13 May 2014
The new Companies Ordinance (the "New Ordinance") commenced operation on 3 March 2014. The New Ordinance is a significant milestone for the development of company law in Hong Kong. The changes introduced by the New Ordinance are extensive and will repeal all the provisions in the existing Company Ordinance (the "Old Ordinance") concerning existing companies (except for winding up and insolvency provisions which will remain under the Old Ordinance). This newsletter outlines some of the main corporate law requirements under the New Ordinance applicable to a Hong Kong company. Companies may be private or public and unless otherwise stated this newsletter refers to Hong Kong private limited companies. The Companies Ordinance does not affect liquidation and winding up provisions that are currently in effect.
2. ABOLITION OF MEMORANDUM OF ASSOCIATION
2.1 Companies are no longer required to have a Memorandum of Association as a constitutional document. Instead, companies are only required to have Articles of Association, which must state:
2.1.1 the company's name;
2.1.2 the liability of members (i.e. limited or unlimited);
2.1.3 the level of liability (i.e. amount unpaid or guarantee);
2.1.4 the number of shares to be issued on formation and the maximum number of shares;
2.1.5 the company's objects or purpose, if that company is licensed by the Registrar to dispense with using "limited" in its name.
2.2 The Financial Secretary has published a set of "Model Articles". The Model Articles will apply to all companies, insofar as they are not excluded or modified in the Articles of Association.
2.3 There will be no transitional arrangements in place. Instead, all Memorandums of Association for existing companies will be regarded as provisions to the Articles of Association.
3. ABOLITION OF PAR VALUE OF SHARES
3.1 The concept of par values, along with nominal values, share premiums, and the requirement for authorized capital, will be retired. Companies may, however, impose a restriction on the maximum number of shares that may be issued by the company.
3.2 There will be no transitional arrangements in place as all references to par values and other associated concepts will no longer have effect.
4. EXECUTION OF DOCUMENTS BY COMPANIES
4.1 A company may execute documents:
4.1.1 under the common seal (i.e. the common seal is affixed);
4.1.2 if the company has only one (1) director, then by that sole director; or
4.1.3 if the company has more than one (1) director, then either by two (2) directors, or by a director and the company secretary.
4.2 Documents executed without a common seal must state that the signatories execute those documents on behalf of the company.
5. CORPORATE DIRECTORSHIPS
5.1 Although private companies may continue to have corporate directorships, at least one (1) director must be a natural person.
5.2 A grace period of six (6) months applies to allow private companies to appoint at least one (1) natural person as director.
5.3 The Registrar of Companies may direct a company to comply with the natural person requirement. If a company fails to comply with this requirement, the company, and every responsible person, commits an offence, and is liable to a fine of HK$100,000, and a further fine of HK$2,000 for each day the company remains in breach.
6. PUBLIC RECORDS
6.1 The residential addresses, as well as personal identification information, of company directors and secretaries will no longer appear in the public register for new companies.
6.2 Information relating to existing companies will continue to be displayed. The information, can, however, be withheld or masked for a fee.
7. WRITTEN RESOLUTIONS
7.1 If at least 5% of members (or other number stated in the Articles) agree, a company may pass resolutions as written resolutions.
7.2 Written resolutions are to be circulated to all members for voting, and may be considered in lieu of meetings.
8. GENERAL MEETINGS
8.1 An annual general meeting (“AGM”) must be held in respect of each financial year unless:
8.1.1 everything that is required to be done at the meeting is done by a written resolution and copies of the documents required to be laid or produced at the meeting are provided to each member of the company on or before the circulation date of the written resolution;
8.1.2 the company is a single member company;
8.1.3 the company has dispensed with the holding of AGMs by a written resolution or a resolution at a general meeting passed by all members. The company is required to deliver a copy of the resolution to the Registrar of Companies within fifteen (15) days; or
8.1.4 the company is a dormant company.
8.2 General meetings may be held via electronic means as long as members are able to listen, speak and vote.
8.3 Companies limited by guarantee and private companies that are not public company subsidiaries, must in respect of each financial year, hold its AGM within nine (9) months after the end of its accounting reference period, which is the period by which the financial year is to be determined. All other companies must hold the AGM within six (6) months after the end of its accounting reference period.
9.1 The new Companies Ordinance allows for more companies to be eligible to produce simplified financial reports and director reports.
9.2 The following companies, if they are not banks, insurance companies or stockbrokers, may be eligible to prepare simplified financial reports and director reports for a financial year:
9.2.1 private companies or holding company of a group of private companies that meets two of the following three conditions:
18.104.22.168 total revenue or aggregate total revenue not exceeding HK$100 million;
22.214.171.124 total assets or aggregate total assets not exceeding HK$100 million; or
126.96.36.199 less than one hundred (100) employees or aggregate employees;
188.8.131.52 the first financial year following incorporation for companies formed under the new Companies Ordinance;
184.108.40.206 the first financial year following the introduction of the New Companies Ordinance for existing companies; or
220.127.116.11 two (2) consecutive financial years if a company does not meet the criteria set out in 18.104.22.168 and 22.214.171.124 above;
9.2.2 private companies that do not have or are subsidiary companies, with unanimous member approval;
9.2.3 guarantee company or holding company of a group of guarantee companies with total revenue or aggregate total revenue not exceeding HK$25 million in a financial year; and
9.2.4 private company or a group of private companies which does not satisfy the above size criteria, with 75% member approval and no member objection.
9.3 Other private companies may adopt simplified reporting with respect to a financial year only with unanimous shareholder approval.
9.4 You should speak with your accountant and auditor in greater detail as to what is simple reporting, and how this applies in your circumstances.
10. AUDITOR'S RIGHTS
10.1 Auditors may require information from a wider range of persons, including:
10.1.1 company officers;
10.1.2 the company’s Hong Kong subsidiaries;
10.1.3 a Hong Kong subsidiary’s officers;
10.1.4 persons holding or accountable for any of the accounting records of the company or its subsidiary; or
10.1.5 any of the above persons or subsidiary at the time to which the information or explanation relates.
10.2 Persons failing to comply with auditor requests commit an offence and are liable to a fine of up to $25,000, and further fines of up to $700 for each day the person does not comply.
10.3 Provided there is no malice, auditors are not liable to any action for defamation in respect of statements made in the course of performing their duties.
11. INTRODUCTION OF NEW FORMS
11.1 As some content in existing forms becomes redundant or inappropriate, they will be replaced upon the introduction of the new Companies Ordinance on 3 March 2014.
11.2 Whilst some older forms can be used during the first six (6) months, the replacement of others will take immediate effect from 3 March 2014, including:
11.2.1 Form NDR1 - application for deregistration;
11.2.2 Form NM2 - Memorandum of Satisfaction or Release of Property from Charge;
11.2.3 Form NNC1 and NNC1G – forms for incorporation new companies; and
11.2.4 Form NN12 - statement of approved name for carrying on business in Hong Kong by a Non-Hon Kong company.
This newsletter summarises various aspects of the new law which we thought may be of interest to you. If you need clarifications or require additional information of fiscal and corporate nature on Hong Kong entities, please do not hesitate to contact us.
Lextray (Asia) Pte. Ltd.
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#11-01 The Globe
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