The New Companies Ordinance (Cap. 622) (“NCO”) commenced with effect from 3 March 2014; the aim of which is to enhance corporate governance, to ensure better regulation, to facilitate business and to modernize the Hong Kong company law. This brochure sets out a brief outline of the incorporation, maintenance and corporate governance of Hong Kong companies under the NCO, to which Deacons’ services would be available if needs arise.
I. Types of Companies
Only the following 5 types of companies may be formed under the NCO:-
- public company limited by shares;
- private company limited by shares;
- public unlimited company with a share capital;
- private unlimited company with a share capital; and
- company limited by guarantee with out a share capital.
Public company: if (a) it is not a private company; and (b) it is not a company limited by guarantee.
Private company: if (a) its articles of association (i) restrict a member’s right to transfer shares; (ii) limit the number of members to 50; and (iii) prohibit any invitation to the public to subscribe for any shares or debentures of the company; and (b) it is not a company limited by guarantee.
Among all of the above, the most common type of company formed is private company limited by shares (i.e. type (b) of the above).
II. Articles of Association
The articles of association become the single set of constitutional documents of a company, the contents of which may vary and may include clauses such as company’s objects, members’ liabilities or contributions, and capital and initial shareholdings, depending on the types of companies that are intended to be formed. In respect of the internal by-laws of companies (if already in existence) which are operating in Hong Kong, the NCO has not provided any relevant provisions.
III. Company Name
If a limited company has a Chinese name only, it must have “有限公司” as the last 4 characters of the registered company name. If a limited company has an English name only, it must have “Limited” as the last word of the name.
A company has a duty to disclose its status of limited liability or unlimited liability, and must state its registered name in legible characters in any communication document, transaction instrument and website of the company. In respect of a company registered with both English and Chinese names, the Companies Registry clarifies that it is sufficient for the company to display or state either the English name or the Chinese name in the manner described in the NCO. For the avoidance of doubt, the Companies Registry also makes it clear that displaying or stating both the English name and the Chinese name is equally fine if a company has bilingual names.
IV. Registered Office
A company must have a registered office in Hong Kong to which all communications and notices (including court documents) may be addressed.
V. Share Capital and Initial Shareholdings
Shares in a company have no nominal value (also known as “par value”), and, as required by the NCO, at the time of incorporation, a company with a share capital (including public company limited by shares, private company limited by shares, public unlimited company with a share capital and private unlimited company with share capital) must, by its articles of association, state the following information which includes but not limited to:-
- total number of shares that the company proposes to issue;
- total amount of share capital to be subscribed by the company’s founder members;
- amount to be paid up and the amount to remain unpaid on the total number of shares that the company proposes to issue;
- classification of shares; and
- details of shareholdings of all individual founder members of the company.
Under normal practice, a company may be formed with at least 1 member (i.e. shareholder), who may also be a director if the member is a natural person. For a private company, the maximum number of members is limited up to 50.
VII. Appointment of Director(s)
Under the NCO, there are minimum requirements for the number of director(s) to be appointed according to types of companies.
Click here to veiw table.
VIII. Appointment of Company Secretary
A company must have a company secretary who, if is a natural person must ordinarily reside in Hong Kong, and if is a body corporate, it must have its registered office or a place of business in Hong Kong.
The sole director of a private company must not also be the company secretary of the same private company, and must not also be the sole director of a body corporate which acts as company secretary of the same private company.
I. General Meetings and Resolutions
A company must, in respect of its financial year, hold a general meeting as its annual general meeting (“AGM”), except:-
- if a company has done everything that is required to be done by a written resolution; and a copy of each document is provided to each member, on or before the circulation date of the written resolution;
- a company has by resolution dispensed with the holding of the AGM;
- a company, which has only one member; or
- a dormant company (which means a company with no operating business).
A company may, by its articles of association, regulate and hold a general meeting at 2 or more locations using any technology that enables members who are not at the same place to listen, speak and vote at the meeting.
II. Annual Return
A private company must in respect of “every year” deliver to the Company Registrar an annual return within 42 days after the company’s return date, which is the anniversary of the date of the company’s incorporation.
A public company and a company limited by guarantee are governed by separate provisions.
III. Common Seal
Though not mandatory, a company may have and use a common seal; however,if the official seal is used outside Hong Kong, the requirements set out in the NCO and the articles of association must be complied with.
IV. Reduction of Share Capital
Under the NCO, if a company needs to reduce its share capital, it is not required to file application to the court; however, it must pass the solvency test and make a solvency statement; pass a special resolution for the reduction of share capital and comply with other conditions required by the NCO.
V. Share Redemption or Buy-Back
All companies are allowed to fund share redemption / buy-back out of capital subject to the solvency test under the regulations and procedures of the NCO.
VI. Amalgamation of Companies within Group
Without a court sanction, the NCO permits vertical and horizontal amalgamation of companies within group under the following circumstances:-
- a vertical amalgamation refers to a company (amalgamating holding company), and one or more of its wholly owned subsidiaries, may amalgamate, and continue as one company; and
- a horizontal amalgamation refers to two or more of the wholly owned subsidiaries of a company may amalgamate, and continue, as one company.
However, a court may still intervene if an amalgamation proposal would unfairly prejudice a member or creditor of an amalgamating company.
I. Accountability of Directors
The NCO puts emphasis on the accountability of directors who are responsible for decisions and actions.
II. Specific Delineation of Director’s Duty of Reasonable Care, Skill and Diligence
Directors are required to acquaint themselves with the directors’ duties of Hong Kong companies and must exercise reasonable care, skill and diligence, which means care, skill and diligence that would be exercised by a reasonably diligent person with:-
- the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions by the director in relation to the company, and
- the general knowledge, skill and experience that the director has.
This standard is based on both subjectivity and objectivity.
III. Prohibitions on Loan, Quasi-Loan and Credit Transaction to Director(s)
Unless approval of members has been obtained, loan, quasi-loan and credit transactions are prohibited to be made to director(s) under the following circumstances:-
- Director or a Body Corporate controlled by such a Director
A company must not provide a loan, give a guarantee, or provide security in connection with a loan to a director (including a shadow director), or a body corporate controlled by such a director.
- Specified Company
The above prohibition applies also to specified company, which means a public company, a private company that is a subsidiary of a public company, or a company limited by guarantee that is a subsidiary of a public company. In the case of specified company, the restriction is extended to cover connected persons and companies to the director, of which the NCO has provided detailed definitions for such.
As mentioned above, there are exceptions under the NCO, which allow the company to grant loans to directors or the restricted persons above.
IV. Director’s Long-Term Employment
A company must not agree to any provisions under which the guaranteed term of the employment of a director with the company exceeds or may exceed 3 years unless prescribed approval of members has been obtained. It helps to prevent the director from occupying the office which may not be in the best interest of the company.
V. Director’s Disclosure of Material Interest
If a director of a company is in any way, directly or indirectly, interested in a transaction, arrangement, contract, or a proposed transaction, arrangement or contract, with the company that is significant in relation to the company’s business, and the director’s interest is material, the director must declare the nature and extent of the director’s interest to the other directors.
VI. Unfair Prejudice to Members’ Interests
A member or a former member (at the time when the former member was a member) may start a petition to the Court for unfair prejudice on the following matters:-
- the company’s affair are being or have been conducted in a manner unfairly prejudicial to the interests of the members generally or of one or more members (including the member); or
- an actual or proposed act or omission of the company is or would be so prejudicial.
The NCO sets out a list of remedies that the Court may order as it thinks fit for giving relief in respect of the matter that is considered as unfairly prejudicial to the member who makes the petition, e.g. the Court may make an order restraining the doing of the act; or requiring the doing of an act.