Share Capital under Hong Kong Company Law

The vast majority of companies incorporated in Hong Kong are companies limited by shares. A company limited by shares is a corporation. Like corporations in many other jurisdictions, the liability of a shareholder is limited to the amount unpaid on the shares held by that shareholder. In this article, for ease of reference, we refer to a Hong Kong company limited by shares simply as a "Hong Kong registered company".

Ownership Restrictions

Hong Kong laws do not generally restrict ownership of the shares of Hong Kong registered companies. There are, for example, no restrictions on the extent of foreign ownership of shares and it is possible for a foreigner (i.e. a non-Hong Kong person) to own 100% of the shares of a Hong Kong registered company. However, ownership of certain regulated industries, including financial services and telecommunications businesses, may be subject to regulatory approvals.

Minimum Shareholding

A Hong Kong registered company must have at least 1 shareholder. Except in certain regulated industries, there are no minimum requirements as to issued or paid-up share capital and it is possible to incorporate a company with HK$1 of issued and paid-up share capital. There are no adverse consequences under Hong Kong tax laws for a Hong Kong registered company as a result of thin capitalization.

Nature and Classes of Shares

With effect from 2014, shares of a Hong Kong registered company no longer have a nominal or par value. As a result, there is no longer a concept of authorized share capital, being the maximum amount of nominal capital which a Hong Kong registered company may issue. Now, shares of the same class may therefore be issued in different series, each series requiring a different amount to be paid thereon.

Shares of a Hong Kong registered company may be divided into different classes. Generally, a Hong Kong registered company will have a class known as "ordinary shares". An ordinary share will typically have the right to vote, the right to participate in distributions from profits and the right to participate in liquidation dividends on a winding-up of the company.

Hong Kong registered companies may choose to have more than one class of share. If a Hong Kong registered company has more than one class of share, the rights of each class will be set out in the articles of association. These rights may, for example, include preferences as to dividends or super voting rights. It is possible to establish classes of redeemable shares but redeemable shares can only be issued if there is at least a class of issued shares that is not redeemable. Hong Kong company law however, restricts the ability to redeem shares in order to protect creditors.

Issuance of Shares

Generally, the directors of a Hong Kong registered company have the power to allot and issue shares in the company or grant rights to subscribe for, or to convert any security into, shares in the company. However, by law, shareholders have a right of pre-emption. Under this right, if shares will not be issued to existing shareholders in proportion to their existing shareholdings, then the directors must first obtain the approval of the shareholder.

There are no fees payable to issue shares. With effect from 2012, Hong Kong abolished capital duty on the allotment of new shares.

Shares may be issued for cash or non-cash consideration.

A Hong Kong registered company must register each allotment of shares (other than the shares allotted to the persons named as the founder shareholders in the articles of association) with the Companies Registry.

Transfer of Shares

Shares of a Hong Kong registered company are transferrable in accordance with the articles of association of the company. The articles of association of a Hong Kong private company will normally provide that any transfer of shares will be subject to the approval of the board of directors of the company.

Stamp Duty Upon Transfer of Shares

Transfers of shares of a Hong Kong registered company are normally subject to Hong Kong stamp duty. Under the Stamp Duty Ordinance, the rate of ad valorem stamp duty is 0.1% of the amount of the consideration for the transfer or the value of the shares being transferred, whichever is higher. Stamp duty is payable by each of the transferor (seller) and the transferee (buyer). A transfer must be supported by an instrument of transfer signed by both the transferor and the transferee and delivered to the company. The instrument of transfer must be endorsed by the Commissioner of Stamp Duty to indicate that ad valorem stamp duty has been paid, failing which the company should not register the transfer.

No Notice of Share Transfers

Unlike allotments of shares, there are no requirements to file a notice of a transfer of shares with the Companies Registry. As a result, details of the current shareholders of a company may not be available from a search of the Companies Registry. However, every Hong Kong registered company must maintain a register of shareholders. The register is available for inspection by the public.

Cross-Holding of Shares

Under the Companies Ordinance, except in limited prescribed circumstances, a corporation cannot hold shares in a Hong Kong registered company if the corporation is a subsidiary of the Hong Kong company. So, for example, if A Co., a Hong Kong registered company, owns 100% of the shares of B Co., B Co. cannot own any of the shares of A Co.