December, 2005, the Hong Kong government announced a
major overhaul of the territory's Companies Ordinance,
in what promises to be the most substantial law reform
exercise in its history.
for Financial Services and the Treasury, Professor K
C Chan, announced in mid-January 2011 that, having been
gazetted on Janaury 14, 2011, the Companies Bill was
due for its first Legislative Council for its first
reading on January 26.
Chan said: "The Companies Bill is an important
piece of legislation for fostering Hong Kong's status
as a major international business and financial centre.
The gazetting of the bill marks a major milestone in
our work to modernize company law."
Companies Bill aims to achieve four main objectives,
namely, enhancing corporate governance, ensuring better
regulation, facilitating business and modernizing the
law," he added. "Rewriting the Companies Ordinance
(CO) allows us to leverage the developments regarding
company law in other comparable jurisdictions and enhance
government expects that the Bill will be enacted during
the 2010/11 legislative session.
rewrite of the CO started in mid-2006, and three public
consultations were conducted to gauge views on a number
of complex subjects. In the course of the rewrite exercise,
the Financial Services and the Treasury Bureau benefited
from the advice of the Standing Committee on Company
Law Reform as well as four advisory groups and a joint
government/Hong Kong Institute of Certified Public Accountants
working group, which was set up to advise on specific
areas of the rewrite.
of the measures introduced by the Bill to enhance corporate
governance include: improving the accountability of
directors so as to enhance transparency and accountability,
and clarifying the directors’ duty of care, skill
and diligence; emphasizing shareholder engagement in
the decision-making process; improving the disclosure
of company information; and strengthening auditors’
addition, better regulation will be ensured by means
of the accuracy of information on the public register,
an improvement to the registration of charges scheme,
and a strengthening of the enforcement regime through
the Registrar. There will be easier reporting for small-
and medium-sized enterprises (SMEs), while SMEs will
also be able to prepare simplified financial and directors’
to the Companies Ordinance Reforms
on British law dating back to the 19th century, the
ordinance has until now been amended on a piecemeal
basis, and it is a widely held belief that Hong Kong's
company laws have become outmoded compared to other
financial jurisdictions. According to former Companies
Registrar Gordon Jones, the only way in which future
corporate governance reforms will be possible will be
through a complete re-write of the laws.
got to the stage where we really can't tackle the remaining
[corporate governance] items in piecemeal reform," Mr
Kong has previously reviewed the companies statute,
but a report released in 1997 offered only general principles
for reform, rather than comprehensive nuts and bolts
December 2008, the Standing Committee on Company Law
Reform (SCCLR) published its 2007-08 annual report.
During the reporting period, the SCCLR continued to
focus its work on the rewrite of the Companies Ordinance
and considered the recommendations of four dedicated
advisory groups established to advise on specific topics
of the rewrite. The major topics considered by the SCCLR
included the following:
guiding principles for the rewrite;
incorporation of companies;
share capital and debentures;
directors and officers;
company administration and procedures;
arrangements, reconstructions and takeovers;
inspection and investigation of companies;
functions of the Registrar of Companies; and
offences and punishment.
part of the Administration's efforts to engage the public
in the rewrite exercise, a series of public consultations
on a number of complex issues of the ordinance have
been launched since 2007.
completed the first topical consultation on the accounting
and auditing provisions of the Companies Ordinance in
the second quarter of 2007 and published the consultation
conclusions in March 2008. The second public consultation
on company names, directors' duties, corporate directorship
and registration of charges was completed in June and
we plan to publish the consultation conclusions soon
within December. The third and last consultation on
share capital, the capital maintenance regime and statutory
amalgamation procedure ended in September and we aim
to publish the consultation conclusions by early 2009,"
a spokesman said.
SCCLR was formed in 1984 to advise the Financial Secretary
on necessary amendments to the ordinance and other relevant
legislation, in order to ensure that such legislation
continues to meet the needs of the business community.
The membership of the SCCLR is drawn from a wide spectrum
of sectors, including lawyers, accountants, company
secretaries, businessmen, academics and representatives
of government departments and regulatory bodies.
February 2009, the government released the third public
consultation conclusions on the Companies Ordinance
rewrite covering share capital, capital maintenance
regime and statutory amalgamation procedure. A total
of 40 submissions were received during the three-month
consultation ending on September 30, 2008.
spokesman for the Financial Services and the Treasury
Bureau said: "After careful consideration in consultation
with the Standing Committee on Company Law Reform (SCCLR)
of all the public feedback, a number of recommendations
are adopted. One of key recommendations is the migration
from the current par value system to a mandatory no-par
value share regime."
spokesman added: "Under the existing regime, companies
having a share capital are required to have a par or
nominal value ascribed to their shares. Respondents
generally agreed that the concept of par was no longer
useful and might even be misleading. In addition to
providing a statutory deeming provision to facilitate
the migration to no par, we will allow a period of 24
months for companies to review their arrangements before
migration," the spokesman said.
recommendation is to remove the requirement for authorised
capital - i.e. the maximum amount a company is permitted
to raise by issuing shares.
will simplify the process of raising capital by companies.
Nevertheless, a company, if it so wishes, may specify
the maximum number of shares it can issue in its Articles
of Association," the spokesman said.
recommendations involve streamlining and rationalising
some of the complex capital maintenance rules in the
Companies Ordinance, including those on reduction of
capital, purchase by a company of its own shares and
financial assistance by a company to another party for
the acquisition of its own shares, and introducing a
court-free statutory amalgamation procedure for the
amalgamation of wholly-owned intra-group companies.
reforms aim at simplifying the law and reducing business
costs while at the same time protecting the interests
of creditors and minority shareholders.
Kong’s government, releasing the conclusions of
the first phase of consultation on the draft of the
Companies Bill, has said that it is prepared to adopt
a number of proposals regarding the issues highlighted
particular, it noted the divergent views on the abolition
or retention of the headcount test used in company privatization
or restructuring plans for approving a scheme of arrangement.
On balance, it decided that there are merits in retaining
the headcount test after considering the importance
of protecting the interests of minority shareholders
and small creditors.
it said, the court will retain the discretion to dispense
with the test for members’ schemes in special
circumstances, such as where there is evidence that
parties opposing the scheme have unfairly influenced
the result of the vote by share splitting.
regard to another recommendation to restrict access
to directors' residential addresses, and to the full
identification numbers of directors and company secretaries
kept at the public register of the Companies Registry,
the government pointed to the rising concerns over the
protection of personal privacy and information as reflected
in the views of the majority of respondents.
has therefore been agreed that those residential addresses
and full identification numbers should not be automatically
disclosed on the public register. Nevertheless, to strike
a balance between protecting privacy and access to such
information on bona fide grounds, it has also been agreed
that certain organizations/persons, including public
authorities, specified regulators, liquidators and provisional
liquidators as well as those who have obtained a court
order, can have access to those details.
accepted recommendations include subjecting private
companies which are subsidiaries of a listed or public
company to more stringent regulations, similar to public
companies, for the purposes of the provisions on fair
dealing by directors. This covers, for example, the
prohibition on loans and credit transactions in favour
of directors or directors of a holding company, or another
company controlled by one or more of its directors.
addition, the existing right for shareholders to take
common law derivative action (CDA) on behalf of a company
will be retained. Professional bodies supported the
retention of CDA because it would provide necessary
protection to shareholders in Hong Kong for obtaining
remedies in relation to non-Hong Kong companies.
October 25, 2010, the conclusions of the Second Phase
Consultation on the Draft Companies Bill were released
by the Financial Services & the Treasury Bureau.
The government will require a solvency test and compliance
with specified procedures for financial assistance to
be given by a company to a third party for acquisition
of its own shares.
This arrangement will be applicable to both private
and public companies. Other proposals to be adopted
the investigatory powers of an inspector appointed
by the Financial Secretary to investigate into the
affairs of a company by requiring a person to preserve
records and documents, and providing better safeguards
for confidentiality of information and protection
of informers in relation to the investigations;
empowering the Registrar of Companies to obtain
documents and explanations for ascertaining whether
there is misconduct relating to the provision of
false or misleading information to the Companies
Registry; and requiring a company to explain upon
request its refusal to register a transfer of shares
The government is also proposing to remove the option
for large private companies to prepare simplified financial
reports, even if they have members' approval.
Suggestions about the preparation of separate directors'
remuneration reports for listed and unlisted companies
incorporated in Hong Kong will not be adopted either,
considering many respondents' reservations.
The Securities & Futures Commission and Hong Kong
Exchanges & Clearing have been invited by the government
to keep reviewing the compliance and effectiveness of
the listing rules on disclosure of directors' remuneration.
The bureau said it has carefully considered all the
comments received and has also consulted the Standing
Committee on Company Law Reform.
A total of 57 submissions were received during the three-month
consultation ending August 6, 2010.
following information describes existing Hong Kong company
Kong Types Of Company
Hong Kong businesses normally trade as either limited
companies, limited partnerships or sole proprietorships.
Being a common law jurisdiction the concept of a trust
is readily understood and widely used. The tight secrecy,
minimal corporate disclosure and loose administrative
requirements which characterize some island offshore
common law jurisdictions and make these territories
attractive locations in which to base commercial operations
have no counterpart in Hong Kong, whose company and
trust law are virtually identical to their United Kingdom
found a business company in Hong Kong, it is necessary
to register with the Business Registration Office of
the Inland Revenue Department within one month of the
commencement of business. The registration fee for a
one-year certificate is normally HKD2,450 (made up of
a HKD2,000 fee and a HKD450 levy), but a special concession
was introduced in 2008 waiving the fee for business
registration certificates with a commencement date in
2008-09. This waiver was reintroduced from August 1,
2009 for a further two-year period (ending July 31,
2011). Businesses who registered from April 1, 2009
until 31 July, 2009 had to pay the full HKD2,450 fee/levy.
In general the minimum capital requirements for a business
corporation are very low or nonexistent and all legal
business forms are open for foreign participation
for incorporation should be made to the Companies Registry
(13th - 14th floors, Queensway Government Offices, 66
Queensway, Hong Kong, tel: (852) 2867 2587). Normally,
a Certificate of Incorporation of a company limited
by shares will be issued in 4 working days. It is also
possible to purchase a shelf company, i.e. an already
incorporated private company, through an accounting
or law firm or through a secretarial company. It costs
about HKD6,400 (USD800) and takes only a few days. Further
time is required (about 3-4 weeks) if the name of the
shelf company is to be changed.
January 2009, a new Receipt and Despatch Centre, operated
by the Business Registration Office of the Hong Kong
Inland Revenue Department, opened to provide a 'one-stop'
service for company incorporation and business registration
in the territory. The facility, which is located near
the Companies Registry (CR) and was jointly opened by
the Commissioner of Inland Revenue, Alice Lau, and the
Registrar of Companies, Ada Chung, aims to make the
procedure for business registration applications by
a company much more convenient.
on the new centre, a government spokesman said: "With
the opening of the new centre, a company can immediately
submit an application for business registration after
obtaining a Certificate of Incorporation from the CR.
The company may collect its Business Registration Certificate
at the centre the next working day or opt to receive
it by post. Notifications of changes of business registration
particulars can also be filed with the centre."
CR and the IRD have been exploring ways to streamline
company incorporation and business registration procedures
to enhance customer services. The opening of the centre
is one of the initiatives."
effect from February 21, 2011, Hong Kong’s Companies
Registry and the Inland Revenue Department (IRD) jointly
launched a new regime of one-stop company and business
registration, together with a one-stop notification
of change of company particulars.
Under the new regime, the Registry will process the
simultaneous business registration applications and
notify IRD of changes of the relevant company particulars.
new electronic incorporation service and a 24-hour e-Registry
portal, enabling companies be incorporated online, anywhere
in the world, was launched
in March 2011.
Kong Private Company Limited by Shares
entities are governed by the provisions of the Hong
Kong Companies Ordinance 1984 which brought the territory's
company law into line with United Kingdom company law.
Their key features are as follows:
minimum number of subscribers and shareholders is
two; if the number of shareholders falls to one,
the remaining shareholder is personally responsible
for the company debts;
is no minimum authorized or issued share capital
of no par value and bearer shares are not permitted;
can be issued at a premium or discount (if sanctioned
by the court);
company may purchase its own shares out of distributable
shareholders, directors and secretary are permitted;
minimum number of directors is two; corporate directors
are permitted (unless the company is a public company);
articles can provide that the directors' liability
for the company be unlimited;
company must have a secretary which can be an individual
or a corporate body, but must be resident in Hong
can be held anywhere in the world;
must be prepared, filed and audited;
migration and re-domiciliation of corporate entities
to or from a foreign jurisdiction is not permitted;
returns must be filed.
of Association of a private company must restrict
the right to transfer shares, must limit the number
of members to fifty (excluding employees), must prohibits
any invitation to the public to subscribe for any
shares or debentures of the company.
Hong Kong company must register annually under the
Business Registration Ordinance. If the application
for re-registration id delivered within 42 days after
the anniversary of incorporation the fee is HKD105.
However, the annual fee rises considerably if the
registration documents are delivered after 42 days,
up to a maximum of HKD3,480 if the registration documents
are delivered more than nine months after the anniversary
Hong Kong Public Company Limited by Shares
public company (plc) is any limited company which is
not a private company.
Hong Kong Branch of Overseas Company
Overseas companies starting businesses in Hong Kong
can form a private company limited by shares, as above,
or can simply establish a branch.
a company incorporated outside Hong Kong establishes
a place of business in Hong Kong, it must lodge the
following documents with the Registrar of Companies:
Certified copy of its charter or memorandum and
articles of association;
of directors and the company secretary;
and address of a resident of Hong Kong authorised
to accept notices on behalf of the company;
of attorney or other document appointing a Hong
of principal place of business in Hong Kong and
addresses of registered office and principal place
of business in the company's country of incorporation;
Certified copy of the certificate of incorporation.
company is also required to file a copy of its financial
statements once a year. However, an application may
be made to the Registrar of Companies who may grant
exemption from filing accounts based on certain criteria
and the production of prescribed documents.
branch office is relatively easy to set up but is open
to greater potential liability than a limited company
since it is not treated in Hong Kong law as a separate
some countries, branches have tax advantages as against
limited companies, for a foreign parent, but not in
Hong Kong: the territorial basis of taxation means that
the branch will be taxed exactly as a limited company,
on Hong Kong-source income (see Direct
Hong Kong Limited
The law is contained in the Limited Partnership Ordinance.
Limited partnerships have the following characteristics:
maximum number of partners permitted by law is 20;
partnerships consist of general and limited partners;
there must be at least one general partner whose
liability for the firms debts is unlimited; the
remaining partners are limited partners whose liability
is limited to the amount of their unpaid share capital;
limited partner cannot reduce or take out his share
capital whilst the partnership continues in existence
and is not allowed to take an active part in the
management of the partnership nor bind the same
vis a vis third parties in default of which provision
he assumes the liability of a general partner;
partnerships must be registered at the Companies
Registry under the Limited Partnership Ordinance
in default of which they are deemed to be general
partnerships with unlimited liability for each and
partnerships are required to obtain a business license
under the provisions of the Business Registration
Ordinance which license costs USD340 per annum.
Hong Kong Sole Proprietorship
in the UK, a sole proprietorship has the nature of a
partnership with one partner, and the owner does of
course have unlimited liability for his firm's debts.
As an unincorporated business, a sole proprietorship
is subject to profits
tax in exactly the same way as any other business;
but the rate of tax is 15% instead of 16.5% on taxable
Hong Kong Trusts
law in Hong Kong is virtually identical to English trust
law and is contained in the provisions of the Trustee
Ordinance (an Ordinance which is modeled on the English
Trustee Act 1925).
fixed and discretionary trusts may be settled in Hong
Kong. Documents do not have to be registered and there
are no statutory requirements in Hong Kong for a trust
to make annual returns, submit audited financial statements,
etc., unless it is carrying on business in Hong Kong.
most offshore jurisdictions Hong Kong has not tampered
with trust laws in order to make the jurisdiction a
more attractive jurisdiction in which to create a settlement.
Hong Kong will therefore not normally be a suitable
location for an asset protection trust.