their shares.
  2. They have a 50-person limit on the number of members.
  3. They have a prohibition on any invitation to the public to subscribe for any shares or debentures of the company.

Public Companies

They are those which do not have the above restrictions of private companies.

Listed Companies are public companies whose securities are traded on the Stock Exchange of Hong Kong.

Limited Companies

They are those in which the liability of its members is limited. There are 2 types:-

  1. Companies limited by shares
  2. Companies limited by guarantee with share capital.

Unlimited Companies

They are those in which the liability of its members is not limited. In the event of winding-up, members are personally liable for all the debts and liabilities incurred by the company.

Overseas Companies

They are those not incorporated in Hong Kong but are required, under the Companies Ordinance, to be registered and have appointed an authorised representative.

Setting up Companies in Hong Kong

There are two stages containing the procedures necessary in legally setting up the most common type of company- a private limited company - in Hong Kong. These are incorporation and registration.

Incorporation

The application to incorporate a limited company must be made to the Registrar of Companies.

A check must then be undertaken to see if the proposed name for the company has already been registered. If it has, an alternative name will need to be used.

The memorandum and articles of association of the company will need to be submitted along with a covering letter and a statutory declaration of compliance made by a solicitor.

The Memorandum of Association should contain the company's name in either Chinese or English and detail its registered office, share capital and number of shares allotted to each subscriber (minimum one). All initial subscribers should sign the memorandum and have it witnessed.

The Articles of Association govern the regulations of the company. If wished it can make its own or adopt a 'Table A' as laid out in the Part II of the Companies Ordinance Cap32.

The memorandum and articles of association, declaration of compliance and registration fee must be submitted, upon which a certificate of incorporation will be issued. It normally takes 6 working days for the application to be processed. Registration Fees vary depending on whether the company has share capital or not. Companies without share capital can pay as little as HK$170, whilst those with share capital pay a fixed fee of HK$1720 plus HK$1 for every HK$1000 of share capital, subject to a maximum of HK$30,000.

Registration

Every company incorporated in Hong Kong must be also be registered under the Business Registration Ordinance (BRO) within 30 days of incorporation or the date of commencing business, whichever is the later. 

The Business registration certificate which is anually renewable must be obtained from the Inland Revenue in a procedure which takes around 7 days, the cost of the certificate is currently HK$2450.

Setting up an Offshore Company

There are many reasons why you may want to set up an offshore company, the most obvious is for tax planning. There are many offshore tax havens, for example Jersey, the Cayman Islands and the British Virgin Islands (BVI).

Using the BVI as an example, International Business Companies are exempt from all BVI income tax. The BVI has no capital gains, capital transfer, estate or inheritance taxes. All instruments relating to transactions in respect of IBC shares and debt obligations, to property transfer to or by an IBC, and to transactions relating to the business of an IBC are exempt form BVI stamp duty.

Incorporation and registration are similar to the procedures described for Hong Kong. But the following differences should be noted:

  • A minimum of one shareholder is needed who may be a corporation, not necessarily being resident in BVI;
  • A minimum of one director, who may also be the shareholder as above;
  • It is recommended that a professional Company Secretary is employed, who will comply with the necessary statutory procedures and duties;
  • Again, a qualified auditor in the offshore jurisdiction is recommended, who will review the company's financial position and audit the financial statements for presentation to members at the Annual General Meeting (AGM);
  • A registered office in the same country as that of incorporation. A local office can normally be arranged.